Net Investment Income Tax (NIIT) Calculator 2026

What Is the Net Investment Income Tax (NIIT)?

The Net Investment Income Tax is a 3.8% federal surtax under Internal Revenue Code Section 1411, reported on IRS Form 8960. It applies to the lesser of (a) net investment income or (b) the amount by which modified adjusted gross income exceeds the filing-status threshold — $200,000 for single filers, $250,000 for married filing jointly, and $125,000 for married filing separately. These thresholds were set by the Health Care and Education Reconciliation Act of 2010 (effective tax year 2013) and are NOT indexed for inflation, so bracket creep increasingly pulls middle-income investors into NIIT each year. Source: IRC § 1411.

NIIT is in addition to ordinary federal income tax and the 0.9% Additional Medicare Tax — meaning a high earner in the 37% bracket can effectively pay 40.8% on the same dollar of investment income. The tax does not apply to nonresident aliens or to trade-or-business income from a non-passive activity. Last updated: May 3, 2026.

Form 8960 Inputs — What Counts as Net Investment Income

Net investment income on Form 8960 includes: taxable interest (line 1), ordinary and qualified dividends (line 2), annuities from non-qualified plans (line 3), rental and royalty income (line 4a, unless real-estate-professional non-passive), passive income from partnerships and S-corporations (line 4b), and net capital gains (line 5a). It excludes municipal bond interest, distributions from qualified retirement plans, the home-sale exclusion under Section 121, and active trade-or-business income where the taxpayer materially participates.

Allocable deductions on lines 9a–10 reduce gross investment income to arrive at NII: investment interest expense, advisory fees and broker commissions properly allocable to NII, state and local income tax allocable to investment income, and miscellaneous investment expenses. The Tax Cuts and Jobs Act of 2017 suspended miscellaneous itemized deductions through 2025, but the One Big Beautiful Bill Act (P.L. 119-21, July 2025) extended this suspension permanently — confirm 2026 Form 8960 instructions for any remaining deductible categories.

The Lesser-of Rule (Section 1411(a)(1))

NIIT applies to the LESSER of net investment income or MAGI excess over threshold — never the greater. If your MAGI is $280,000 (single, $80,000 over threshold) but your NII is only $24,000, your NIIT base is $24,000 and your tax is $912. If instead your NII is $120,000 and your MAGI excess is only $30,000, your NIIT base is capped at the $30,000 MAGI excess. This is why high earners with mostly wage income often owe little NIIT despite massive total tax bills, while investors with modest wages but large capital gains can owe substantial amounts.

The lesser-of rule creates a planning lever: if you are near the threshold, deferring investment realization (e.g., harvesting losses, postponing sales) can drop your MAGI excess to zero and eliminate NIIT entirely — even if your NII would otherwise be large. Conversely, accelerating retirement-plan distributions raises MAGI without raising NII, often increasing NIIT through the MAGI-excess path. The calculator above shows both paths so you can see which is binding.

Strategies to Reduce the 3.8% NIIT

Common strategies include: maximizing pre-tax retirement contributions (401(k), traditional IRA, HSA) to reduce MAGI, holding municipal bonds (interest is excluded from NII), realizing capital losses to offset gains, structuring rental real estate to qualify for the real-estate-professional exception (active management with 750+ hours), gifting appreciated securities to lower-bracket family members, and timing Roth conversions in low-MAGI years. For passive partnership income, restructuring to material participation (500+ hours) reclassifies the income as non-passive trade-or-business, exempt from NIIT. Always verify your specific facts with IRS Form 8960 instructions and a qualified tax advisor before relying on these strategies.