2026 NIIT (Net Investment Income Tax): Thresholds, Calculation, and How to Reduce It

Disclaimer: This article is for educational purposes only and does not constitute tax, legal, or financial advice. Tax laws are complex and subject to change. Consult a qualified CPA or tax professional before implementing any tax strategy.

The 2026 Net Investment Income Tax (NIIT) is a 3.8% federal surtax on investment income (interest, dividends, capital gains, rental, royalties) for taxpayers with modified AGI above $200,000 (single) or $250,000 (married filing jointly). The thresholds have been frozen since 2013 and are not indexed for inflation.

The NIIT was enacted under the Affordable Care Act in 2013 to fund Medicare. The thresholds haven’t budged for 13 years, which means inflation has dramatically expanded the population subject to it.

This guide is the dedicated NIIT reference. For the full 2026 ordinary income brackets, capital gains, AMT, FICA, and Social Security wage base, see the 2026 federal tax brackets pillar. For dedicated capital gains coverage including how NIIT stacks on top of LTCG rates, see the 2026 capital gains tax brackets guide.

Key facts: 2026 Net Investment Income Tax (NIIT)

• 3.8% surtax on net investment income for taxpayers above MAGI thresholds
• 2026 thresholds: $200,000 (single, HoH), $250,000 (MFJ), $125,000 (MFS)
• Thresholds are NOT indexed for inflation (frozen since 2013)
• Tax applies to the lesser of net investment income or MAGI excess over threshold
• Stacks on top of ordinary income tax and capital gains tax for high earners
• Top combined federal rate on long-term capital gains: 23.8% (20% + 3.8% NIIT)
• Top combined federal rate on ordinary investment income: 40.8% (37% + 3.8% NIIT)
• Retirement account distributions are excluded from net investment income

What Is the 2026 NIIT?

The Net Investment Income Tax is a 3.8% surtax codified in IRC Section 1411. It’s separate from regular federal income tax and stacks on top of any capital gains tax or ordinary income tax owed on investment income.

The tax applies to high-income taxpayers based on their modified adjusted gross income (MAGI). For most filers, MAGI for NIIT purposes is your adjusted gross income (Form 1040, line 11) plus any excluded foreign earned income.

2026 NIIT MAGI Thresholds

Filing Status	2026 MAGI Threshold
Single	$200,000
Head of Household	$200,000
Married Filing Jointly	$250,000
Qualifying Surviving Spouse	$250,000
Married Filing Separately	$125,000

These thresholds have been the same since 2013. They are not indexed for inflation. In 2013, the MFJ threshold of $250,000 placed only the top 3% of households in NIIT territory. In 2026, it captures roughly 7-8% of households due to wage growth alone.

The marriage penalty is significant: two single filers each at the $200,000 threshold can have $400,000 in combined MAGI before NIIT applies. Filing jointly, the same couple hits NIIT at $250,000, which is $150,000 less of a buffer than two single filers.

How Is NIIT Calculated?

The 3.8% tax applies to the lesser of:

1. Your net investment income, or
2. The amount your MAGI exceeds the filing-status threshold

Calculation Examples

Example 1: Below threshold, no tax.

A single filer has MAGI of $180,000 with $30,000 in investment income.

• $180,000 MAGI is below the $200,000 threshold
• NIIT = $0

Example 2: Above threshold, partial tax.

A single filer has MAGI of $220,000 with $50,000 in investment income.

• MAGI excess: $220,000 - $200,000 = $20,000
• Lesser of $50,000 (net investment income) or $20,000 (MAGI excess) = $20,000
• NIIT = $20,000 × 3.8% = $760

Example 3: Above threshold, full investment income taxed.

A single filer has MAGI of $400,000 with $50,000 in investment income.

• MAGI excess: $400,000 - $200,000 = $200,000
• Lesser of $50,000 (net investment income) or $200,000 (MAGI excess) = $50,000
• NIIT = $50,000 × 3.8% = $1,900

Example 4: MFJ, full taxation.

An MFJ couple has MAGI of $700,000 with $80,000 in investment income.

• MAGI excess: $700,000 - $250,000 = $450,000
• Lesser of $80,000 (net investment income) or $450,000 (MAGI excess) = $80,000
• NIIT = $80,000 × 3.8% = $3,040

For most high earners, MAGI excess is far larger than net investment income, so the NIIT effectively taxes all net investment income at 3.8%.

What Counts as Net Investment Income?

