Net investment income is the tax base for the 3.8% net investment income tax. In general, net investment income potentially includes any income other than “earned” income that is subject to Social Security tax and Medicare tax.
There are three general categories of net investment income: income commonly considered to be traditional investment type income, such as interest, dividends, annuities, rents and royalties; gross income derived from a trade or business; and net gain attributable to the disposition of property.
2. What is modified adjusted gross income for purposes of the NIIT?
For most taxpayers, MAGI is the same as their AGI. This is because the only adjustments made to AGI in arriving at MAGI relate to foreign earned income.
3. Who is liable for paying the net investment income tax?
Any taxpayer who has net investment income (in any amount) and modified adjusted gross income (MAGI) in excess of $200,000 for single taxpayers, $125,000 for married taxpayers filing separately and $250,000 for married couples filing jointly. Unlike many other income threshold amounts, these thresholds are not indexed annually for inflation.
In addition to individuals, the net investment income tax applies to certain trusts and estates. Nonresident aliens are not subject to the tax.
Keeping reading the next blogpost for more net investment income Q&As.