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Net Investment Income Tax: Do You Have to Pay It?
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You may owe net investment income tax if you made more than the NIIT income threshold.
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6 years of experience Expertise Investing for beginners financial advice long-term investingAlana Benson is an investing writer who joined NerdWallet in 2019. She covers a wide variety of investing topics including stocks, socially responsible investing, cryptocurrency, mutual funds, HSAs and financial advice. She is also a frequent contributor to NerdWallet's "Smart Money" podcast. Alana has appeared on FOX Houston and the "PennyWise" podcast and has been quoted in MarketWatch and The Sun. Before joining NerdWallet, she wrote two books on identity theft and several young adult nonfiction titles. Her work has been featured in The New York Times, The Washington Post, The Associated Press, MSN, Yahoo Finance and MarketWatch. She is based in Wyoming.
Alana Benson is an investing writer who joined NerdWallet in 2019. She covers a wide variety of investing topics including stocks, socially responsible investing, cryptocurrency, mutual funds, HSAs and financial advice. She is also a frequent contributor to NerdWallet's "Smart Money" podcast. Alana has appeared on FOX Houston and the "PennyWise" podcast and has been quoted in MarketWatch and The Sun. Before joining NerdWallet, she wrote two books on identity theft and several young adult nonfiction titles. Her work has been featured in The New York Times, The Washington Post, The Associated Press, MSN, Yahoo Finance and MarketWatch. She is based in Wyoming. Published in Senior Writer + more + more
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Expertise Taxes InvestingSabrina Parys is an editor and content strategist on the taxes and investing team at NerdWallet, where she manages and writes content on personal income taxes. Her previous experience includes five years as a copy editor and associate editor in academic and educational publishing. She is based in Brooklyn, New York.
Sabrina Parys is an editor and content strategist on the taxes and investing team at NerdWallet, where she manages and writes content on personal income taxes. Her previous experience includes five years as a copy editor and associate editor in academic and educational publishing. She is based in Brooklyn, New York. Published in Editor & Content Strategist + more + moreThe entire goal of investing is to make additional money. But if you meet that goal, you’ll owe tax on the money you earned. Depending on your income, you may owe net investment income tax, too.
The entire goal of investing is to make additional money. But if you meet that goal, you’ll owe tax on the money you earned. Depending on your income, you may owe net investment income tax, too.What is the net investment income tax?
What is the net investment income tax?The net investment income tax (NIIT) is a tax that kicks in if you have investment income and your income exceeds $200,000 for single filers, $250,000 for those married filing jointly or $125,000 for those married filing separately.
The net investment income tax (NIIT) is a tax that kicks in if you have investment income and your income exceeds $200,000 for single filers, $250,000 for those married filing jointly or $125,000 for those married filing separately.The NIIT tax rate is 3.8%. It is applied to either your net investment income or the amount by which your modified adjusted gross income (MAGI) exceeds the threshold for your status, whichever is less.
The NIIT tax rate is 3.8%. It is applied to either your net investment income or the amount by which your modified adjusted gross income (MAGI) exceeds the threshold for your status, whichever is less.» MORE: How to find a CPA or tax accountant near you
» MORE: How to find a CPA or tax accountant near you » MORE: How to find a CPA or tax accountant near youThe more you earn, the more complex your taxes become. Learn the 10 traps to dodge.
GET THE FREE GUIDEon NerdWallet Wealth Partners' site. For informational purposes only. NerdWallet Wealth Partners does not provide tax or legal advice.
on NerdWallet Wealth Partners' site. For informational purposes only. NerdWallet Wealth Partners does not provide tax or legal advice.Who has to pay the net investment income tax?
