What is Net Investment Income Tax (NIIT)?
A 3.8% surtax on investment income for individuals with modified AGI exceeding $200,000 ($250,000 married filing jointly).
Definition
The Net Investment Income Tax (NIIT) is a 3.8% additional tax on the lesser of net investment income or the amount by which modified AGI exceeds the threshold ($200,000 for single filers, $250,000 for married filing jointly). Investment income includes interest, dividends, capital gains, rental income, royalties, and passive activity income. For US expats, the FEIE reduces AGI but not investment income, so high-income expats may still owe NIIT on investment earnings.
Who Needs to Know This?
Individuals with investment income and modified AGI exceeding the thresholds. Important for expats with significant investment portfolios or rental income.
Key Deadline
Reported on Form 8960 with annual tax return
Potential Penalties
Standard accuracy-related penalties for underreporting
Related Forms
Common Mistakes to Avoid
- 1Not realizing FEIE doesn't eliminate NIIT exposure
- 2Forgetting that foreign tax credits may offset NIIT in some cases
- 3Not including all types of investment income in the calculation
- 4Confusing NIIT with the additional Medicare tax
Related Terms
Harsh Agarwal, EA · IRS Enrolled Agent
Reviewed for accuracy by Zenith Financial Advisors
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