What Is Form 8960 and Who Needs to File It?

 

Form 8960 is the IRS document used to calculate your total Net Investment Income (NII) and determine how much of it may be subject to the 3.8% Medicare contribution tax. For taxpayers with higher incomes, the Net Income Investment Tax (NIIT) generally applies only if two of the following conditions are true:

  1. You have investment income. This does not include wages or self-employment earnings.
  2. Your Modified Adjusted Gross Income (MAGI) is above the threshold outlined below.

The Modified Adjusted Gross Income (MAGI) threshold that applies to you is based on your filing status as shown below. For the purposes of NIIT and Form 8960, your MAGI is your Adjusted Gross Income (AGI) generally increased by the amount of foreign earned income you may have excluded.

  • Married Filing Jointly and Qualified Widow – $250,000
  • Single and Head of Household – $200,000
  • Married Filing Separately – $125,000

If your MAGI is above the threshold, but you do not have investment income, you will not be subject to the NIIT. However, you could still be subject to the NIIT even if you are exempt from Medicare Taxes. Keep in mind, these amounts are not indexed for inflation.

Breaking Down IRS Form 8960

Essentially, IRS Form 8960 is a worksheet to help you figure out if the Net Income Investment Tax applies to you each tax year. Let’s review the key sections of the form.

  • Part 1: Investment Income – In this section, you’ll list the amounts of various types of investment income you may have earned. This may include ordinary dividends, rental income, or capital gains among other types of income.
  • Part 2: Investment Expenses Allocable to Investment Income and Modifications – In this section, you’ll list any items that are deductible from Part 1. These can include investment interest expenses or state, local or foreign income taxes.
  • Part 3: Tax Computation – In this section, you’ll make the final calculations to see if the tax applies to you and how much tax you owe.

If your net investment income is zero or less, the tax does not apply and you will not need to file Form 8960 with your taxes. If your net investment income is above zero and your MAGI is over the threshold, you’ll multiply the smaller of 1) your calculated NII amount, or 2) your MAGI minus the threshold by .038 to determine your taxes due. You will report the result on Form 1040, line 60.

Form 8960 Instructions

Looking to better understand the terms and definitions related to Form 8960 and Net Investment Income Tax? For help, you can refer to the Form 8960 Instructions as well as the IRS Net Investment Income FAQ site.

Need Help With Tax Form 8960?

If you have questions about how to complete Form 8960, Net Income Investment Tax, or if you simply have questions about your return, our Tax Pros are here to help. They speak the tricky language of taxes and can help you better understand your return.

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