Net Investment Income Tax: Who Owes the 3.8% Tax
Published November 5, 2026
The net investment income tax (NIIT) is a 3.8% tax. It applies to some investment income of higher-income individuals, estates, and trusts. Individuals figure it on Form 8960 and report it on Form 1040. IRS: Topic no. 559, Net investment income tax
The thresholds
The NIIT applies only when your modified adjusted gross income (MAGI) is above a threshold. The threshold is $250,000 for married filing jointly or a qualifying surviving spouse. It is $125,000 for married filing separately. It is $200,000 for single or head of household. IRS: Topic no. 559
How the tax is figured
The tax is 3.8% of the smaller of two amounts. The first is your net investment income. The second is the amount by which your MAGI is above the threshold. You pay on whichever amount is less. IRS: Topic no. 559
What counts as investment income
Net investment income includes interest, dividends, certain annuities, royalties, and rents. It also includes income from a passive business and income from trading in financial instruments or commodities. Net gains from selling property, such as stocks, bonds, mutual funds, and real estate, count too, to the extent they are part of your taxable income. Check the amounts on each Form 1099 before you add them, because a single form can list more than one type of income. IRS: Topic no. 559
What does not count
The NIIT does not apply to wages or unemployment compensation. It does not apply to income from an active business. It also does not apply to tax-exempt interest, VA benefits, or the part of a home sale gain you can exclude. Alimony and Social Security benefits are on the IRS list of excluded items. IRS: Instructions for Form 8960 (2025)
Estates and trusts
Estates and trusts use their own threshold. For 2025, the threshold for an estate or trust is $15,650. If its adjusted gross income is below that amount, the NIIT does not apply. IRS: Topic no. 559
Self-employment income is excluded
Income that is subject to self-employment tax is not subject to the NIIT. Income from a passive activity can be subject to the NIIT, however. The IRS instructions explain how to treat each type of business income on Form 8960. IRS: Instructions for Form 8960 (2025)
Example
Illustration only, with made-up numbers. Priya is single. Her MAGI for 2025 is $230,000. Her net investment income is $40,000, from interest and rental income. Her MAGI is $30,000 above the $200,000 threshold. The smaller amount is $30,000. She owes $1,140, which is $30,000 times 3.8%.
A joint-return example
Illustration only, with made-up numbers. Carmen and Luis file jointly. Their MAGI is $300,000, and their net investment income is $20,000 from dividends. Their MAGI is $50,000 above the $250,000 threshold. The smaller amount is $20,000. They owe $760, which is $20,000 times 3.8%.
Records to keep
Keep your Forms 1099-INT, 1099-DIV, and 1099-B. Keep rental records and sale statements for any property you sold. Keep your Form 8960 with your return. Keep a list of each investment and the income it produced. A list makes it easier to add up your net investment income each year.
Steps to take
- Figure your MAGI for the year. It starts with your AGI and adds back certain foreign earned income exclusions.
- Compare your MAGI with the threshold for your filing status.
- Add up your net investment income, such as interest, dividends, rents, and gains.
- Take the smaller of net investment income or the amount above the threshold, then multiply by 3.8%.
- Complete Form 8960 and report the tax on your Form 1040.
General information, not advice about your return.
Sources: Sources: IRS, Topic no. 559, Net investment income tax (https://www.irs.gov/taxtopics/tc559); IRS, Instructions for Form 8960 (2025) (https://www.irs.gov/pub/irs-pdf/i8960.pdf) This is general information, not advice about your specific return.
