The Net Investment Income Tax (NIIT) is a 3.8% surtax applied to certain types of investment income earned by individuals, estates, and trusts whose Modified Adjusted Gross Income (MAGI) exceeds specific thresholds.
✅ Who Pays NIIT?
The NIIT applies to the lesser of:
- Your net investment income, or
- The amount by which your MAGI exceeds the applicable threshold for your filing status
💰 NIIT Income Thresholds (2025)
| Filing Status | MAGI Threshold |
|---|---|
| Single / Head of Household | $200,000 |
| Married Filing Jointly | $250,000 |
| Married Filing Separately | $125,000 |
| Estates and Trusts | $15,200 |
⚠️ These thresholds are not indexed for inflation for individuals.
📊 What Counts as Net Investment Income?
✅ Included
- Interest and dividends
- Capital gains (stocks, bonds, mutual funds, and non‑business real estate)
- Rental and royalty income
- Passive business income (activities without material participation)
- Income from non‑qualified annuities
❌ Excluded
- Wages and salaries
- Self‑employment income
- Unemployment compensation
- Social Security benefits
- Alimony
- Tax‑exempt interest (such as municipal bond interest)
- Distributions from qualified retirement plans (e.g., IRAs, 401(k)s)
🆕 Recent Updates (OBBBA, 2025)
✅ No Change to NIIT Structure
- The 3.8% rate and MAGI thresholds were not changed by the One Big Beautiful Bill Act (OBBBA).
🔁 Indirect Impact via MAGI
- New OBBBA deductions (such as:
- No Tax on Tips
- No Tax on Overtime
- Car loan interest deduction)
may reduce MAGI, which can: - Lower NIIT exposure, or
- Eliminate NIIT entirely if MAGI falls below the threshold
📌 Examples
Example 1: Individual
A single filer has:
- MAGI: $220,000
- Net investment income: $40,000
Excess MAGI over threshold:
$220,000 − $200,000 = $20,000
NIIT applies to the lesser of:
- $40,000 (investment income), or
- $20,000 (excess MAGI)
✅ NIIT: $20,000 × 3.8% = $760
Example 2: Married Filing Jointly
A married couple filing jointly has:
- MAGI: $240,000
- Investment income: $15,000
✅ MAGI is below the $250,000 threshold
✅ No NIIT owed
Example 3: Trust
A trust has:
- AGI: $18,000
- Net investment income: $10,000
Threshold for trusts: $15,200
Excess AGI:
$18,000 − $15,200 = $2,800
✅ NIIT applies to $2,800
✅ NIIT: $2,800 × 3.8% = $106.40
💡 Tips
- NIIT is separate from regular capital gains tax
- A taxpayer can owe NIIT even if all income is taxed at preferential capital gain rates
- Passive vs. active income matters—material participation can eliminate NIIT
- MAGI planning (retirement contributions, timing income) can significantly reduce NIIT