NIIT Calculator

How the 3.8% Net Investment Income Tax works

The Net Investment Income Tax (also called the Medicare Investment Income surtax) is a 3.8% federal tax codified in IRC §1411, enacted by the Affordable Care Act and effective from 2013 onward. It runs on a separate track from regular income tax — you can owe NIIT even on income that already received preferential capital-gains rates, because the 3.8% layers on top of whatever ordinary or LTCG rate applies to the underlying investment income.

The math has a "lesser-of" structure that limits the bite to whichever is smaller: your net investment income, OR the amount by which your modified AGI crosses the threshold. So a filer with $80,000 of net investment income and $230,000 MAGI (single, $30,000 over the $200,000 threshold) owes 3.8% × $30,000 = $1,140 — not 3.8% × $80,000 = $3,040. You only pay on the "imported" income that pushes you across the line.

The IRS instructions for Form 8960 (the NIIT computation form, filed with Form 1040) walks the calculation line by line. Most high-income earners reconcile NIIT alongside the Additional Medicare Tax (Form 8959) — both share the same $200,000/$250,000 MAGI thresholds, and both are unindexed for inflation since enactment.

MAGI thresholds — frozen since 2013

The MAGI thresholds were set in 2013 statute and have never been indexed for inflation. Roughly 30 years of accumulated wage and asset-price growth means the NIIT now hits a much larger slice of taxpayers than originally projected — a classic example of legislative fiscal drag.

MAGI for NIIT purposes equals AGI plus any foreign earned income exclusion (FEIE) you took on Form 2555 — most filers' MAGI equals AGI exactly. The threshold for trusts and estates is far lower: $15,650 for 2025 (indexed annually), which is why high-balance trusts often distribute investment income to beneficiaries before year-end.

What counts (and what doesn't) as net investment income

Investment expenses (advisor fees, margin interest, state income tax allocable to investment income) reduce the gross investment income to arrive at NET investment income — but those deductions are limited under post-TCJA rules. The investment interest expense calculator handles the §163(d) limitation.

Worked examples

Four representative cases showing how the lesser-of mechanic limits the tax. All numbers are illustrative; the calculator above runs your exact figures.

Planning moves to reduce NIIT

• Tax-exempt municipal bonds. Interest from "muni" bonds doesn't count as NII and doesn't push MAGI either. The tax-equivalent yield calculator compares the after-tax yield of taxable vs muni at your marginal rate plus NIIT.
• Tax-loss harvesting. Realized capital losses offset realized gains dollar-for-dollar (with unlimited carryforward of net losses). Net losses also offset up to $3,000 of ordinary income per year. The tax-loss harvesting calculator models the effect; the wash sale calculator handles the §1091 30-day trap.
• Maximize 401(k) and Traditional IRA contributions. These reduce MAGI directly. Reducing MAGI below the threshold eliminates NIIT entirely (lesser-of becomes zero).
• Roth conversions in low-income years. Conversions are taxable as ordinary income but distributions from the eventual Roth are excluded from BOTH MAGI and NII. Pair with retirement-window planning between job exit and RMD start age (73).
• Real-estate professional status (REPS). If you spend >750 hours/year and more than half of total working hours in real-estate trades, rental income reclassifies from passive to active — exiting the NIIT base. The passive activity loss calculator handles the regrouping rules.
• Qualified Charitable Distributions (QCDs). Owners 70½+ can direct up to $108,000/year (2025) from an IRA directly to charity. The QCD satisfies the RMD but doesn't add to MAGI — keeping you below the NIIT threshold longer.
• Installment sales. Spreading gain recognition across multiple tax years can keep each year's MAGI under threshold. Works for real estate, business sales, and certain securities.

Common NIIT confusions

• NIIT and Additional Medicare Tax (AMT 0.9%) are NOT the same. They share the same $200k/$250k MAGI thresholds, but the 0.9% surtax applies to earned income (wages, SE) while the 3.8% NIIT applies to investment income. A high-income filer with both wage and investment income can owe both.
• Selling your primary home usually does NOT trigger NIIT. §121 excludes up to $250k single / $500k MFJ of gain on a primary residence (lived in 2 of last 5 years). Only the excess gain above the §121 exclusion enters net investment income.
• S-corp distributions are NIIT-free IF you materially participate. Active S-corp owners' K-1 income is exempt from NIIT. Passive S-corp owners (silent investors) include K-1 income in NII.
• Roth IRA conversions raise MAGI but don't count as NII. The conversion amount is taxed as ordinary income and pushes MAGI up — that increased MAGI may pull MORE of your OTHER investment income into the lesser-of, increasing NIIT indirectly. Plan conversions carefully in years when you have a lot of dividend / capital gain income.

Sources

• IRS — Net Investment Income Tax
• IRS — Questions and Answers on NIIT