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IRS.gov Website
Rev. date: 02/27/2014


Net Investment Income Tax

Tax Topic 559
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A new Net Investment Income Tax is effective beginning January 1, 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above applicable threshold amounts.


Individuals

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The Net Investment Income Tax (NIIT) applies in the case of an individual, at a rate of 3.8 percent on the lesser of:


Estates & Trusts

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In the case of an estate or trust, the new tax of 3.8 percent applies on the lesser of:


Definition of Net Investment Income and Modified Adjusted Gross Income

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In general, investment income, for purpose of this tax, includes but is not limited to:The NIIT does not apply to certain types of income that are excluded for regular income tax purposes such as tax-exempt state or municipal bond interest, Veterans Administration benefits or excluded gain from the sale of a principal residence.
Modified adjusted gross income (MAGI), for purposes of the NIIT is generally defined as adjusted gross income (AGI) for regular income tax purposes increased by the foreign earned income exclusion (but also adjusted for certain deductions related to the foreign earned income). For individual taxpayers who have not excluded any foreign earned income, their regular AGI will also be their MAGI.


Reporting Net Investment Income Tax

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This new tax is computed on Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts.For additional information, refer to the Instructions 8960 and to the Net Investment Income Tax FAQs on our website.


Special Considerations for Tax Year 2013

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Taxpayers may need to increase their income tax withholding or estimated taxes to consider any additional tax liability associated with the NIIT in order to avoid certain penalties.
The IRS Withholding Calculator can be used to help determine necessary changes in withholding by your employer, or see our Estimated Taxes page for resources to help you recalculate those payments. See Publication 505, Tax Withholding and Estimated Tax, for more information in either instance.