The 3.8% Net Investment Income Tax (NIIT) in 2026

The 2026 net investment income tax thresholds are $200,000 for single and head-of-household filers, $250,000 for married filing jointly (and qualifying surviving spouse), and $125,000 for married filing separately. None of these figures changed for 2026 because Internal Revenue Code Section 1411 contains no inflation adjustment. Above the line, a 3.8% federal surtax applies to your investment income.

Last reviewed: October 5, 2026 | Written and reviewed by Craig Wear, CFP®, founder of Q3 Advisors

What is the net investment income tax in 2026?

The net investment income tax is a 3.8% federal surtax under Internal Revenue Code Section 1411, first effective in 2013 and reported by individuals on IRS Form 8960. In 2026 it applies only when two conditions are met at once: your MAGI is over the filing-status threshold, and you have net investment income (Source: IRS Topic No. 559; 26 U.S.C. 1411).

The statutory mechanic is precise. Under 26 U.S.C. 1411(a)(1), the tax equals 3.8% of the lesser of net investment income for the year or the excess of MAGI over the threshold amount. If either figure is zero, the tax owed is $0 (Source: IRS Questions and Answers on the Net Investment Income Tax).

What counts as net investment income (and what is excluded)?

Net investment income includes interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and income from passive-activity or financial-trading businesses. It excludes wages, self-employment income, Social Security benefits, tax-exempt municipal bond interest, and distributions from qualified retirement plans and IRAs, including Roth conversion dollars (Source: IRS NIIT Q&A; 26 U.S.C. 1411(c)(5),(6)).

The retirement-plan exclusion is statutory: 26 U.S.C. 1411(c)(5) provides that net investment income does not include any distribution from a plan described in Section 401(a), 403(a), 403(b), 408, 408A, or 457(b) (Source: 26 U.S.C. 1411).

What are the 2026 NIIT thresholds by filing status?

The 2026 NIIT thresholds are $200,000 for single and head-of-household filers, $250,000 for married filing jointly and qualifying surviving spouse, and $125,000 for married filing separately. Estates and trusts face the 3.8% tax at a far lower level, about $16,000 for 2026. The individual figures are fixed dollar amounts unchanged since 2013 (Source: IRS Topic No. 559; 26 U.S.C. 1411(b)).

Why didn’t the NIIT threshold change for 2026?

The NIIT threshold did not change for 2026 because Section 1411 has no inflation-adjustment provision, and no revenue procedure resets these individual amounts. The Congressional Research Service states plainly that the income thresholds are not indexed annually for inflation (Source: CRS IF11820, 2023). Unlike tax brackets, the standard deduction, and Medicare IRMAA tiers, the $200,000 and $250,000 lines stay frozen at their 2013 levels.

MAGI vs. AGI: which one triggers the NIIT?

For NIIT purposes, MAGI is adjusted gross income (Form 1040 line 11) increased by the excess of the Section 911(a)(1) foreign earned income exclusion over disallowed deductions. For most domestic taxpayers with no foreign earned income exclusion, MAGI simply equals AGI (Source: 26 U.S.C. 1411(d); IRS Instructions for Form 8960). Importantly, the MAGI worksheet does not subtract IRA, 401(k), or Roth conversion income.

How is the 3.8% NIIT calculated (the “lesser of” rule)?

The NIIT equals 3.8% multiplied by the lesser of (1) your net investment income or (2) your MAGI minus the filing-status threshold. You compare the two amounts and apply the rate to the smaller one. Because of this rule, a filer only slightly over the threshold pays the surtax on that small excess, not on all of their investment income (Source: 26 U.S.C. 1411(a)).

Worked examples

These two examples are hypothetical and illustrate only how the rules operate. In example 1 a single filer has $260,000 MAGI and $20,000 of net investment income, so the tax applies to the smaller $20,000. In example 2 a joint filer has $265,000 MAGI (mostly wages) and $40,000 of net investment income, so the tax applies to the smaller $15,000 excess.

How do you report the NIIT on Form 8960?

Individuals compute the NIIT on IRS Form 8960 and carry the result to Form 1040. The upper lines total net investment income (interest, dividends, annuities, rents, royalties, passive-business income, and net gain). A middle section subtracts allowable investment expenses. The lower lines enter MAGI, subtract the filing-status threshold, and apply 3.8% to the lesser amount (Source: IRS Instructions for Form 8960).

Is the NIIT on top of capital gains tax?