Income Subject to NIIT

The following income types are included in net investment income:

• Interest income (taxable interest, including bank interest, corporate bond interest)
• Dividends (both qualified and ordinary)
• Capital gains (short-term and long-term)
• Rental and royalty income (unless real estate professional)
• Non-qualified annuity income
• Income from a passive trade or business (where you don’t materially participate)
• Income from financial instrument trading (for non-trader-status individuals)
• Section 1411 trade or business income (most passive ventures)

Income Excluded from NIIT

The following are explicitly excluded:

• Wages and salary (W-2 income)
• Self-employment income (Schedule C, partnership K-1 with active participation)
• Social Security benefits (even taxable portion)
• Pension income
• Distributions from qualified retirement plans (401(k), traditional IRA, Roth IRA, 403(b), 457(b))
• Tax-exempt interest (municipal bond interest)
• Active trade or business income (where you materially participate)
• Income from real estate professionals (under IRC Section 469(c)(7))
• Section 1031 like-kind exchange deferred gains (until eventually realized)
• Gain on sale of primary residence (up to $250,000 single / $500,000 MFJ excluded under Section 121)
• Self-rental income (if rented to a business in which you materially participate)

The list of exclusions is the basis for most NIIT reduction strategies.

How NIIT Stacks With Other Taxes

For high earners, NIIT layers on top of regular income tax. The combined federal rates:

On Long-Term Capital Gains and Qualified Dividends

Taxable Income Bracket	LTCG Rate	NIIT	Combined
0% LTCG bracket	0%	0% (likely under MAGI threshold)	0%
15% LTCG bracket	15%	3.8%	18.8%
20% LTCG bracket	20%	3.8%	23.8%

On Ordinary Investment Income (Interest, Non-Qualified Dividends, Short-Term Gains, Most Rental)

Federal Bracket	Ordinary Rate	NIIT	Combined
32%	32%	3.8%	35.8%
35%	35%	3.8%	38.8%
37%	37%	3.8%	40.8%

On Real Estate Recapture (Section 1250)

Maximum Federal Rate	NIIT	Combined
25%	3.8%	28.8%

State income tax stacks on top of all these. A California single filer in the top federal bracket with passive rental income pays 37% federal + 3.8% NIIT + 13.3% California = 54.1% combined. The same income earned in Texas, Florida, or Washington owes 40.8% all-in federal with no state tax.

Six Strategies to Reduce NIIT in 2026

1. Maximize Pre-Tax Retirement Contributions

Pre-tax retirement contributions reduce your AGI dollar-for-dollar. For 2026 limits, a high earner can contribute:

• 401(k) employee elective deferral: $24,500 (or $32,500 with age-50+ catch-up)
• HSA family limit: $8,750 (or $9,750 with age-55+ catch-up)
• Traditional IRA (if not covered by workplace plan): $7,500

Combined household pre-tax contributions can easily reach $50,000-$70,000, which directly lowers MAGI by the same amount. For an MFJ couple at $260,000 MAGI, $30,000 in contributions drops them below the $250,000 NIIT threshold, eliminating NIIT entirely on their investment income.

See the maximizing retirement contributions guide for the full menu including mega backdoor Roth.

2. Municipal Bonds (Federal NIIT Exclusion)

Tax-exempt interest from municipal bonds is excluded from net investment income. For high earners in the 23.8% combined bracket on bond interest, the tax-equivalent yield calculation matters:

• A muni bond yielding 4% federal-tax-free is equivalent to a taxable bond yielding ~5.25% in the 23.8% combined bracket
• For California residents, in-state munis are also state-tax-free, pushing tax-equivalent yield higher

Allocating your bond allocation in taxable accounts to municipal bonds rather than corporate bonds can save substantial NIIT.

3. Real Estate Professional Status

If you or your spouse qualifies as a real estate professional under IRC Section 469(c)(7), rental income loses its passive character. With material participation in each property (or aggregate election), the rental income becomes non-passive and is excluded from net investment income.

Requirements:

• More than 750 hours per year on real estate activities
• More than half of personal services in real estate
• Material participation in each property or aggregate election filed

Most W-2 high earners cannot qualify because of the time commitment. Spouses who don’t have a full-time job often can. The strategy is detailed in the short-term rental tax strategy guide.

4. Active Business Investments

Income from a trade or business in which you materially participate is excluded from NIIT. Material participation requires meeting one of seven IRS tests, the most common being:

• More than 500 hours of work in the activity during the year
• All of the participation in the activity (sole material participant)
• More than 100 hours and at least as much as any other individual

K-1 income from S-corporations, partnerships, and LLCs where you actively work generally avoids NIIT. Passive investments in funds, syndications, and real estate partnerships where you don’t actively work generally do trigger NIIT.