Who has to pay the net investment income tax?Net investment income, or the money you made from your investments, can come in several forms, including interest, dividends, capital gains and rental income, among others. Wages, unemployment compensation and Social Security benefits generally do not count as investment income
Net investment income, or the money you made from your investments, can come in several forms, including interest, dividends, capital gains and rental income, among others. Wages, unemployment compensation and Social Security benefits generally do not count as investment income Internal Revenue Service. Find Out If Net Investment Income Tax Applies To You. Accessed Dec 15, 2025. .You’ll have to pay the net investment income tax if you earned money on investments and your MAGI meets certain thresholds. Those thresholds depend on your filing status. Here are the income thresholds for the net investment income tax:
You’ll have to pay the net investment income tax if you earned money on investments and your MAGI meets certain thresholds. Those thresholds depend on your filing status. Here are the income thresholds for the net investment income tax:Filing status
Filing status
Filing statusMAGI threshold
MAGI threshold
MAGI thresholdSingle
Single$200,000.
$200,000.Married filing jointly
Married filing jointly$250,000.
$250,000.Married filing separately
Married filing separately$125,000.
$125,000.Head of household (with qualifying person)
Head of household (with qualifying person)$200,000.
$200,000.Qualifying widow(er) with dependent child
Qualifying widow(er) with dependent child$250,000.
$250,000.Net investment income tax and capital gains tax
Net investment income tax and capital gains taxIf you’re thinking that your investment income is already taxed — you’re right. The net investment income tax is in addition to capital gains taxes.
If you’re thinking that your investment income is already taxed — you’re right. The net investment income tax is in addition to capital gains taxes .How much you pay in capital gains tax depends on how long you held the asset before selling. Long-term capital gains tax is levied on the profits you made if you held the asset for over a year, while short-term capital gains tax is levied on the profits you made if you held the asset for a year or less. If your income is over the threshold for net investment income tax, you’ll pay that, too.
How much you pay in capital gains tax depends on how long you held the asset before selling. Long-term capital gains tax is levied on the profits you made if you held the asset for over a year, while short-term capital gains tax is levied on the profits you made if you held the asset for a year or less. If your income is over the threshold for net investment income tax, you’ll pay that, too.» Ready to crunch the numbers? Check out NerdWallet’s capital gains calculator
» » Ready to crunch the numbers? Ready to crunch the numbers? Check out NerdWallet’s capital gains calculatorWhat counts as net investment income (NII)?
What counts as net investment income (NII)?Net investment income typically includes income generated from assets such as stocks, bonds, mutual funds, index funds and rental income. Some nonqualified annuities may also count
Net investment income typically includes income generated from assets such as stocks, bonds, mutual funds, index funds and rental income. Some nonqualified annuities may also count Internal Revenue Service. Questions and Answers on the Net Investment Income Tax. Accessed Dec 15, 2025. .A certain amount from the sale of your principal home — $250,000 if filing as a single person or $500,000 if married filing jointly — isn’t considered net investment income because this amount is typically exempt from taxation. Any profit that exceeds this home sale tax exemption, however, is considered taxable net investment income
A certain amount from the sale of your principal home — $250,000 if filing as a single person or $500,000 if married filing jointly — isn’t considered net investment income because this amount is typically exempt from taxation. Any profit that exceeds this home sale tax exemption , however, is considered taxable net investment income Internal Revenue Service. Instructions for Form 8960. Accessed Dec 15, 2025. .How do you avoid the net investment income tax?
How do you avoid the net investment income tax?You can avoid the net investment income tax by keeping your MAGI below $200,000 for single filers, $250,000 for those married filing jointly or $125,000 for those married filing separately. But that doesn’t mean you have to make less money.
You can avoid the net investment income tax by keeping your MAGI below $200,000 for single filers, $250,000 for those married filing jointly or $125,000 for those married filing separately. But that doesn’t mean you have to make less money.You can “reduce” your income by strategically putting money into a tax-advantaged investment account, such as a traditional 401(k). When you add money to your 401(k), it reduces your MAGI, which may lower your income to below the threshold for triggering the net investment income tax.
You can “reduce” your income by strategically putting money into a tax-advantaged investment account, such as a traditional 401(k) . When you add money to your 401(k), it reduces your MAGI, which may lower your income to below the threshold for triggering the net investment income tax.You can also check out municipal bonds. These tax-free bonds don’t typically earn high returns, but when used strategically, they may help you avoid exposure to the net investment income tax.
