2016 Net Investment Income Tax Threshold
For 2016, the Net Investment Income Tax Threshold is 3.8% (Rate), $250,000 (Married filing jointly), $125,000 (Married filing separately) and $200,000 (Single or head of household).
Effective 2016-01-01Source: 2016 Instructions for Form 8960 (IRS)Verified 2026-08-29
Who it applies to
Individuals, estates, and trusts subject to the Net Investment Income Tax under section 1411 of the Internal Revenue Code for the 2016 tax year.
What changed this year, and why
The Net Investment Income Tax thresholds and rate for the 2016 tax year, as published by the IRS in the instructions for Form 8960.
Common questions
- Who must pay the Net Investment Income Tax?
- The 3.8% Net Investment Income Tax applies to individuals whose modified adjusted gross income exceeds the threshold for their filing status and who also have net investment income. The tax is calculated on the smaller of the amount of MAGI above the threshold or the net investment income.
- What are the income thresholds for 2016?
- For 2016, the threshold is $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for single or head of household.
What the 3.8% is actually charged on
Net investment income is the base that the 3.8% rate is applied to. It covers ordinary investment returns such as interest, dividends, annuities, royalties, and rents. However, there is an important exception: if any of those items come from the ordinary course of a trade or business that is neither a passive activity nor a trading business in financial instruments or commodities, they are left out of net investment income. Conversely, gross income from a trade or business that is a passive activity or a trading business is included. Net gain from the disposition of property also generally counts, subject to certain exclusions under section 1411. In practice, most individual taxpayers will find their interest, dividend, capital-gain, and rental income flowing into this calculation, while income that is already taxed as self-employment earnings typically does not.
Net investment income. Generally, net investment income includes gross income from interest, dividends, annuities, royalties, and rents, unless they are derived from the ordinary course of a trade or business that is not (a) a passive activity or (b) a trade or business of trading in financial instruments or commodities.
2016 Instructions for Form 8960, Net Investment Income Tax (IRS)
Wages, Social Security and retirement income are outside it
Not every dollar a taxpayer receives is subject to the 3.8% surtax. The law defines a category of excluded income that sits outside the tax entirely. This category covers three broad groups: income already excluded from gross income under chapter 1 of the Internal Revenue Code, income that is not net investment income by definition, and gross income or net gain specifically carved out by section 1411 or related guidance. The most common practical examples are wages, unemployment compensation, Alaska Permanent Fund Dividends, alimony, Social Security benefits, tax-exempt interest, distributions from qualified retirement plans, and income already subject to self-employment taxes. Because these items are excluded, a taxpayer who earns only a salary and Social Security benefits will generally owe nothing under this tax, even if their modified adjusted gross income exceeds the applicable threshold.
See sections 953(c)(1)(B) and 957(a). Excluded income. Excluded income means: Income excluded from gross income in chapter 1 of the Internal Revenue Code (IRC), Income not included in net investment income, and Gross income and net gain specifically excluded by section 1411, related regulations, or other guidance published in the Internal Revenue Bulletin. Examples of excluded items are: Wages, Unemployment compensation, Alaska Permanent Fund Dividends, Alimony, Social Security benefits, Tax-exempt interest income, Income from certain qualified retirement plan distributions, and Income subject to self-employment taxes.
2016 Instructions for Form 8960, Net Investment Income Tax (IRS)
You are taxed on the smaller of two amounts
Even when a taxpayer's modified adjusted gross income exceeds the applicable threshold and the taxpayer also has net investment income, the 3.8% tax is not applied to both amounts in full. Instead, the tax is calculated on the smaller of two figures: the amount by which MAGI exceeds the threshold, or the taxpayer's net investment income for the year. The threshold amounts are $250,000 for married filing jointly or qualifying widower, $125,000 for married filing separately, and $200,000 for single or head of household. This means that a taxpayer whose MAGI barely exceeds the threshold may owe tax on only a small fraction of their investment income, while a taxpayer with very high MAGI but modest investment income will be taxed only on that investment income. The structure ensures that the tax applies to the lesser exposure, never to both the excess MAGI and the full net investment income simultaneously.
Individuals who have for the tax year (a) modified adjusted gross income (MAGI) that is over an applicable threshold amount, and (b) net investment income, must pay 3.8% of the smaller of (a) or (b) as their NIIT. The applicable threshold amount is based on your filing status: Married Filing Jointly or Qualifying Widower with Dependent Child is $250,000, Married Filing Separately is $125,000, or Single or Head of Household is $200,000.
2016 Instructions for Form 8960, Net Investment Income Tax (IRS)
When Form 8960 has to be attached
Any taxpayer whose modified adjusted gross income for the year exceeds the threshold for their filing status must attach Form 8960 to their income tax return. The form is used to compute the actual Net Investment Income Tax liability. Even if a taxpayer ultimately owes no tax because they have no net investment income, the filing requirement is triggered solely by MAGI being above the threshold. The form must be filed alongside the annual return, not separately, and the calculations on it determine whether the 3.8% rate applies to the smaller of net investment income or MAGI over the threshold. Taxpayers below the threshold do not need to file the form, regardless of how much investment income they earn.
Who Must File Attach Form 8960 to your return if your modified adjusted gross income (MAGI) is greater than the applicable threshold amount.
2016 Instructions for Form 8960, Net Investment Income Tax (IRS)
The tax does not reach a nonresident alien
The Net Investment Income Tax does not apply to nonresident alien individuals. If a taxpayer is not a U.S. citizen or resident for tax purposes, they are entirely outside the scope of this surtax, regardless of how much investment income they earn or how their income is structured. However, there is a special rule for U.S. citizens or residents who are married to a nonresident alien: for purposes of determining modified adjusted gross income, net investment income, and whether the tax applies, their filing status is treated as married filing separately. This means the threshold that applies in that situation is $125,000 rather than the $250,000 joint threshold. The document also notes that certain elections may be available to file jointly with a nonresident alien spouse, which can change the analysis.
Nonresidents. The NIIT does not apply to nonresident alien (NRA) individuals. If you are a U.S. citizen or resident married to an NRA, your filing status will be married filing separately for purposes of determining your MAGI, net investment income, and whether you are subject to the NIIT.
2016 Instructions for Form 8960, Net Investment Income Tax (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
2016 Instructions for Form 8960 (IRS)
- Rate
must pay 3.8% of the smaller of (a) or (b) as their NIIT.
- Married filing jointly
Married Filing Jointly or Qualifying Widower with Dependent Child is $250,000,
- Married filing separately
Married Filing Separately is $125,000,
- Single or head of household
Single or Head of Household is $200,000.