How to Calculate Net Investment Income Tax

NIIT Formula:

\[ NIIT = Investment\ Income \times 3.8\% \ (if\ MAGI > \$200k\ single\ US\ 2025) \]

Investment Income:

USD

Modified Adjusted Gross Income (MAGI):

USD

Filing Status:

Net Investment Income Tax (NIIT):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Net Investment Income Tax?

The Net Investment Income Tax (NIIT) is a 3.8% tax on certain net investment income of individuals, estates, and trusts that have income above statutory threshold amounts. It was enacted to help fund the Affordable Care Act.

2. How Does the Calculator Work?

The calculator uses the NIIT formula:

\[ NIIT = Investment\ Income \times 3.8\% \ (if\ MAGI > threshold) \]

Where:

$ Investment\ Income $ — Total net investment income in USD
$ MAGI $ — Modified Adjusted Gross Income in USD
$ Threshold $ — Based on filing status:
- Single: $200,000
- Married Filing Jointly: $250,000
- Married Filing Separately: $125,000
$ 3.8\% $ — Fixed NIIT rate

Explanation: The tax applies to the lesser of your net investment income or the amount by which your MAGI exceeds the threshold for your filing status.

3. Importance of NIIT Calculation

Details: Accurate NIIT calculation is crucial for tax planning, estimated tax payments, and avoiding underpayment penalties. It affects high-income investors and helps in financial decision-making.

4. Using the Calculator

Tips: Enter investment income and MAGI in USD, select your filing status. The calculator will determine if you owe NIIT and calculate the exact amount based on 2025 thresholds.

5. Frequently Asked Questions (FAQ)

Q1: What counts as investment income for NIIT?
A: Includes interest, dividends, capital gains, rental income, royalties, and passive business income. Excludes wages, unemployment compensation, and Social Security benefits.

Q2: Are there any exemptions from NIIT?
A: Yes, certain types of income like tax-exempt interest, veterans benefits, and gains from the sale of a principal residence may be exempt.

Q3: How is MAGI calculated for NIIT?
A: MAGI is your Adjusted Gross Income plus any foreign earned income exclusion and certain tax-exempt interest.

Q4: Does NIIT apply to all taxpayers?
A: No, only individuals with MAGI above the threshold amounts and certain estates and trusts are subject to NIIT.

Q5: Can NIIT be avoided through planning?
A: Yes, through strategies like tax-loss harvesting, charitable giving of appreciated assets, and proper retirement account planning.