The Net Investment Income Tax (NIIT) came into existence in 2013. The tax is imposed on high income earners in an effort to fund the Affordable Care Act. The NIIT is an additional 3.8% surtax on taxpayers whose income is greater than $250,000 for married filing jointly or $200,000 for single filers.  The additional tax applies to:

  • Taxable interest
  • Dividends
  • Short and long-term capital gains
  • Annuity income
  • Income from passive actives, i.e. most rental income

There is not much one can do to get around paying this tax. One suggestion would be to invest more heavily in municipal bonds, which are tax exempt, and therefore are not subject to the tax.

The NIIT computation can be found on Form 8960, which the tax-payer will have to submit with their personal return.

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