Net Investment Income Tax (NIIT)
Definition
An additional 3.8% tax on investment income for high earners. It applies to the lesser of net investment income or the amount by which MAGI exceeds $200,000 (single) or $250,000 (married filing jointly). Investment income includes interest, dividends, capital gains, rental income, royalties, and passive activity income. It does not apply to wages, self-employment income, Social Security benefits, or tax-exempt interest.
Example
Your MAGI is $280,000 and you have $50,000 in net investment income. The NIIT applies to the lesser of $50,000 (investment income) or $30,000 ($280,000 - $250,000), so you owe an additional $1,140 (3.8% of $30,000).
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