How to Calculate Net Investment Income Tax on Form 8960

If you have investment income and a higher income year, you may owe an extra 3.8% tax on top of your regular income tax — this is the Net Investment Income Tax, and Form 8960 is where the IRS has you calculate it. This piece walks through the form's logic step by step, using a worked example, so you can see exactly how the IRS lands on that final number.

What the tax actually taxes

Since January 1, 2013, individual taxpayers have owed a 3.8% surtax calculated as 3.8% of the *lesser* of two amounts: your net investment income for the year, or the amount by which your modified adjusted gross income (MAGI) exceeds a statutory threshold tied to your filing status. That

Why the lesser-of rule matters

The lesser-of comparison is the entire mechanism of Form 8960, and it protects taxpayers in two different ways depending on which side of the comparison is smaller. If your MAGI barely clears the threshold, the tax is capped at 3.8% of that small excess, even if you have a much larger pool of net investment income sitting on the return. Conversely, if your net investment income is modest but your MAGI is far above the threshold, the tax is capped at 3.8% of that modest investment income figure instead. Either way, you're never taxed on more than the smaller of the two amounts, which is why Form 8960 walks through both calculations separately before comparing them.

The threshold table on Line 14

Form 8960's Line 14 threshold table sets fixed dollar thresholds by filing status: $250,000 for married filing jointly or a qualifying surviving spouse, $125,000 for married filing separately, and $200,000 for single filers or head of household. These thresholds are not indexed for inflation and depend on the filing status used on your return, with a special rule for taxpayers married to a nonresident alien. Because they never adjust upward, more taxpayers can drift above them over time simply through ordinary income growth, even without a change in investment strategy.

Figuring your MAGI on Line 13

For most filers, Line 13 MAGI is not a separate calculation at all — if you did not exclude income under the section 911 foreign earned income exclusion and you do not own an interest in a controlled foreign corporation or passive foreign investment company, your MAGI is simply your adjusted gross income (AGI) as reported on Form 1040 or 1040-SR. If either of those exceptions applies to you, your MAGI instead gets adjusted under a specific IRS regulation using a separate worksheet. This distinction matters because it determines whether you can skip straight to your Form 1040 AGI figure or need to do extra work first.

Form 8960 walk-through, section by section

• **Part III — Tax Computation:** Line 13 reports MAGI; Line 14 reports the statutory threshold for your filing status; Line 15 subtracts Line 14 from Line 13; Line 16 takes the smaller of net investment income or the Line 15 excess; Line 17 multiplies that smaller amount by 3.8 percent.

Worked example: single filer with $220,000 MAGI

Assume, for illustration, a single-filer taxpayer with $220,000 of MAGI and $30,000 of net investment income for the year, using the $200,000 single/head-of-household threshold. Subtracting the $200,000 threshold from $220,000 of MAGI leaves a $20,000 excess on Line 15. Comparing that $20,000 excess to the $30,000 of net investment income, the excess is smaller, so $20,000 is the Line 16 amount subject to tax. Multiplying $20,000 by 3.8 percent produces a Net Investment Income Tax of $760 for the year.

• MAGI: 220000
• Threshold: 200000
• Formula: MAGI-Threshold
• Result: 20000

Illustrative single-filer example: MAGI of $220,000 against the $200,000 single/head-of-household threshold, compared to $30,000 of net investment income.

Where the number goes once you have it

Once Form 8960's Line 17 produces your final NIIT figure, individual filers carry that amount over to Schedule 2 (Form 1040), Line 12, where it adds to your total tax liability alongside other additional taxes. Form 1040-NR filers instead report the equivalent figure on the corresponding line of their U.S. residency statement. In the worked example above, the taxpayer would report $760 on that Schedule 2 line, which then flows into the rest of the Form 1040 tax calculation.

Threshold amounts by filing status

Filing status	Threshold amount
Married filing jointly	$250,000
Qualifying surviving spouse	$250,000
Married filing separately	$125,000
Single or head of household	$200,000

Form 8960 threshold amounts by filing status, per the IRS instructions to Form 8960.

Steps to estimate your own NIIT

1. Find your AGI from Form 1040 or 1040-SR; for most filers, that figure is also your Line 13 MAGI unless you claimed a section 911 foreign earned income exclusion or hold interests in a CFC or PFIC.
2. Identify the statutory threshold for your filing status from the Line 14 table: $250,000 for married filing jointly or qualifying surviving spouse, $125,000 for married filing separately, or $200,000 for single or head of household.
3. Compare the Line 15 excess to your net investment income and take the smaller of the two on Line 16, then multiply by 3.8 percent to get your NIIT on Line 17.
4. Transfer that amount to Schedule 2 (Form 1040), Line 12, if you file Form 1040 or 1040-SR.

Key takeaways

• The NIIT is 3.8% of the lesser of your net investment income or the amount your MAGI exceeds your filing status threshold, not 3.8% of your total investment income.
• Thresholds are fixed at $250,000 (married filing jointly or qualifying surviving spouse), $125,000 (married filing separately), or $200,000 (single or head of household), and are not adjusted for inflation.
• For most filers, Line 13 MAGI is simply AGI from Form 1040 or 1040-SR, with adjustments only required for section 911 exclusions or CFC/PFIC ownership.
• Nonresident alien individuals are not subject to the NIIT.

Frequently asked questions

Are the Form 8960 thresholds adjusted each year for inflation?

No. The Line 14 threshold table sets fixed dollar amounts — $250,000 for married filing jointly or a qualifying surviving spouse, $125,000 for married filing separately, and $200,000 for single or head of household — and these amounts are not indexed for inflation.

Do I need to calculate MAGI separately from my AGI?

Usually not. If you did not exclude income under section 911 and do not own an interest in a controlled foreign corporation or passive foreign investment company, your Line 13 MAGI is simply your AGI as reported on Form 1040 or 1040-SR. Otherwise, you must adjust your AGI under specific IRS regulations using a separate worksheet.

Where does the NIIT amount end up on my tax return?

Once you calculate the tax on Form 8960, Line 17, you carry that figure to Schedule 2 (Form 1040), Line 12, if you file Form 1040 or 1040-SR. Form 1040-NR filers report the equivalent amount on the corresponding line of their U.S. residency statement.

Are nonresident aliens subject to this tax?

No. The Net Investment Income Tax does not apply to nonresident alien individuals. A U.S. citizen or resident married to a nonresident alien generally must file as married filing separately for NIIT purposes unless a specific joint-filing election is also applied for NIIT purposes.

Sources

• www.irs.gov
• www.irs.gov