Net Investment Income Tax (NIIT)
A 3.8% surtax on investment income (interest, dividends, capital gains, rental income) for individuals with modified AGI above $200,000 (single) or $250,000 (married filing jointly).
The Net Investment Income Tax (NIIT) is a 3.8% surtax on the lesser of your net investment income or the amount by which your modified AGI exceeds the threshold. The thresholds are $200,000 for single filers, $250,000 for married filing jointly, and $125,000 for married filing separately. These thresholds are not indexed for inflation.
Net investment income includes interest, dividends, capital gains, rental and royalty income, and passive business income. It does not include wages, self-employment income, Social Security benefits, or distributions from retirement plans.
Because the NIIT thresholds have never been adjusted for inflation since the tax was introduced in 2013, more taxpayers are affected each year as incomes rise. The NIIT effectively raises the top tax rate on long-term capital gains from 20% to 23.8% and on qualified dividends from 20% to 23.8%. Strategies to reduce NIIT include maximizing retirement plan contributions, investing in tax-exempt municipal bonds, and managing the timing of capital gain realizations.
How it works
The Net Investment Income Tax is a 3.8% surtax that applies on top of your regular income tax, calculated on the smaller of two numbers: your net investment income for the year, or the amount your modified AGI exceeds a fixed threshold — $200,000 for single filers, $250,000 for married filing jointly, and $125,000 for married filing separately. Because it's the lesser of the two figures, someone with a modest amount of investment income but very high wages could owe NIIT on their full investment income, while someone barely over the threshold owes tax on just the excess.
Net investment income includes interest, dividends, capital gains, and rental and royalty income, along with passive business income, but not wages, self-employment income, Social Security benefits, or retirement plan distributions, which are excluded from the calculation entirely. You calculate and report the NIIT on Form 8960, attached to your Form 1040, and it's paid in addition to whatever income tax or capital gains tax already applies to that income.
Because the $200,000, $250,000, and $125,000 thresholds have never been indexed for inflation since NIIT was introduced in 2013, more taxpayers get pulled into it every year simply from wage growth, even without any change in their investment behavior. The tax effectively raises the top rate on long-term capital gains from 20% to 23.8% and on qualified dividends the same way. Common strategies to manage exposure include maximizing pre-tax retirement contributions to lower MAGI, holding municipal bonds whose interest is excluded from net investment income, and timing the realization of capital gains across different years.
Example: NIIT on investment income above the threshold
A married couple filing jointly has $280,000 of modified AGI, which includes $40,000 of net investment income from dividends and capital gains. Their MAGI exceeds the $250,000 MFJ threshold by $30,000.
Because $30,000, the excess over the threshold, is less than $40,000, their actual net investment income, the NIIT applies to the smaller figure, the $30,000 excess. At the 3.8% rate, that's an additional $1,140 in tax on top of whatever income tax already applies to their capital gains and dividends.
2026 capital gains quick estimate
Estimate the additional federal tax caused by your gains. Uses the standard deduction; state tax is not included.
Assets held more than one year.
Assets held one year or less.
Federal tax caused by gains
$7,500Incremental estimate versus the same ordinary income with no gains.
Long-term gains tax
$7,500Top LTCG band reached: 15%
3.8% NIIT
$0No NIIT at these inputs.
Frequently asked questions
What is the NIIT rate and who pays it?
Does the NIIT apply to my wages?
How can I reduce my NIIT exposure?
Related Terms
Capital Gains
The profit from selling a capital asset (stocks, real estate, etc.) for more than its purchase price. Capital gains are classified as short-term or long-term based on holding period.
Additional Medicare Tax
An extra 0.9% Medicare surtax on earned income above $200,000 (single) or $250,000 (married filing jointly). Unlike regular Medicare tax, it is not matched by employers.
Qualified Dividends
Dividends that meet IRS holding-period and company requirements, taxed at the lower long-term capital gains rates (0%, 15%, or 20%) instead of ordinary income rates.
Adjusted Gross Income (AGI)
Your gross income minus specific adjustments such as student loan interest, IRA contributions, and self-employment tax. AGI is the starting point for calculating your taxable income.