How to Calculate Net Investment Income Tax: A Comprehensive Guide

How to Calculate Net Investment Income Tax: A Comprehensive Guide

Net investment income tax (NIIT) is a tax on investment income for individuals, estates, and trusts with high incomes. It is calculated as a percentage of the taxpayer’s net investment income, which includes interest, dividends, capital gains, and other investment income.

NIIT was enacted in 2010 as part of the Affordable Care Act. It is designed to help fund the health care law’s expansion of health insurance coverage. NIIT is a progressive tax, meaning that it is applied at higher rates to taxpayers with higher incomes. The tax rate ranges from 3.8% to 39.6%. In 2019, President Trump signed The Tax Cuts & Jobs Act into law, which modified the percentage rates of the NIIT and the income thresholds at which they are applied.

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