💰 Your Income

Wages, Salary & Bonus ($0 - $2M) — counts toward MAGI, not NII

Business / Self-Employment Income (counts toward MAGI only)

Taxable Interest Investment income

Dividends Ordinary and qualified

Net Capital Gains Sales of stocks, funds, property

Rental & Royalty Income Net of expenses

Other Passive / Investment Income Non-qualified annuities, etc.

Tax-Exempt Interest Municipal bond interest — raises MAGI, excluded from NII

Investment Interest Expense Deducted from NII

Filing Status Sets your MAGI threshold

📊 Net Investment Income Tax

Net Investment Income (NII) —

Modified AGI —

MAGI Threshold —

MAGI Over Threshold —

Amount Subject to 3.8% —

                        NIIT Owed
                        —
                    

Worked Examples

Scenario	MAGI	Net Investment Income	NIIT Base	NIIT Owed
Single, below threshold	$186,000	$6,000	$0	$0
Single with dividends and gains	$259,000	$36,000	$36,000	$1,368
Married, large capital gain	$700,000	$300,000	$300,000	$11,400
Married filing separately, portfolio	$173,000	$13,000	$13,000	$494

The crucial pattern: the surtax is charged on the smaller of your investment income and the amount by which MAGI exceeds the threshold. A retiree with $130,000 of dividends but only $175,000 of MAGI pays on the entire $130,000 — wages are not needed to cross the line.

What Counts and What Does Not

Counts Toward NII	Counts Toward MAGI Only	Counts Toward Neither
Interest and dividends	Wages and salaries	Social Security benefits
Capital gains, net of losses	Self-employment income	Tax-exempt municipal interest (MAGI only, actually)
Rental and royalty income	Taxable IRA and 401(k) distributions	Gain on the sale of an active business
Non-qualified annuity income	Retirement plan withdrawals	Alimony received under pre-2019 agreements

One surprise: municipal-bond interest is excluded from net investment income but still lifts your modified AGI. Heavy muni holdings can therefore push you over the threshold even though the income itself is untaxed — once you are over, your other investment income bears the 3.8%.

Three Thresholds, One Surtax

The Net Investment Income Tax is a 3.8% surtax on top of your ordinary income tax, capital-gains tax, and any additional Medicare tax. Congress fixed the trigger points in statute and never indexed them to inflation, so more filers cross the line every year:

Filing Status	MAGI Threshold
Single	$200,000
Head of Household	$200,000
Married Filing Jointly	$250,000
Married Filing Separately	$125,000
Qualifying Surviving Spouse	$250,000

A single filer earning a $210,000 salary plus $30,000 of dividends has MAGI of $240,000 — $40,000 over the $200,000 threshold. The excess ($40,000) is larger than the investment income ($30,000), so the surtax applies to $30,000 and costs $1,140. The rule is always the smaller of the two figures: investment income, or MAGI above the threshold.

How to Legally Reduce the Surtax

Strategy	How It Works	Requirement
Max out pre-tax retirement accounts	$23,500 into a 401(k) in 2025 lowers MAGI dollar for dollar	Must have earned income and a plan at work
HSA contributions	Pre-tax dollars reduce MAGI without a plan	Qualifying high-deductible health plan
Capital-loss harvesting	Realized losses offset gains and up to $3,000 of ordinary income	Watch the wash-sale rule across all accounts
Charitable bunching via a DAF	Donating appreciated stock avoids the gain and the NIIT	Itemizer; donor-advised fund fees
Maximize the qualified portion	Qualified dividends and long-term gains still get 0/15/20% but are never exempt from NIIT	None — planning only, not an exemption

There is no special exemption for retirees. A household living off dividends, interest, and capital gains can owe the surtax with no wages at all, which is why the calculator accepts a zero-wage input.

Frequently Asked Questions

Is the 3.8% NIIT the same as the additional Medicare tax?

No. They are two separate surtaxes that often hit the same high earners. The 0.9% additional Medicare tax applies to wages and self-employment income over $200,000 (single) or $250,000 (joint). The 3.8% NIIT applies to investment income. A well-paid investor can owe both in the same year, on Form 8959 and Form 8960 respectively.

Does the NIIT apply to the sale of my primary home?

Usually not. Up to $250,000 of gain ($500,000 for a joint return) is excluded on a primary residence, and only the taxable gain above that exclusion counts as investment income. A large gain on a second home or a rental property, however, is fully exposed.

Are IRA and 401(k) distributions subject to the NIIT?

No. Retirement plan distributions are not net investment income, but they do count toward modified AGI. A large required minimum distribution can push you over the threshold and expose your dividends and interest to the surtax even though the RMD itself is not taxed by it.

How do I pay the NIIT if I owe it?

It is computed on Form 8960 and reported on Schedule 2 of your Form 1040. There are no separate estimated payments — the tax is folded into your total liability, so you either cover it through withholding or send quarterly estimated payments. Underpayment of the surtax triggers the same penalty as underpaid income tax.

Is the threshold indexed for inflation?

No. The $200,000, $250,000, and $125,000 figures have been fixed in the statute since the surtax took effect in 2013 and are not adjusted for inflation. Over time this pulls more middle-class savers into the tax, which is why year-over-year planning matters.

⚠️ Important: This calculator estimates the 3.8% Net Investment Income Tax using the statutory MAGI thresholds, which are not indexed for inflation. It uses a simplified definition of net investment income and does not account for the proper allocation of investment interest expense, the exclusion for active business gains, state-level surtaxes, or the interaction with the alternative minimum tax. Form 8960 contains additional adjustments. This is not tax, legal, or accounting advice - consult a qualified tax professional about your specific situation.

📈 Net Investment Income Tax Calculator