Net Investment Income Tax (NIIT): The 3.8% Tax, Thresholds and What Counts
Figures checked November 14, 2026 against primary sources
The net investment income tax (NIIT) is a 3.8% federal tax on investment income that applies once your modified adjusted gross income (MAGI) passes a fixed threshold. For an individual, the tax is 3.8% of the smaller of your net investment income or the amount by which your MAGI exceeds $200,000 (single or head of household), $250,000 (married filing jointly or qualifying surviving spouse) or $125,000 (married filing separately). It is figured on Form 8960. Below: how the calculation works, what counts as net investment income and what does not.
NIIT at a Glance
| Filing status | NIIT threshold (modified AGI) |
|---|---|
| Single or head of household | $200,000 |
| Married filing jointly or qualifying surviving spouse | $250,000 |
| Married filing separately | $125,000 |
The same dollar amounts are written into the statute, 26 U.S.C. 1411(b), so they do not change from year to year.
How the 3.8% Is Figured
The IRS puts the rule this way in the Instructions for Form 8960 (2025): individuals who have for the tax year "(a) MAGI that's over an applicable threshold amount, and (b) NII, must pay 3.8% of the smaller of (a) or (b) as their NIIT."
In practice that means two numbers are compared:
- Your net investment income for the year, and
- The excess of your MAGI over your threshold from the table above.
The 3.8% applies to whichever is smaller. If your MAGI is at or below your threshold, there is no excess, so there is no NIIT, however much investment income you have. If your MAGI is well above the threshold, the tax is limited by your net investment income. The statute says the same thing in 26 U.S.C. 1411(a)(1): a tax "equal to 3.8 percent of the lesser of" net investment income or the excess of MAGI over the threshold amount. The NIIT is charged in addition to regular income tax.
What Counts as Net Investment Income
According to the Instructions for Form 8960 (2025), net investment income (NII) generally includes gross income from:
- Interest
- Dividends
- Annuities
- Royalties
- Rents
These count unless they come from the ordinary course of a trade or business that is not a passive activity and not a business of trading in financial instruments or commodities.
IRS Topic no. 559 adds that NII includes net gains from the disposition of property "such as stocks, bonds, mutual funds, and real estate (to the extent taken into account in computing taxable income)", income from a trade or business that is a passive activity, and income from trading in financial instruments or commodities. To arrive at NII, these items are reduced by the deductions properly allocable to them.
For how the gains and dividends themselves are taxed before the NIIT, see our guides to capital gains tax and how dividends are taxed.
What Does Not Count
The Instructions for Form 8960 (2025) list these examples of excluded items:
- Wages
- Unemployment compensation
- Alaska Permanent Fund Dividends
- Alimony
- Social security benefits
- Tax-exempt interest income
- Income from certain qualified retirement plan distributions
- Income subject to self-employment taxes
On retirement plans, the statute is specific. 26 U.S.C. 1411(c)(5) says net investment income "shall not include any distribution from a plan or arrangement described in section 401(a), 403(a), 403(b), 408, 408A, or 457(b)." In plain terms, distributions from IRAs (section 408), Roth IRAs (section 408A), 401(k) and other section 401(a) plans, 403(a) and 403(b) plans, and 457(b) plans of a state or local government or tax-exempt organization are not net investment income. The Instructions for Form 8960 (2025) list the same plan types under line 3. Topic no. 559 also names income from an active business and the excluded part of a gain on the sale of a principal residence as outside the NIIT.
Excluded income can still matter. Wages, for example, are not net investment income, but they do count toward your MAGI, which decides whether you are over the threshold at all.
The Thresholds Are Not Indexed for Inflation
Many tax figures rise each year with inflation. The NIIT thresholds do not. 26 U.S.C. 1411(b) sets them as fixed dollar amounts: $250,000 for a joint return or a surviving spouse, half of that for a married person filing separately, and $200,000 "in any other case." The section has no cost-of-living adjustment clause (U.S. Code, 2023 edition).
