Net Investment Income Tax

You’ll be subject to the 3.8% Medicare tax on net investment income if both of these are true:

  • You have unearned income for 2013 or later years.
  • Your modified adjusted gross income (AGI) for the year is more than the threshold amount.

This tax is also known as the net investment income tax (NIIT).

The threshold amounts are based on your filing status:

For purposes of the NIIT, investment income includes (but isn’t limited to):

  • Interest
  • Dividends
  • Capital gains
  • Royalties and rents

Investment income doesn’t include:

  • Pension distributions
  • Employee annuities
  • Individual retirement accounts (including Roth IRAs)
  • Profit sharing and stock bonus plans
  • Distributions from deferred compensation plans

Both of these are true for purposes of the NIIT:

  • Net investment income is reduced by certain expenses allocable to that income.
  • Modified AGI is your AGI increased by the amount of excluded foreign income.

If your modified AGI is more than the threshold amount and you have net investment income, you’ll be subject to the 3.8% tax. The tax will be on the lesser of these:

  • Your net investment income
  • Amount of your modified AGI in excess of the threshold amount

These might be subject to NIIT if they have undistributed net investment income:

  • Trusts
  • Estates

To learn more, see Net Investment Income FAQs at www.irs.gov.

Related Topics

Related Resources

What Is Cryptocurrency? | H&R Block

What is Cryptocurrency? Bitcoin, Litecoin, and the like leave many wondering how to classify this new form of investment. Find the answer at H&R Block.

Bitcoin Income: Exploring Capital Gains & Stock Value | H&R Block

Have you recently earned Bitcoin income from rising stock value? Explore the rules surrounding cryptocurrency-sourced capital gains and losses with H&R Block.

Bitcoin, Taxes, and the Modern Entrepreneur | H&R Block

Many entrepreneurs find themselves wondering exactly how Bitcoin is taxed. Our H&R Block Tax Pros are prepared to assist self-employed filers with Bitcoin taxation.

The IRS, Bitcoin, and Other Virtual Currencies | H&R Block

Have you found yourself wondering how the IRS classifies Bitcoin? Our tax pros discuss relevant IRS Bitcoin law and notices. Learn more with H&R Block.