Guide · Capital gains & investment income
The 3.8% NIIT: when the investment surtax actually bites
A flat 3.8% on top of your capital-gains rate, owed the moment your income crosses a line that has not moved since 2013. Here is who pays it, on what, and how to see it coming.
The short answer
The net investment income tax is a flat 3.8% surtax on the smaller of your net investment income or the amount your modified AGI exceeds a fixed threshold: $200,000 single or head of household, $250,000 married filing jointly. Single with $220,000 MAGI and enough investment income, you owe $760. Under the line, you owe $0— the tax is binary until it isn’t.
Test your own sale: stock-sale tax calculator →
What the NIIT is
Since 2013, high-income filers owe an extra 3.8% on investment income. It is computed as 3.8% times the lesser of two numbers: your net investment income, or the amount your MAGI goes over the threshold.
Two things make it different from the brackets around it. The thresholds are written into the statute and are not inflation-indexed — the line sits exactly where it was in 2013 while salaries, vest sizes, and portfolio values have climbed. And the trigger is all-income: wages never pay NIIT directly, but a big enough salary, vest, or bonus pushes your MAGI over the line and drags your investment income into the tax.
What counts as investment income — and what doesn’t
Net investment income is, broadly:
- Capital gains — short- and long-term, stocks, funds, crypto, real estate
- Dividends and interest
- Rental and royalty income
- Passive partnership and S-corp income from a business you don’t materially participate in
It is not:
- Wages, salary, bonuses, and RSU vests
- 401(k), IRA, and pension distributions — including Roth conversions
- Social Security benefits
- Tax-exempt interest, such as municipal-bond interest
- Income from a business you actively run
The asymmetry that surprises people: your RSU vest is never itself hit with the 3.8%, but every vested dollar raises MAGI. A vest that crosses the line is what makes your other income — the gains, the dividends — taxable at 3.8%.
The thresholds, and why they creep up on you
- Single: $200,000
- Married filing jointly: $250,000
- Head of household: $200,000
- Married filing separately: $125,000
Statutory, fixed, unindexed. Every year the brackets adjust and these numbers don’t, so each year more filers cross them without anything about their finances changing.
The math, three incomes deep
Single filer with investment income at least as large as the excess, at three MAGI levels (engine-verified figures):
- $150,000 MAGI → under the line. NIIT: $0.
- $220,000 MAGI → $220,000 − $200,000 = $20,000 over. NIIT: 3.8% × $20,000 = $760.
- $320,000 MAGI → $320,000 − $200,000 = $120,000 over. NIIT: 3.8% × $120,000 = $4,560.
The “lesser of” rule caps the hit at your actual investment income: the surtax never exceeds 3.8% of what your investments made, no matter how far over the line your wages alone put you.
The vest or bonus that pushes you over
Sell stock for a $50,000 long-term gain. If your MAGI stays at or under the threshold even with the gain counted, the NIIT on that sale is $0. If the gain sits fully above the line, it is $1,900. Same sale, opposite answers — the difference is everything else you earned.
Short-term versus long-term: same surtax, different bracket
NIIT does not care how long you held. A $2,500 short-term gain on a $322,500 MAGI owes $95 of NIIT — the same 3.8% a long-term gain would owe. What changes with holding period is the capital-gains rate underneath: short-term gains pay ordinary rates, long-term gains pay the preferential schedule. The full bracket mechanics are in the capital-gains guide →.
A loss year creates no NIIT refund
Net investment income floors at zero for this tax. Sell at a $60,000 loss and the 3.8% computes against $0 — you owe nothing and recover nothing, no matter how far over the threshold your wages put you. Losses still do their ordinary work: they offset gains inside the investment-income base and can carry forward. They just can’t make the surtax negative.
Watch the line, not the calendar
NIIT exposure is a running total, not an April question. Every vest, sale, and bonus moves your MAGI while the threshold stays frozen — the people who owe it usually find out after the fact. Run the stock-sale calculator → to see whether NIIT touches your next sale. The connected monitor tracks MAGI against the line all year and taps you when you cross it.
FAQ
Do my wages pay NIIT?
No. Wages, salary, and RSU vests are never net investment income. But they count toward MAGI, so a big vest or bonus can push your investment income over the threshold and into the 3.8%.
Does a Roth conversion count toward the NIIT threshold?
The converted amount raises MAGI, which can push investment income over the line, but the distribution itself is not investment income and is never hit with the 3.8%.
Is NIIT the same as the additional Medicare tax?
No. The additional Medicare tax hits wages and self-employment income over the same thresholds. NIIT hits investment income. A high earner with a big sale can owe both in the same year.
What if I sell at a loss?
No NIIT, and no NIIT refund. Net investment income floors at zero for the surtax. Losses reduce the investment income the tax applies to, but they never make the 3.8% negative.
Does NIIT apply to my home sale?
Only to the taxable part. The primary-home exclusion shelters the first slice of a home-sale gain. Whatever remains taxable counts as investment income and can be hit if your MAGI is over the threshold.
A guide answers this once. TaxGhost answers it every month — the monitor recomputes what you owe each time your income changes.
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