Modified AGI and the Foreign Earned Income Exclusion
For the NIIT, MAGI starts from your adjusted gross income (AGI). Under 26 U.S.C. 1411(d), it is AGI increased by the amount you excluded under the foreign earned income exclusion (section 911(a)(1)), less certain deductions or exclusions disallowed under section 911(d)(6) on those amounts.
So for most people living in the United States, MAGI and AGI are the same number. Topic no. 559 says: "For individual taxpayers who haven't excluded any foreign earned income, their MAGI is generally the same as their regular AGI." For Americans abroad who claim the foreign earned income exclusion on Form 2555, the excluded wages come back in when testing the NIIT threshold, even though they are not themselves investment income.
Nonresident Aliens, Estates and Trusts
Nonresident aliens. "The NIIT doesn't apply to nonresident alien (NRA) individuals," according to the Instructions for Form 8960 (2025).
Estates and trusts. The NIIT also applies to estates and trusts that have undistributed net investment income and AGI over their threshold. Their threshold is not one of the fixed amounts above: it is "the dollar amount at which the highest tax bracket in section 1(e) begins for the tax year," which changes each year. The Form 1041 instructions give the current figure.
Form 8960: Where the Tax Is Reported
You compute the tax on Form 8960, Net Investment Income Tax: Individuals, Estates, and Trusts. Per Topic no. 559, individuals report it on Form 1040 or Form 1040-SR, and estates and trusts on Form 1041. The IRS also notes that taxpayers may need to raise their withholding or estimated tax payments to cover the NIIT and avoid certain penalties.
The line-by-line rules are in the Instructions for Form 8960 (2025).
Sources & Methodology
- IRS, Instructions for Form 8960 (2025): the 3.8% rate and smaller-of rule for individuals, the three thresholds, what NII includes, the list of excluded items, nonresident aliens, and estates and trusts.
- IRS Topic no. 559, Net investment income tax (page last reviewed September 24, 2026): the lesser-of rule, the thresholds, net gains on stocks, bonds, mutual funds and real estate, the principal residence exclusion, MAGI and reporting on Form 1040.
- 26 U.S.C. 1411 (U.S. Code, 2023 edition, via govinfo): section 1411(a)(1) imposes the tax, 1411(b) sets the fixed thresholds, 1411(c)(5) excludes retirement plan distributions, 1411(d) defines MAGI with the section 911 add-back.
Method notes. All three sources were re-read on November 14, 2026. This page quotes the IRS and the statute and does not add its own calculations. It covers the federal NIIT only, not state taxes.
This article is educational and is not tax advice. Wealthy Pot is not affiliated with the IRS. Figures were checked against IRS instructions, an IRS tax topic and the U.S. Code on 2026-11-14. Your actual tax is set by your filed return; a tax professional can apply these rules to your situation.
FAQ
What is the net investment income tax rate?
3.8%. For an individual it applies to the smaller of net investment income or the amount by which MAGI exceeds the threshold for the filing status.
What income triggers the NIIT?
MAGI over $200,000 for single or head of household, $250,000 for married filing jointly or qualifying surviving spouse, or $125,000 for married filing separately, together with some net investment income.
Do the NIIT thresholds go up with inflation?
No. They are fixed dollar amounts in 26 U.S.C. 1411(b), with no cost-of-living adjustment.
Do wages count as net investment income?
No. Wages are on the IRS list of excluded items. They do count toward MAGI, which decides whether you pass the threshold.
Are retirement account withdrawals subject to the NIIT?
Not as net investment income. Under 26 U.S.C. 1411(c)(5), distributions from plans described in sections 401(a), 403(a), 403(b), 408, 408A and 457(b), which covers IRAs, Roth IRAs, 401(k) and 403(b) plans, are not net investment income.
Which form reports the NIIT?
Form 8960. Individuals carry the result to Form 1040 or 1040-SR; estates and trusts to Form 1041.
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"Net Investment Income Tax (NIIT): The 3.8% Tax, Thresholds and What Counts." Wealthy Pot, 2026. https://wealthypot.com/net-investment-income-tax/
