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)
Updates from OBBBA
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