Net Investment Income Tax 2015 – 2016
This year, taxpayers may notice a new tax that applies to income from investments. Known as the Net Investment Income Tax, you may be responsible for paying this tax if your regular income is over a certain threshold, and you have investment income. If you think you might be subject to this tax, you’ll want to know a few basic facts about the NIIT.
Net Investment Income Tax is applied at a rate of either 3.8% on your investment income or the amount by which you modified adjusted gross income is greater than a specified limit contingent on your filing status, depending on which is less.
Net investment income typically includes, but is not limited to:
- Rental income
- Capital gains
- Non-qualified annuities.
Often, net investment income doesn’t include wages or salaries, even if they are a result of self-employment. Social Security benefits, unemployment compensation, or alimony payments are also not considered net investment income. Additionally, it doesn’t cover any profit from the sale of your home that’s excluded from your income.
Once you’ve totaled your investment income, you can deduct any credits that qualify. The amount left over is your net investment income. Form 8960 can provide more information on how to determine your MAGI, or you net investment income, and whether you are responsible for paying tax on it.
How is the Net Investment Income Tax Estimated for Individuals?
Estimating the Net Investment Income Tax for individuals is a four-step process.
- Estimate by how much modified adjusted gross income exceeds the relevant threshold.
- Calculate net investment income for the year.
- Take the lesser of the amounts in step 1 or in step 2.
- Multiply the amount in step 3 by 3.8 percent (the net investment income tax rate).