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What is Net Investment Income Tax (NIIT)?

The Net Investment Income Tax (NIIT) is a 3.8% tax that applies to individuals, estates and trusts based on the lesser of:

  • your net investment income, or
  • your modified adjusted gross income (MAGI) above the following statutory threshold amounts:
    • Single or head of household with qualifying person: $200,000
    • Married filing jointly, or qualifying widow(er) with dependent child: $250,000
    • Married filing separately: $125,000

Source: irs.gov

Go to this section in Credit Karma Tax: Net Investment Income Tax - Form 8960

Generally, investment income includes the following:

  • Interests
  • Dividends
  • Capital gains
  • Rent and royalty income
  • Non-qualified annuities
  • Income from businesses involved in trading of financial instruments or commodities
  • Passive income from businesses

Source: irs.gov

Based on what you’ve entered, Credit Karma Tax will calculate the NIIT to determine how much you owe. If you need to make any adjustments to your net investment income, you can enter the amounts on the Net Investment Income Tax page.

What are common types of income that are not Net Investment Income?

Operating income from a non-passive business

Passive income such as interest and dividends can be subject to NIIT, even interest and dividend income derived from your business. However, if you materially participate in your business, you can eliminate passive income from the equation.

Income from investments in tax-exempt bonds

Interest from tax-exempt sources are not included when calculating the NIIT.

Source: irs.gov

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