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IRS.gov Website
Rev. date: 12/11/2014


Net Investment Income Tax

Tax Topic 559
rule
In tax years beginning in 2013 and later, a 3.8 percent Net Investment Income Tax (NIIT) applies to individuals, estates and trusts that have net investment income above applicable threshold amounts.


Individuals

rule
The NIIT applies in the case of an individual, at a rate of 3.8 percent on the lesser of:


Estates & Trusts

rule
In the case of an estate or trust, the new tax of 3.8 percent applies on the lesser of:


Definition of Net Investment Income and Modified Adjusted Gross Income

rule
In general, net investment income for purpose of this tax, includes but is not limited to:
The NIIT does not apply to certain types of income that taxpayers can exclude for regular income tax purposes such as tax-exempt state or municipal bond interest, Veterans Administration benefits, or gain from the sale of a principal residence but only that amount excluded for income tax purposes.
Modified adjusted gross income (MAGI), for purposes of the NIIT is generally defined as adjusted gross income (AGI) for regular income tax purposes increased by the foreign earned income exclusion (but also adjusted for certain deductions related to the foreign earned income). For individual taxpayers who have not excluded any foreign earned income, their MAGI is generally the same as their regular AGI.


Reporting Net Investment Income Tax

rule
Compute the tax on Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts.
For additional information, refer to the Instructions 8960 (PDF) and to Questions and Answers on the Net Investment Income Tax on IRS.gov.
Taxpayers may need to increase their income tax withholding or estimated taxes to consider any additional tax liability associated with the NIIT in order to avoid certain penalties.
The IRS Withholding Calculator can be used to help determine necessary changes in withholding by your employer, or see our Estimated Taxes page on IRS.gov for resources to help you recalculate those payments. See Publication 505, Tax Withholding and Estimated Tax, for more information in either instance.