5. Tax-Loss Harvesting

Realizing losses on losing positions reduces your net investment income. The IRS lets you:

• Offset capital gains dollar-for-dollar with capital losses
• Net capital losses reduce ordinary income up to $3,000 per year
• Carry forward unused losses indefinitely

For a high earner with $50,000 in capital gains and $30,000 in unrealized losses, harvesting eliminates 60% of the gain and the corresponding NIIT. See the 2026 capital gains tax brackets guide for harvesting mechanics and wash-sale rules.

6. Stepped-Up Basis at Death

Holding appreciated assets until death eliminates both capital gains tax and NIIT permanently. Heirs receive a stepped-up cost basis at fair market value, and the unrealized gains during your lifetime are never taxed.

Combined with the 2026 estate tax exemption of $15,000,000 per person, this strategy is the foundation of “buy, borrow, die” planning for HNW households. See the Monte Carlo retirement guide for how this stress-tests in retirement modeling.

NIIT Filing Mechanics

Form 8960

The NIIT is calculated and reported on Form 8960. The form walks through:

1. Total investment income (interest, dividends, capital gains, rental, royalty, etc.)
2. Investment expenses properly allocable to that income (advisor fees, state tax allocated to investment income)
3. Net investment income
4. Modified AGI calculation
5. Lesser of net investment income or MAGI excess
6. 3.8% applied to that amount

Estimated Tax Considerations

NIIT is included in your total federal tax liability for purposes of estimated tax payments. If your prior-year tax included NIIT and you’ll owe it again, your safe harbor estimated tax payments need to cover it.

For high earners with variable investment income (RSU vests, year-end mutual fund distributions, deferred comp payouts), the NIIT can create estimated tax surprises. See the estimated tax payments guide for safe harbor mechanics and how to calculate quarterly payments that include NIIT.

State Conformity

States vary on whether they conform to the federal NIIT. Most do not impose a separate state NIIT. However, some states tax investment income differently (e.g., California taxes capital gains as ordinary income, with no preferential rate). Always check state-specific treatment when modeling total tax liability.

Common NIIT Mistakes High Earners Make

1. Forgetting NIIT in capital gains tax planning. A $100,000 long-term gain at 20% looks like $20,000. With NIIT it’s $23,800. The 3.8% premium on every gain is real money over time.

2. Treating REIT dividends as qualified. REIT dividends are typically ordinary income subject to ordinary rates plus NIIT (top 40.8% combined). Most stock dividends are qualified at 23.8% combined. Allocate REITs to tax-advantaged accounts.

3. Realizing gains in MFJ years near $250,000. A couple at $245,000 MAGI realizing a $20,000 gain pushes them above threshold and exposes the gain to NIIT. Realizing the same gain in a year already well above $250,000 has the same NIIT consequence but is harder to plan around.

4. Not coordinating spousal deferrals to push MAGI below threshold. An MFJ couple with $260,000 MAGI is above threshold by $10,000. Adding $10,000 in 401(k) contributions saves NIIT on all investment income they’d otherwise have taxed at the threshold-determined amount.

5. Missing the real estate professional opportunity. A high-earning couple with one stay-at-home spouse and a meaningful rental portfolio often qualifies for real estate professional status without realizing it, eliminating NIIT on tens of thousands in rental income.

Sources

• IRS: Net Investment Income Tax: Official guidance and FAQs
• IRS Topic No. 559: Net Investment Income Tax
• IRS Form 8960: NIIT calculation form
• IRC Section 1411: Statutory authority
• IRC Section 469(c)(7): Real estate professional status
• Treasury Regulations Section 1.1411: NIIT regulations

Related Resources

• 2026 Federal Tax Brackets for High Earners: Complete tax rate reference including ordinary income, AMT, FICA
• 2026 Capital Gains Tax Brackets: Long-term and short-term capital gains rates and the NIIT stacking detail
• 2026 Phaseouts & Tax Cliffs for $150K+ Earners: Every income-based tax cliff above $150K including NIIT thresholds
• Maximizing Retirement Contributions: How to use 401(k) and HSA to lower MAGI below NIIT thresholds
• Estimated Tax Payments Guide: Safe harbor mechanics including NIIT
• Asset Allocation for $500K+ Earners: Tax-efficient asset location to minimize NIIT exposure
• Short-Term Rental Tax Strategy: How STR loophole can sidestep NIIT on rental income