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:

  • Single or head of household — $200,000
  • Married filing jointly or qualifying widow(er) — $250,000
  • Married filing separately — $125,000

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.

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