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Net Investment Income Tax (NIIT): The Basics

Before taxes, investment assets such as bonds, equities, mutual funds, loans, and other investments generate income known as net investment income tax (NIIT). Whether net investment income consists of capital gains, dividends, or interest will affect the individual tax rate.


Net Investment Income Tax (NIIT) Explained


An IRS tax on certain people, estates, and trusts' net investment income is known as the net investment income tax or NIIT. More specifically, this applies if your modified adjusted gross income (MAGI) exceeds the filing status-based thresholds set by the IRS by a greater amount than the lesser of your net investment income or your MAGI. For the tax year 2022, the NIIT is set at 3.8 percent.


Who’s Subject To The Net Investment Income Tax?


Only individuals who earn more than a specific amount will be required to pay the NIIT; everyone else would be exempt. The following are the IRS's statutory income thresholds:

  • Married filing jointly — $250,000

  • Married filing separately — $125,000

  • Single or head of household — $200,000

  • Qualifying widow(er) with a child — $250,000

If your net investment income or the amount of your MAGI exceeds the income thresholds based on your filing status, you must decide which is greater. The lesser of the two figures is the one that will be charged an extra 3.8 percent tax.


Here's How To Calculate The Net Investment Income Tax


If you are subject to the net investment income tax, it is determined by your modified adjusted gross income (MAGI). A few deductions, such as IRA contributions, passive loss or income, taxable Social Security payments, student loan interest, and others, can be added back to your adjusted gross income (AGI) to determine your MAGI. Form 1040, Line 8b, is where you can find your AGI. You must pay the net investment income tax if your MAGI exceeds the legal limit for your filing status.


The next step is to calculate your net investment income using the above-mentioned included earnings. However, you must first determine your gross investment income in order to compute your NIIT. Once you have that, you may calculate your NIIT by deducting all allowable deductions from your gross investment income. Brokerage fees, investment advisory fees, tax preparation fees, local and state income taxes, fiduciary expenditures, investment interest expenses, and any expenses related to rental and royalty revenue are a few examples of frequent investment deductions.


Resolve Your Tax Bills


If you've found yourself in a nasty mess with the IRS, take a deep breath. Unpaid back taxes may be the biggest issue that taxpayers face, but the resolution may be very simple. For taxpayers who may have difficulty paying off an excessive amount of tax debt, there's a relief program that consolidates many major relief programs into a one-size-fits-all assistance program; The IRS Fresh Start Program.


It's a new and improved relief program that consolidates many major relief programs into a one-size-fits-all assistance program. Any issues regarding back taxes, unfiled years, or any other tax-related problems may be solved through one program; the IRS Fresh Start Program!


See If You Qualify For The Fresh Start Program Today!


Resolve your tax debt before the IRS surprises you with late fees and penalties!

  1. Answer a few questions

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  3. Enroll in Fresh Start

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