Yes. The 3.8% NIIT is in addition to ordinary income tax and capital gains tax, not a replacement. For 2026 a single filer whose long-term gains fall in the 15% bracket (taxable income up to $545,500) and whose MAGI is over $200,000 can pay an effective 18.8% on those gains, and a filer in the 20% bracket can reach 23.8% (Source: IRS NIIT Q&A; Rev. Proc. 2025-32).

Does the NIIT apply to estates and trusts?

Yes. For estates and trusts, the 3.8% NIIT applies to the lesser of undistributed net investment income or the amount of AGI above where the highest trust and estate income-tax bracket begins, about $16,000 for tax year 2026. Unlike the fixed individual thresholds, that estate and trust figure is indexed for inflation and rises each year (Source: IRS Topic No. 559; Rev. Proc. 2025-32).

Do Roth conversions trigger the NIIT?

A Roth conversion does not directly trigger the NIIT. Converting a traditional IRA or pre-tax 401(k) is taxable ordinary income in the conversion year, but those dollars are a Section 408A/401(a) distribution excluded from net investment income under 1411(c)(5). The indirect effect is what matters: the conversion raises MAGI, which can pull your other investment income into the 3.8% tax (Source: IRS NIIT Q&A; 26 U.S.C. 1411(c)(5),(d)).

A conversion cannot be made tax-free on the ordinary-income side, but its interaction with the NIIT can often be managed through timing and sizing. Many investors weigh this as part of broader Roth conversion planning and the question of how much to convert to Roth.

The indirect “stacking” mechanic

This example is hypothetical and illustrative. A married couple has $210,000 of MAGI and $30,000 of net investment income (dividends and gains). Below the $250,000 threshold, no NIIT applies. (Wages above those same thresholds can trigger the separate 0.9% Additional Medicare Tax.) They then convert $60,000 from a traditional IRA. The conversion is ordinary income, not net investment income, but it lifts MAGI to $270,000. The NIIT now applies to the lesser of $30,000 or the $20,000 excess, so 3.8% of $20,000 equals $760 that year.

How can you reduce or avoid the NIIT in 2026?

Because the NIIT keys off both MAGI and net investment income, reducing either lever can reduce the surtax. There is no way to make a taxable conversion tax-free, but many investors consider timing and sizing income relative to the fixed $200,000 and $250,000 lines, and shrinking the net investment income figure itself. The approaches below are educational, not personalized recommendations.

Converting in lower-income years or building a ladder

One approach many early retirees consider is concentrating conversions in lower-income years, often the gap between leaving work and the start of Social Security or required minimum distributions, when MAGI may sit below the NIIT threshold. Spreading conversions across several such years, and watching the 2026 conversion deadline, is the idea behind a multi-year conversion ladder.

Partial conversions up to a target line

Rather than converting a whole balance at once, some investors size a partial conversion to fill income up to a chosen line, whether a tax-bracket ceiling or the NIIT threshold, and stop there. Comparing the surtax and bracket cost now against the projected benefit later is the kind of tradeoff explored in a Roth conversion break-even analysis.

Tax-loss harvesting, muni bonds, asset location, QCDs

Because the 3.8% surtax applies to the lesser of net investment income or the amount MAGI exceeds the $200,000 or $250,000 threshold, shrinking either figure can reduce it. How each holding is taxed in the first place also matters — the treatment differs for ETFs, mutual funds, and Treasury bonds, and coordinating asset location can shrink the investment income the surtax reaches. Several tools work on the net investment income side of that comparison rather than the MAGI side. Investors and their advisers commonly review these educational levers, none of which is a personalized recommendation:

• Tax-loss harvesting to offset realized capital gains.
• Tax-exempt municipal bond interest, which sits outside net investment income.
• Asset location that shelters income-producing assets inside tax-advantaged accounts.
• Qualified charitable distributions (age 70.5+, from an IRA) that keep those dollars out of AGI and MAGI.

How the NIIT actually bites in retirement

The exclusion of retirement-plan distributions from net investment income is easy to misread. Those distributions are not investment income, but they still raise AGI and therefore MAGI, and the Form 8960 MAGI worksheet does not back them out. That interaction produces several common retirement scenarios (Source: 26 U.S.C. 1411(c)(5),(d)). The mechanics below are illustrative, not recommendations.

IRA and 401(k) distributions and RMDs

Ordinary distributions from 401(a), 403(b), 408, and 457(b) plans, including required minimum distributions, are excluded from net investment income but raise AGI and MAGI. A large RMD can lift MAGI above the threshold and subject separately held interest, dividends, and gains to the NIIT. A conversion cannot satisfy an RMD, so at RMD age the required minimum distribution must come out first.