You can also check out municipal bonds . These tax-free bonds don’t typically earn high returns, but when used strategically, they may help you avoid exposure to the net investment income tax.If you’re looking to reduce your tax liability through your investments, it may be wise to speak with a financial advisor.
If you’re looking to reduce your tax liability through your investments, it may be wise to speak with a financial advisor.» Need an expert opinion? View our list of the best financial advisors
» » Need an expert opinion? Need an expert opinion? View our list of the best financial advisorsNet investment income tax examples
Net investment income tax examplesLet’s say you are a single filer who made a $100,000 salary and also earned $150,000 by selling stocks. That brings your modified adjusted gross income to $250,000. The NIIT threshold for single filers is $200,000.
Let’s say you are a single filer who made a $100,000 salary and also earned $150,000 by selling stocks. That brings your modified adjusted gross income to $250,000. The NIIT threshold for single filers is $200,000.Since you exceeded the income threshold and you earned investment income, you would owe the tax.
Since you exceeded the income threshold and you earned investment income, you would owe the tax.The 3.8% net investment income tax applies to the lesser of either the amount that your modified adjusted gross income exceeds the $200,000 (or other, depending on your filing status) threshold or your investment income.
The 3.8% net investment income tax applies to the lesser of either the amount that your modified adjusted gross income exceeds the $200,000 (or other, depending on your filing status) threshold or your investment income.In this case, the amount that exceeds the threshold is $50,000 ($250,000 - $200,000), and your investment income is $150,000. That means you would owe the 3.8% net investment income tax on the lesser amount of $50,000, with the tax equaling $1,900.
In this case, the amount that exceeds the threshold is $50,000 ($250,000 - $200,000), and your investment income is $150,000. That means you would owe the 3.8% net investment income tax on the lesser amount of $50,000, with the tax equaling $1,900.The more you earn, the more complex your taxes become. Learn the 10 traps to dodge.
GET THE FREE GUIDEon NerdWallet Wealth Partners' site. For informational purposes only. NerdWallet Wealth Partners does not provide tax or legal advice.
on NerdWallet Wealth Partners' site. For informational purposes only. NerdWallet Wealth Partners does not provide tax or legal advice.Do I need to worry about the net investment income tax?
Do I need to worry about the net investment income tax?If you’re concerned about whether you have to pay the net investment income tax, it’s fairly easy to figure out based on how much money you make and if you have investment income. If you’re concerned about how to pay the net investment income tax, that's another story.
If you’re concerned about whether you have to pay the net investment income tax, it’s fairly easy to figure out based on how much money you make and if you have investment income. If you’re concerned about how how to pay the net investment income tax, that's another story.If you still have questions, it may be worth consulting a pro, such as a CPA or tax accountant, who can help you with your individual tax situation.
If you still have questions, it may be worth consulting a pro, such as a CPA or tax accountant , who can help you with your individual tax situation.» See our picks for the year's best financial advisors
» See our picks for the year's best financial advisors » See our picks for the year's best financial advisorsHelpful resources
Helpful resources Best Financial Advisors Search for a Financial Advisor Near You How to Choose a Financial Advisor in 5 Steps 3 Best Wealth Management Services More like this Taxes How Much Does a Financial Advisor Cost? Most financial advisors charge based on how much money they manage for you. Fees are typically 1% a year but can be lower. 2 By Andrea Coombes, Taryn Phaneuf Do You Need a Financial Advisor? 7 Ways to Tell You may need a financial advisor if you're facing big life changes, don't have financial goals, have complex compensation, high tax bills or for other reasons. Taryn Phaneuf How to Find Cheap or Free Financial Advice Quality financial advice is more accessible than ever — and much of it is free or inexpensive. Here's how to get it. Anna-Louise Jackson Retirement Calculator Are you on track to save enough for retirement? Use our calculator to check your progress, see how much retirement income you'll have and estimate how much more you should save. 2 By June Sham, Alana BensonGet matched to a financial advisor for free with NerdWallet Advisors Match.
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