1. What is Net Investment Income Tax (NIIT)?

The Net Investment Income Tax (NIIT) is a 3.8% tax on certain net investment income of individuals, estates, and trusts that have income above statutory threshold amounts. It was enacted as part of the Affordable Care Act.

2. How Does the Calculator Work?

The calculator uses the NIIT formula:

Where:

• Net Investment Income — Includes interest, dividends, capital gains, rental income, etc.
• MAGI — Modified Adjusted Gross Income
• Threshold — Filing status-based threshold amount

Explanation: The tax is 3.8% of the lesser of your net investment income or the amount by which your MAGI exceeds the threshold for your filing status.

3. Importance of NIIT Calculation

Details: Understanding your potential NIIT liability helps with tax planning, especially for high-income investors. It affects decisions about investment sales, retirement distributions, and other financial planning.

4. Using the Calculator

Tips: Enter your net investment income, MAGI, and select your filing status. The calculator will use standard threshold amounts unless you override them.

5. Frequently Asked Questions (FAQ)

Q1: What counts as net investment income?
A: Includes interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and passive business income.

Q2: What are the standard threshold amounts?
A: For 2023: $200,000 (single/head of household), $250,000 (married filing jointly), $125,000 (married filing separately).

Q3: Are there ways to reduce NIIT?
A: Strategies include tax-loss harvesting, timing of capital gains, increasing tax-advantaged investments, and charitable contributions.

Q4: Does NIIT apply to retirement accounts?
A: Generally no, as distributions from qualified retirement plans are not considered investment income, though they may increase MAGI.

Q5: Is NIIT deductible?
A: No, NIIT is not deductible for income tax purposes.