The 3.8% net investment income tax, which is added to the regular income tax, covers more than you might think. This tax, often referred to as NIIT, is a surtax on investment income that applies to certain individuals. Understanding this tax and its implications can help you plan your finances more effectively.
NIIT is a tax on net investment income. Those who are subject to the tax will pay 3.8 percent on the lesser of the two: their net investment income or the excess of their modified adjusted gross income over a specified threshold. It applies to individuals with modified adjusted gross income exceeding $200,000 ($250,000 for married couples filing jointly).
If your investments made money, you might owe something called the net investment income tax (NIIT) on your profits. This tax is applicable to various sources of income, such as interest, dividends, capital gains, rental income, and certain passive activities. It is important to note that not all investment income is subject to NIIT.