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IRS.gov Website
Rev. date: 12/5/2016


Net Investment Income Tax

Tax Topic 559
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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

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In the case of an individual, the NIIT is 3.8 percent on the lesser of:


Estates & Trusts

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In the case of an estate or trust, the NIIT is 3.8 percent on the lesser of:


Definition of Net Investment Income and Modified Adjusted Gross Income

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In general, net investment income for purpose of this tax, includes, but isn't limited to:
The NIIT doesn't 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 on that portion that's 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 haven't excluded any foreign earned income, their MAGI is generally the same as their regular AGI.


Reporting NIIT

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Compute the tax on Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts.


Tax Withholding and Estimated Tax

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Taxpayers may need to increase their income tax withholding or estimated taxes to take into account 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 for resources to help you recalculate those payments. See Publication 505, Tax Withholding and Estimated Tax, for more information in either instance.


Additional Information

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For additional information, refer to the Instructions 8960 and to Questions and Answers on the Net Investment Income Tax.