NIIT — Net Investment Income Tax

A 3.8% tax on investment income (dividends, interest, capital gains) for individuals with MAGI above $200K single / $250K MFJ.

What it actually means

The Net Investment Income Tax (IRC §1411) is a 3.8% federal tax on investment income for high earners. Triggered when Modified Adjusted Gross Income (MAGI) exceeds $200K single / $250K married filing jointly / $125K married filing separately. Applies to interest, dividends, capital gains, rental income, and royalty income — but NOT to wages, IRA distributions, or active business income. Often overlooked in tax planning because it doesn't appear on standard tax brackets.

Distinguishing it from look-alikes

NIIT stacks ON TOP of regular cap-gains tax. So an HNW operator selling appreciated stock pays 20% LTCG + 3.8% NIIT = 23.8% federal effective rate on the gain (before state tax). NIIT thresholds are NOT indexed for inflation, so more taxpayers cross into NIIT territory each year. HELM's Tax Brain factors NIIT into every cap-gains scenario calculation.

Examples

$300K MAGI single, $50K LTCG

LTCG $50K × 20% = $10K + $50K × 3.8% NIIT = $1,900 → $11,900 federal cap-gains tax

$240K MAGI single, $50K LTCG

LTCG $50K × 15% (lower bracket) = $7,500 + ($240K - $200K) × 3.8% NIIT on excess investment income only

$1M MAGI MFJ, $200K LTCG

LTCG $200K × 20% = $40K + $200K × 3.8% NIIT = $7,600 → $47,600 federal cap-gains tax