Net Investment Income Tax (NIIT)

The Net Investment Income Tax, or NIIT, is an extra 3.8 percent tax that sits on top of regular capital gains and income tax. It applies to investment income, including capital gains, dividends, interest, and rental income, but only for higher earners. Specifically, it hits the smaller of your net investment income or the amount by which your modified adjusted gross income exceeds a statutory threshold of $200,000 for single filers and $250,000 for married couples filing jointly.

Those thresholds were set by statute and are not adjusted for inflation, so more taxpayers cross them over time as incomes rise. The NIIT is why a high earner’s true rate on a long-term capital gain can be 18.8 or 23.8 percent rather than 15 or 20. Our capital gains playbook shows when the NIIT applies and how it stacks on top of the long-term rates.