Educational information, not individual financial advice.
Key Takeaways
The NIIT (Net Investment Income Tax) is a 3.8% federal surtax on investment income for filers above a MAGI threshold. It was enacted in 2010 to fund the ACA. The threshold is not inflation-indexed, which means it bites more filers each year through bracket creep.
The tax is 3.8% × the lesser of:
Threshold (statutory, never inflation-indexed):
The "lesser of" structure means: if your investment income is $50k and your MAGI is $50k over the threshold, you pay 3.8% × $50k = $1,900. If your investment income is $500k but your MAGI only crosses by $10k, you pay 3.8% × $10k = $380.
Yes — included:
No — excluded:
Three reasons NIIT compounds quietly:
Threshold doesn't index. $200k MAGI in 2014 was upper-middle-class. In 2026 dollars, the same income is barely middle-class in many HCOL areas. The number of filers paying NIIT grows every year.
Roth conversions trigger it. A Roth conversion adds to MAGI but the converted dollars are ordinary income, not investment income. So a conversion can push you past the threshold AND increase the "MAGI in excess" amount, making your other investment income suddenly subject to NIIT.
The surtax stacks on top of LTCG. A long-term capital gain at the 15% LTCG rate becomes 18.8% (15% + 3.8%) for NIIT-exposed dollars. At the 20% LTCG bracket, it's 23.8%. Most retirement-projection tools forget this layer.
Bracket-fill Roth conversions. Run conversions in years when your MAGI is below the threshold (e.g., between retirement and Social Security claiming). Converting at lower MAGI avoids spawning NIIT exposure on your other investment income.
Tax-loss harvesting offsets NIIT. Realized capital losses reduce net investment income directly, which can push the NIIT bill to zero even if MAGI is over the threshold.
Muni bonds for taxable-account fixed income. Tax-exempt interest doesn't appear in net investment income, so it doesn't trigger NIIT on itself. Watch out for AMT-preference muni bonds though (see AMT).
Active business participation. If you materially participate in a business (active hours, decision-making), the income is excluded from NIIT entirely. The IRS rules for "material participation" are specific (~500 hours/year).
The federal-breakdown row "Net investment income tax (NIIT)" on the /taxes page shows the actual NIIT for the current year. The engine computes it from your asset-level taxable-yield assumptions + capital-gains realization assumptions + your MAGI.
Run a Roth conversion scenario via the scenario picker to see how MAGI shifts in the conversion year — you'll often find that "save tax in retirement" gets partially offset by "spawn NIIT in the conversion year."
Try it in your scenario
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