Net Investment Income Tax (NIIT)
A 3.8% surtax on investment income that layers on top of ordinary income tax with no phase-out — and thresholds that never rise with inflation.
What it is
The Net Investment Income Tax (NIIT), established by the Affordable Care Act, imposes a 3.8% surtax on net investment income (NII) for individuals whose MAGI exceeds $200,000 (single) or $250,000 (MFJ). The tax applies to the lesser of NII or the amount by which MAGI exceeds the threshold.
Net investment income includes: qualified dividends, ordinary dividends, interest, capital gains (short- and long-term), rental income, royalties, and passive business income. It does not include wages, Social Security, IRA distributions, or active business income.
The NIIT thresholds — $200,000 and $250,000 — are NOT indexed for inflation. They have been at these levels since the tax was enacted in 2013. More retirees are caught every year as nominal incomes rise.
How it triggers
The NIIT applies to the lesser of: (a) your net investment income, or (b) the amount by which your MAGI exceeds the threshold. A Roth conversion raises MAGI but does not itself constitute NII — however, it can push MAGI over the threshold, causing existing investment income to become subject to NIIT.
- Single filer NIIT threshold: $200,000 MAGI
- MFJ NIIT threshold: $250,000 MAGI
- NIIT applies to the lesser of NII or (MAGI − threshold)
- Roth conversions raise MAGI and can pull NII into the NIIT net even if conversion proceeds are not NII
- Thresholds are NOT inflation-adjusted — the real threshold falls every year
What it costs
At 3.8%, the NIIT adds meaningfully to the effective rate on investment income. For a retiree with $50,000 of qualified dividends and MAGI $30,000 above the threshold, the NIIT applies to $30,000 (the lesser of $50,000 NII and $30,000 overage) — adding approximately $1,140 to the tax bill.
The NIIT layers on top of the 15% or 20% long-term capital gains rate. A retiree already in the 20% LTCG bracket faces an effective rate of 23.8% (20% + 3.8% NIIT) on capital gains.
How to see your own Net Investment Income Tax (NIIT) headroom
CliffEdge computes your MAGI and compares it to the NIIT threshold, showing your headroom and estimating the NIIT exposure at your current investment income level. The Roth conversion slider shows how additional income affects your NIIT position.
Enter your dividends, capital gains, rental income, and MAGI to see your NIIT calculation.
Frequently asked questions
Does a Roth conversion trigger the NIIT?+
A Roth conversion is not itself net investment income — it is treated as ordinary income. However, a conversion that pushes your MAGI above the NIIT threshold ($200,000 single / $250,000 MFJ) can cause your existing investment income (dividends, capital gains) to become subject to the 3.8% NIIT.
Are Social Security and IRA distributions subject to NIIT?+
No. Social Security benefits and distributions from traditional IRAs, 401(k)s, and Roth IRAs are not net investment income. They can, however, raise your MAGI and cause other investment income to cross the NIIT threshold.
Is the NIIT threshold ever adjusted for inflation?+
No. Unlike most tax thresholds, the NIIT thresholds have not changed since the tax was enacted in 2013. As a result, more taxpayers are affected each year as nominal incomes and investment returns grow.
Sources & data currency
IRS Instructions for Form 8960 — Net Investment Income Tax
https://www.irs.gov/instructions/i8960Verified 2026-01-01
IRC §1411 — NIIT statutory authority
https://www.law.cornell.edu/uscode/text/26/1411Verified 2026-06-17
All thresholds sourced from IRS, CMS, and HHS publications. Not financial advice — verify critical numbers before acting. See full methodology →