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Net Investment Income Tax (NIIT) calculator
Calculate the 3.8% ACA surtax on investment income above the $200k/$250k MAGI threshold — including the lesser-of NII vs MAGI-excess rule.
Net Investment Income Tax (3.8%)
Applied to $35,000 (lesser of NII or MAGI excess)
MAGI excess over threshold
MAGI $260,000 − threshold $200,000
Effective NIIT rate on investment income
NIIT ÷ total net investment income
Show the work
- MAGI$260,000
- NIIT threshold$200,000
- Excess MAGI over threshold$60,000
- Net investment income$35,000
- NIIT base (lesser of NII or excess)$35,000
- NIIT (× 3.8%)$1,330
Net Investment Income Tax (NIIT): the 3.8% surtax on investment income
The Net Investment Income Tax is a 3.8% surtax added by the Affordable Care Act on investment income earned by high-income individuals. It applies to the lesser of your net investment income or the amount your MAGI exceeds the threshold ($200,000 single / $250,000 MFJ). Combined with the 20% long-term capital gains rate, the effective federal rate on investment income for very high earners reaches 23.8% — plus state tax.
Who owes NIIT — the threshold trap
Because the NIIT thresholds are not indexed for inflation (they have not changed since 2013), more taxpayers become subject to it each year. A household that earned $200,000 a decade ago was likely not subject to NIIT; with wage growth, that same household may now exceed the threshold. A business sale, large capital gain, or Roth conversion can push a normally sub-threshold taxpayer into NIIT in a single year.
The lesser-of calculation
The NIIT is carefully designed to apply only to investment income, not to ordinary income above the threshold. The base for NIIT is the lesser of:
- Net investment income: all investment income minus deductible investment expenses (investment advisory fees, etc.)
- MAGI excess over threshold: MAGI minus $200,000/$250,000
This means: if your MAGI barely exceeds the threshold due to a small capital gain, only that small gain is subject to NIIT — not all your investment income. Conversely, if you have large investment income but modest wages, only the income above the threshold is subject to NIIT.
Municipal bonds as NIIT shelter
Interest on municipal bonds (state and local government debt) is federally tax-exempt and also excluded from net investment income for NIIT purposes. It also doesn't count toward MAGI for the NIIT threshold calculation. This makes munis particularly attractive for investors above or near the threshold — a 4.0% muni yield is equivalent to a 6.45% taxable yield for an investor subject to the 23.8% federal rate on investment income (plus state tax).
Interaction with capital gains planning
For investors near the NIIT threshold, timing capital gains is crucial. Realizing a large gain in a year when your MAGI is already above $200k costs both the LTCG rate and NIIT. In a lower-income year — say, the year you retire and before Social Security and RMDs begin — you might be able to realize gains at 15% LTCG with no NIIT at all. This "gap year" strategy is a cornerstone of advanced retirement tax planning.
NIIT on passive real estate
Passive rental income is subject to NIIT if MAGI exceeds the threshold. For landlords who are not real estate professionals (which requires 750+ hours/year of real estate work constituting more than half of professional time), rental income is passive by default. Converting passive losses (carried forward from prior years) into current-year deductions can reduce NIIT exposure when a property is sold — the suspended losses become deductible on disposition.
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