IRS Net Investment Income Tax (NIIT) rules for 2025 explained — how the 3.8% surtax applies to dividends, capital gains, interest, and passive income for U.S. taxpayers.
Become Our Featured Tax Expert.
This premium ad space is reserved for one tax professional. Put your firm in the spotlight and reach qualified USA leads directly.
To claim this exclusive spot, contact us at [email protected].
Introduction
The Net Investment Income Tax (NIIT) is a 3.8% surtax that applies to certain types of investment income for higher-income taxpayers. Introduced by the Affordable Care Act, this tax continues in 2025 and remains a key consideration for U.S. residents who earn dividends, capital gains, rental income, or other passive income. Understanding who owes NIIT and what income counts is essential for accurate tax planning and compliance.
Who Owes NIIT in 2025?
The NIIT applies to individuals, estates, and trusts with income above specific thresholds. For 2025, the income thresholds remain:
- Single filers: $200,000
- Married filing jointly: $250,000
- Married filing separately: $125,000
- Head of household (with qualifying person): $200,000
- Estates and trusts: Above the top income tax bracket threshold ($15,200 in 2025 approx.)
If your modified adjusted gross income (MAGI) exceeds these levels, you may owe NIIT.
Become Our Featured Tax Expert.
This premium ad space is reserved for one tax professional. Put your firm in the spotlight and reach qualified USA leads directly.
To claim this exclusive spot, contact us at [email protected].
What Counts as Net Investment Income?
The IRS defines net investment income broadly to include passive sources of income. In 2025, NIIT applies to:
- Dividends (qualified and ordinary)
- Capital gains (including gains from sales of stocks, bonds, mutual funds, and real estate not used in business)
- Rental and royalty income
- Interest income (except tax-exempt interest)
- Passive business income from activities in which you do not materially participate
- Annuity income (unless part of retirement distributions)
NIIT does not apply to wages, unemployment compensation, Social Security benefits, alimony, tax-exempt interest, self-employment income, or distributions from qualified retirement plans.
How NIIT Is Calculated
The 3.8% tax applies to the lesser of:
- Your net investment income, or
- The amount by which your MAGI exceeds the threshold for your filing status
Example: A single filer with $220,000 MAGI and $40,000 of investment income would pay NIIT on $20,000 (the excess over $200,000 threshold).
Become Our Featured Tax Expert.
This premium ad space is reserved for one tax professional. Put your firm in the spotlight and reach qualified USA leads directly.
To claim this exclusive spot, contact us at [email protected].
Planning Strategies to Reduce NIIT
- Use tax-loss harvesting to offset capital gains.
- Consider municipal bonds for tax-exempt interest (not subject to NIIT).
- Shift investments into retirement accounts such as IRAs or 401(k)s.
- Re-evaluate passive business activities to see if you can materially participate and avoid NIIT.
- Manage income recognition to keep MAGI below NIIT thresholds.
Conclusion
The Net Investment Income Tax (NIIT) remains an important part of tax planning in 2025. With a 3.8% surtax on investment income above certain thresholds, U.S. residents must pay attention to both their MAGI and the type of income they earn. Proactive strategies can help minimize exposure and keep more of your investment returns.
