Form 8960 is the IRS form you use to figure the net investment income tax (NIIT): 3.8% of the smaller of your net investment income or the amount your modified adjusted gross income is over a threshold. You attach it to your return only when your MAGI is above that threshold: $200,000 single, $250,000 married filing jointly or $125,000 married filing separately, as of October 2026.
The tax hits investment income, not wages, and the thresholds aren't adjusted each year. Everything below comes from the IRS's 2025 Instructions for Form 8960, checked in October 2026.
The thresholds
| Filing status | MAGI threshold |
|---|---|
| Married filing jointly or qualifying surviving spouse | $250,000 |
| Single or head of household | $200,000 |
| Married filing separately | $125,000 |
You pay 3.8% of whichever is smaller: your net investment income, or your MAGI minus the threshold. So someone just over the line on wages alone, with a little investment income, pays only on that little investment income.
What counts as net investment income
- Interest, dividends, annuities, royalties and rents, unless they come from the ordinary course of a non-passive trade or business.
- Income from a business that's a passive activity for you, or from trading financial instruments or commodities.
- Net gains from selling property that isn't held in a non-passive trade or business, such as shares, funds and investment real estate.
- Less the deductions allocable to that income, like investment expenses and part of your state income tax.
What isn't included
- Wages.
- Income subject to self-employment tax.
- Social Security benefits, alimony and certain distributions from qualified retirement plans and IRAs.
- Gain that isn't taxable anyway, such as the excluded part of a gain on selling your main home or a like-kind exchange.
That home sale point has a sting in the tail. The instructions say gains from selling investment real estate, including a second home that isn't a qualified principal residence, are subject to NIIT. Selling your main home is usually safe; selling the holiday home isn't.
How the IRS's own example plays out
The instructions give an example of an unmarried U.S. citizen with $100,000 of wages and $60,000 of net rental income on Schedule E, so total income of $160,000, as of October 2026. Only the rental income is investment income. They pay $10,000 of state income tax and allocate it by the share of income: 38% to investment income ($3,800) and 62% to wages. Their net investment income is $56,200.
Notice that with $160,000 of income this person is still under the $200,000 single threshold, so they'd owe no NIIT at all. The calculation matters for someone whose MAGI crosses the line, and it shows how state tax reduces the amount the 3.8% applies to.
Estates and trusts pay it far sooner
For a trust, the threshold is the income level where the highest trust tax bracket starts, which was $15,650 for 2025, as of October 2026. The IRS example is a trust with $16,000 of interest and $21,000 of dividends in two beneficiary contracts. Each contract has its own threshold, so the excess is $5,700 and the NIIT is $216.60. That's why trusts holding investments often distribute income to beneficiaries.
Special cases
- Nonresident aliens aren't subject to NIIT. A nonresident married to a U.S. citizen or resident is, by default, treated as married filing separately for NIIT, with the $125,000 threshold, unless they elect to file jointly.
- Dual-status individuals pay NIIT only for the part of the year they were U.S. residents, and the threshold isn't reduced or prorated.
- Children: a child whose tax is figured on Form 8615 may be subject to NIIT too, according to the Form 8615 instructions.
Filing Form 8960 step by step
- Check your MAGI against the threshold for your filing status. If you're under it, you don't attach the form.
- Part I: enter your interest, dividends, annuities, rental and royalty income from Schedule E, and other investment income.
- Add net gains, using the figures from Schedule D and Form 1099-B, adjusted for any gain that's excluded.
- Part II: subtract allocable deductions such as investment interest and the investment share of state tax.
- Part III: apply 3.8% to the smaller of net investment income or MAGI over the threshold, and carry the result to Schedule 2.
- Keep records for the life of each investment, because NIIT basis can differ from regular tax basis.
If you know you'll owe it, build it into your estimated tax payments so it doesn't arrive as a surprise in April.
Common Form 8960 mistakes
- Counting wages or self-employment income as investment income. Neither belongs on the form.
- Forgetting gains on a second home or a rental, which are investment income, while the excluded part of a main home sale isn't.
- Assuming the thresholds rise each year. The instructions list the same $200,000, $250,000 and $125,000 figures by filing status.
- Using regular tax basis without checking whether the investment needs a different figure for NIIT.
The verdict
Look at MAGI first: below $200,000 single or $250,000 joint, Form 8960 isn't your problem. Above it, the tax is only on the smaller figure, so it's often less than people fear. The places it really bites are trusts, with a threshold under $16,000, and the sale of a second home or rental property in a high-income year, so plan the timing of big sales.
Want AI doing the heavy lifting in your marketing?
I build the systems that handle the boring 80 percent, so you get your week back. Done properly, with the human kept in.
Frequently asked questions
Who has to file Form 8960?
Individuals, estates and trusts with net investment income and modified adjusted gross income above the threshold for their filing status attach Form 8960 to their return.
What is the net investment income tax rate?
It's 3.8% of the smaller of your net investment income or your MAGI over the threshold.
Are wages subject to the net investment income tax?
No. Wages and income subject to self-employment tax aren't net investment income.
Does selling my home trigger the 3.8% tax?
Gain that's excluded under the main home rules isn't included. Gain on investment real estate, including a second home that isn't a qualified principal residence, is subject to NIIT.
Do nonresident aliens pay the net investment income tax?
No. The Form 8960 instructions say the NIIT doesn't apply to nonresident aliens.
Is the 3.8% tax charged on all my investment income?
Not necessarily. It's 3.8% of the smaller of your net investment income or the amount your MAGI is over the threshold.