A large capital gain or asset sale

Capital gains are net investment income and they also raise MAGI, so a large asset sale can create both the investment income and the MAGI excess in the same year, a double effect (Source: IRS NIIT Q&A). Capital gain distributions from mutual funds and gain on investment real estate, including a second home that is not a primary residence, are within the tax.

Selling a principal residence

The NIIT does not apply to gain excluded from gross income for regular tax. IRC Section 121 excludes the first $250,000 of gain for a single filer and $500,000 for a married couple on the sale of a principal residence. Only gain above the Section 121 exclusion is potentially subject to the 3.8% surtax, and only if MAGI exceeds the threshold (Source: IRS NIIT Q&A).

Social Security and the surrounding tax web

Social Security benefits are not net investment income (Source: IRS Topic No. 559). But the taxable portion of benefits is part of AGI, which can lift MAGI toward the NIIT threshold. The NIIT sits alongside the taxation of Social Security and Medicare IRMAA surcharges, all keyed off income in the same year. For a surviving spouse, the shift to the $200,000 single threshold is one facet of the widow’s penalty.

NIIT revenue and reach since 2013

Since 2013 the NIIT has grown sharply even though its thresholds never moved. Per the Congressional Research Service aggregate series, revenue rose from $16.5 billion in 2013 to $59.8 billion in 2021 (preliminary), and the number of subject taxpayers more than doubled from 3.1 million to 7.3 million (Source: CRS IF11820, 2023).

(Source: IRS Statistics of Income, Publication 1304, Table A; CRS IF11820, 2023.) The reach has widened almost entirely because the thresholds never rose while nominal incomes did.

The threshold-erosion story

Because the $200,000, $250,000, and $125,000 thresholds have never been indexed, inflation alone has shrunk their real value. Using the BLS Consumer Price Index for All Urban Consumers (CPI-U, series CPIAUCNS), the $200,000 single threshold was worth about $139,028 in 2013 dollars as of May 2026, a real erosion of roughly 30.5% (Source: analyst calculation using BLS CPI-U).

Put the other way around, to preserve its 2013 real value the $200,000 threshold would need to be about $287,712 in May 2026 dollars (Source: analyst calculation using BLS CPI-U, CPIAUCNS).

NIIT 2026 FAQ

These frequently asked questions gather the core 2026 net investment income tax rules in one place: the MAGI thresholds by filing status, the 3.8% lesser-of calculation, what counts as net investment income, how estates and trusts are treated, and the educational levers investors weigh. Each answer restates the figure or mechanic and cites its statutory or IRS source for verification.

What are the 2026 NIIT thresholds?

The 2026 NIIT MAGI thresholds are $200,000 for single and head-of-household filers, $250,000 for married filing jointly and qualifying surviving spouse, and $125,000 for married filing separately. Estates and trusts are subject at about $16,000 for 2026. The individual thresholds have not changed since the tax took effect in 2013 (Source: IRS Topic No. 559; 26 U.S.C. 1411(b)).

Is the net investment income tax in addition to capital gains tax?

Yes. The 3.8% NIIT is layered on top of ordinary income tax and capital gains tax, not instead of them. A 2026 single filer in the 15% long-term gains bracket with MAGI over $200,000 can face an effective 18.8% on those gains, and a filer in the 20% bracket can reach 23.8% (Source: IRS NIIT Q&A).

How is the net investment income tax calculated?

Multiply 3.8% by the lesser of your net investment income or the amount your MAGI exceeds the filing-status threshold. For a single filer with $260,000 MAGI and $20,000 of investment income, the excess is $60,000 and the income is $20,000, so the tax is 3.8% of $20,000, or $760 (Source: 26 U.S.C. 1411(a); illustrative).

What counts as net investment income?

Net investment income includes interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and passive-business income. It excludes wages, self-employment income, Social Security, tax-exempt municipal interest, and distributions from qualified retirement plans and IRAs, including Roth conversion dollars (Source: IRS NIIT Q&A; 26 U.S.C. 1411(c)(5)).

Does the NIIT apply to estates and trusts?

Yes. For estates and trusts, the 3.8% tax applies at the AGI level where the highest trust and estate income-tax bracket begins, about $16,000 for tax year 2026. Unlike the fixed individual thresholds, that estate and trust figure is indexed for inflation and adjusts each year (Source: IRS Topic No. 559; Rev. Proc. 2025-32).

How can I avoid the net investment income tax?

Educationally, many investors consider keeping MAGI below the threshold by timing income, using a multi-year Roth conversion ladder, or sizing partial conversions to a target line. Reducing net investment income through tax-loss harvesting, municipal interest, asset location, or qualified charitable distributions can also lower the lesser-of amount. These are options to discuss with a qualified professional.