Back to Articles
Personal Tax5 min readMar 17, 2026
What Is the Net Investment Income Tax?
High earners with investment income may owe an additional 3.8% Net Investment Income Tax (NIIT). Here's how it works and strategies to minimize it.
Net Investment Income Tax (NIIT)
What Is the NIIT?
A 3.8% additional tax on net investment income for taxpayers above certain income thresholds.
Who Owes It?
Income thresholds (not inflation-adjusted):
- Single: $200,000
- Married Filing Jointly: $250,000
- Married Filing Separately: $125,000
Tax applies to the lesser of:
- Net investment income, OR
- Modified AGI over the threshold
What Is Net Investment Income?
- Interest, dividends, and capital gains
- Rental income (unless real estate professional)
- Passive business income
- Royalties
- Annuity income
What Is NOT Net Investment Income?
- W-2 wages
- Active business income
- Social Security and pension income
- IRA, 401(k) distributions
Combined Impact
High earners may face:
- 23.8% on long-term capital gains (20% + 3.8% NIIT)
- Up to 40.8% on short-term gains (37% + 3.8% NIIT)
Minimizing NIIT
- Increase active participation in rental activities (real estate professional status)
- Invest in municipal bonds (tax-exempt interest not subject to NIIT)
- Maximize retirement contributions to reduce MAGI
- Roth conversions in lower-income years
High investment income? The NIIT can be a significant additional cost — planning is essential.