Net Investment Income Tax Calculator

NIIT, also called Net Investment Income Tax, is a 3.8% surtax on income derived from investments and generally applies to high earners with a significant investment income.

There are several different types of income that can qualify for an NIIT. These include royalties, dividends, and interest on loans. Other forms of investment income, such as rental income and trading in commodities, are not included.

To calculate a taxpayer’s NII, the IRS uses the MAGI Worksheet, which is part of the Instructions for Form 8960. If an individual’s MAGI is greater than the threshold, an NIIT is owed. If an individual’s MAGI is less than the threshold, the IRS will not tax the person’s net investment income.

The thresholds for a person’s net investment income can vary depending on their filing status. An individual can be eligible to pay an NIIT if they have a modified adjusted gross income over $270,000. If the threshold is exceeded, an additional 3.8 percent tax is owed.

How is Net Investment Income Tax Calculated?

Net Investment Income Tax is calculated by taking a portion of the modified adjusted gross income (MAGI) and multiplying it by 0.038. This formula was created by the Health Care and Education Reconciliation Act of 2010. It was passed as part of the Affordable Care Act and was intended to help fund the reforms. The resulting tax is a tax on all of an individual’s investment earnings. It is a tax that millions of Americans have paid since 2013.

For one thing, the NIIT is not indexed for inflation. In fact, it is set to 3.8% for the 2024 tax year. In the meantime, practitioners should know what to do to help their clients calculate the NIIT for themselves.

It is also worth noting that the NIIT does not apply to charitable trusts. Those in this category include Charitable Remainder Trusts (CRTs) and Qualified Retirement Plan Trusts (QRPs).

The 3.8% NIIT is due on the lesser of your net investment income or the modified adjusted gross income (MAGI) over the thresholds. The thresholds are determined by filing status, and there are exceptions.

While the NIIT does not apply to all investors, it is likely that the majority will be affected. For example, a married couple who earns $300,000 in net investment income will pay the NIIT.

Using the Net Investment Income Tax Calculator

The net investment income tax calculator is simpler than it sounds. The amount of money you will owe is calculated by dividing the lesser of your undistributed net investment income or the amount of your MAGI over the tax thresholds. The tax can be mitigated by controlling the timing of your tax payments.

The net investment income tax calculator can help you determine how much you owe in taxes. However, it needs to tell you how to reduce the net investment income you owe. You may be able to offset the net income you owe, but you need to speak to an accountant who can help you determine the best strategy.