Net Investment Income Tax Calculator: The 3.8% NIIT
Work out the Net Investment Income Tax (NIIT) — the 3.8% surtax on investment income for higher earners, on top of regular income tax and capital gains tax.
Adjust the inputs and select Calculate for a full breakdown.
Compare Common Scenarios
How the numbers shift across typical situations for this calculator:
| Scenario | Net investment income tax | Investment income net of NIIT |
|---|---|---|
| 3.8% of $50,000 | 1,900 | 48,100 |
| 3.8% of $20,000 | 760 | 19,240 |
| 3.8% of $200,000 (large gain) | 7,600 | 192,400 |
| 3.8% of $10,000 (just over threshold) | 380 | 9,620 |
How This Calculator Works
Enter the NIIT rate (a fixed 3.8%) and the investment income subject to it (the lesser of net investment income or MAGI above the threshold). The calculator gives the NIIT owed and the income net of it. The thresholds — $200k single, $250k married filing jointly — are not inflation-indexed, so more taxpayers cross them each year.
The Formula
Percentage of an Amount
Amount is the base value, Percentage is the rate applied to it
Worked Example
$50,000 of investment income subject to NIIT incurs $1,900 of Net Investment Income Tax — on top of the income or capital gains tax already owed. For a high earner selling appreciated stock, the combined federal rate can reach 23.8% (20% long-term capital gains + 3.8% NIIT) before state tax. The NIIT is the reason '20% capital gains' often becomes 23.8% in practice for high-income investors.
Key Insight
The NIIT is the hidden surcharge that turns the headline 20% long-term capital gains rate into an effective 23.8% for high earners. Because its thresholds ($200k/$250k) were never inflation-indexed when enacted in 2013, bracket creep pulls more taxpayers into NIIT every year. Planning levers: tax-loss harvesting, holding investments in tax-advantaged accounts (NIIT doesn't apply inside 401(k)/IRA/HSA), spreading large gains across tax years, and managing MAGI below the threshold where possible.
Why NIIT exists and who pays
Affordable Care Act (2010) created NIIT to fund Medicare expansion. Effective 2013. Adds 3.8% surcharge on investment income for high earners (above $200K single / $250K MFJ MAGI).
Affected taxpayers: high earners with substantial investment income. Approximately top 5-7% of U.S. taxpayers pay NIIT.
Major impact on retirees with substantial portfolios. Retiree with $500K portfolio generating $30K dividends + $20K capital gains = $50K investment income. If retired income + investment income exceeds $250K (MFJ), full $50K subject to NIIT × 3.8% = $1,900 additional tax.
Combined with regular tax on investment income: long-term capital gains at 20% + NIIT 3.8% = 23.8% effective rate. Plus state tax (varies). California top earner: 23.8% federal + 13.3% state = 37.1% combined on capital gains.
Strategies to reduce NIIT exposure. (1) Income timing — defer income to lower-MAGI years; (2) Tax-loss harvesting — offset capital gains; (3) Tax-exempt bonds (interest doesn't count as NII); (4) Reduce passive income exposure; (5) Maximize retirement account contributions (reduces MAGI).
Active vs passive — what counts as investment income
NIIT applies to passive/investment income. NOT applicable to wages, self-employment, or active business income.
INCLUDED in NII. Interest, dividends, capital gains (long-term and short-term), rental income (generally), royalty income, non-qualified annuity distributions, passive business activity income.
EXCLUDED from NII. Wages and salary, self-employment income, distributions from qualified retirement accounts (401k, IRA), Social Security benefits, tax-exempt interest, gain on sale of principal residence (within §121 exclusion).
Real estate professional. Active participation in real estate can convert rental income from passive (NIIT applicable) to active (excluded). Requires 750+ hours annually in real estate; more than 50% of personal services in real estate. Substantial bar — most W-2 employees can't meet this.
S-corp shareholder. Wages from S-corp (W-2): not NII. Distributions from S-corp (passive shareholder): potentially NII. Material participation as employee/officer can exclude S-corp distributions from NII. Critical distinction for owner-operators.
NIIT calculation scenarios (2024)
Reference NIIT calculation by income level.
| MAGI (MFJ) | NII | NIIT base | NIIT (3.8%) |
|---|---|---|---|
| $200K | $20K | $0 (below threshold) | $0 |
| $250K | $20K | $0 (at threshold) | $0 |
| $280K | $20K | $20K (full NII) | $760 |
| $280K | $50K | $30K (excess over threshold) | $1,140 |
| $500K | $100K | $100K (full NII) | $3,800 |
| $1M | $200K | $200K (full NII) | $7,600 |
NIIT is the lesser of NII or (MAGI − threshold). Below threshold: no NIIT. Just above threshold: NIIT limited to excess over threshold. Far above threshold: full NII subject to NIIT. For high earners with substantial investment income, NIIT meaningfully increases effective tax rate on investment returns.
Frequently Asked Questions
What is the Net Investment Income Tax?
A 3.8% federal surtax on net investment income for taxpayers with modified adjusted gross income (MAGI) above $200,000 (single) or $250,000 (married filing jointly). Enacted in 2013 to help fund the ACA. It's on top of regular income and capital gains tax.
What counts as net investment income?
Interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and income from passive businesses. It excludes wages, active business income, Social Security, tax-exempt municipal bond interest, and distributions from qualified retirement accounts.
How is the NIIT base calculated?
The 3.8% applies to the LESSER of (a) net investment income, or (b) MAGI above the threshold. So a taxpayer just over the threshold pays NIIT only on the small amount above it, not their full investment income. Enter the lesser figure into this calculator.
Are the thresholds indexed for inflation?
No — the $200k/$250k thresholds were fixed in 2013 and never indexed. This means bracket creep pulls more taxpayers into NIIT every year as incomes rise with inflation. What was a high-earner tax in 2013 increasingly hits upper-middle-income households.
How can I reduce NIIT?
Hold investments in tax-advantaged accounts (NIIT doesn't apply inside 401(k)/IRA/HSA), tax-loss harvest to reduce net gains, spread large capital gains across multiple years, invest in tax-exempt municipal bonds (exempt from NIIT), and manage MAGI below the threshold where feasible.
When is this calculator unreliable?
When MAGI calculation differs from AGI (rare but applies to taxpayers with foreign earned income exclusion). Also unreliable when not distinguishing NII from non-NII income (wages, SE income, qualified retirement distributions not subject to NIIT). For S-corp owners and rental property owners, material participation rules affect classification of income as active vs passive.
References & Authoritative Sources
- Internal Revenue Service (IRS) — Net Investment Income Tax · consulted June 1, 2026 · Federal regulator on NIIT
- Joint Committee on Taxation (JCT) — ACA Tax Analysis · consulted June 1, 2026 · Congressional tax analysis
- Tax Policy Center — Net Investment Income Tax Resources · consulted June 1, 2026 · Academic NIIT research
Related Calculators
Methodology & Review
Net Investment Income Tax (NIIT) equals lesser of (net investment income) or (MAGI − threshold) × 3.8%. The calculator returns NIIT owed. NIIT thresholds 2024: $200K single; $250K MFJ; $125K MFS. Applies to interest, dividends, capital gains, rental income, passive income. Created by Affordable Care Act (ACA), 2013 effective date. Adds 3.8% surcharge to investment income for high earners. RELIABILITY: Reliable for direct calculation. Less reliable when MAGI determination is complex (MAGI = AGI + foreign earned income exclusion; differs from regular AGI for some taxpayers). State income tax additional and not affected by NIIT.
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