2020 Net Investment Income Tax Threshold
For 2020, the Net Investment Income Tax Threshold figures are 3.8% (Rate), $250,000 (Married filing jointly), $125,000 (Married filing separately) and $200,000 (Single or head of household).
Effective 2020-01-01Source: 2020 Instructions for Form 8960 (IRS)Verified 2026-09-02
Compared with 2019
Every figure on this page is unchanged from 2019.
| Item | 2019 | 2020 | Change |
|---|---|---|---|
| Rate | 3.8% | 3.8% | +0% (+0.0%) |
| Married filing jointly | $250,000 | $250,000 | +$0 (+0.0%) |
| Married filing separately | $125,000 | $125,000 | +$0 (+0.0%) |
| Single or head of household | $200,000 | $200,000 | +$0 (+0.0%) |
Who it applies to
Individuals, estates, and trusts filing federal income tax returns for the 2020 tax year
What changed this year, and why
The 2020 Net Investment Income Tax thresholds and rate, as published by the IRS in the Instructions for Form 8960
Common questions
- Who must pay the Net Investment Income Tax?
- You must pay the Net Investment Income Tax of 3.8% if your modified adjusted gross income exceeds the threshold for your filing status: $250,000 for married filing jointly or qualifying widow(er), $125,000 for married filing separately, and $200,000 for single or head of household. The tax applies to the lesser of your net investment income or the amount your MAGI exceeds the threshold.
- What counts as net investment income?
- Net investment income includes interest, dividends, capital gains, rental and royalty income, and other investment income, minus related expenses.
What the 3.8% is actually charged on
The 3.8% Net Investment Income Tax is charged on net investment income, which is broadly defined to include most passive and investment-type receipts. Specifically, it covers gross income from interest, dividends, annuities, royalties, and rents. However, 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 excluded. The definition also reaches other gross income from a passive trade or business or a trading business, and it captures net gain from selling property (to the extent that gain is included in taxable income), unless the property was held in a non-passive, non-trading trade or business. In short, the tax base is designed to reach investment returns and passive business profits, while active business income earned through a non-passive, non-trading operation falls outside it. Taxpayers must add up all such items to determine the net investment income figure that is compared against the MAGI-based threshold when computing the tax.
Net investment income. Generally, net investment income includes gross income from interest, dividends, annuities, royalties, and rents, unless they’re derived from the ordinary course of a trade or business that isn’t (a) a passive activity, or (b) a trade or business of trading in financial instruments or commodities.
2020 Instructions for Form 8960, Net Investment Income Tax (IRS)
Wages, Social Security and retirement income are outside it
Not all income is subject to the 3.8% Net Investment Income Tax. The IRS explicitly excludes certain categories of income from the tax base. These exclusions cover income that is excluded from gross income under the Internal Revenue Code, income that does not fall within the definition of net investment income, and gross income or net gain that is specifically excluded by section 1411 or related guidance. The most common examples of excluded items include wages from employment, unemployment compensation, Alaska Permanent Fund Dividends, alimony, Social Security benefits, tax-exempt interest, distributions from qualified retirement plans, and income subject to self-employment taxes. This means that the tax is narrowly targeted at investment returns, passive activity income, and capital gains, while leaving earned income and certain government benefits entirely outside its reach. Even if your total income is well above the threshold amounts, only the investment-related income that does not fall into these excluded categories will be subject to the 3.8% rate.
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.
2020 Instructions for Form 8960, Net Investment Income Tax (IRS)
You are taxed on the smaller of two amounts
The 3.8% Net Investment Income Tax is calculated on the lesser of two amounts. First, you determine whether your Modified Adjusted Gross Income exceeds the applicable threshold amount for your filing status. Second, you calculate your total net investment income for the year. The tax is then imposed at a rate of 3.8% on the smaller of these two figures. This means that if your net investment income is less than the amount by which your MAGI exceeds the threshold, you pay the tax only on your actual net investment income. Conversely, if the excess MAGI is less than your net investment income, the tax applies only to that excess amount. This structure ensures that the tax base is limited to the portion of income that is both investment-type and above the threshold, preventing taxpayers from being taxed on investment income that falls below the threshold or on income that exceeds their actual investment returns.
The applicable threshold amount is based on your filing status.
2020 Instructions for Form 8960, Net Investment Income Tax (IRS)
When Form 8960 has to be attached
Form 8960 must be attached to your tax return if your Modified Adjusted Gross Income exceeds the applicable threshold amount for your filing status. This filing requirement applies to U.S. citizens and residents who have net investment income and whose MAGI is above the threshold. The threshold amounts are $250,000 for married taxpayers filing jointly or qualifying widows, $125,000 for married taxpayers filing separately, and $200,000 for single taxpayers and heads of household. If your MAGI is below these amounts, you are not required to file Form 8960, even if you have investment income. However, if your MAGI exceeds the threshold, you must complete and attach the form to calculate the 3.8% tax on the lesser of your net investment income or the amount by which your MAGI exceeds the threshold. The form is used to figure the exact amount of Net Investment Income Tax owed for the year.
Attach Form 8960 to your return if your modified adjusted gross income (MAGI) is greater than the applicable threshold amount.
2020 Instructions for Form 8960, Net Investment Income Tax (IRS)
The tax does not reach a nonresident alien
The 3.8% Net Investment Income Tax does not apply to nonresident alien individuals. If you are classified as a nonresident alien for U.S. tax purposes, you are not subject to the NIIT regardless of your investment income or income level. However, special rules apply if you are a U.S. citizen or resident married to a nonresident alien. In that situation, your filing status is treated as married filing separately for purposes of determining your MAGI, net investment income, and whether you owe the tax. This means your threshold amount would be $125,000 rather than $250,000. The tax code does provide information about certain elections that may allow married couples with one nonresident alien spouse to file jointly, which could affect the threshold and tax calculation. Taxpayers in mixed-status marriages should review the specific election provisions to determine the most advantageous filing approach for NIIT purposes.
Nonresidents. The NIIT doesn’t apply to nonresident alien (NRA) individuals.
2020 Instructions for Form 8960, Net Investment Income Tax (IRS)
You get one chance to regroup your activities, tied to your first NIIT year
Under IRS rules for the Net Investment Income Tax (NIIT), taxpayers generally cannot regroup their passive and nonpassive activities once they have chosen a grouping. However, the regulations provide a one-time fresh start election that allows a regrouping for the first tax year in which the taxpayer becomes subject to the 3.8% NIIT. This election is available without having to show that the original grouping was clearly inappropriate. A taxpayer may use this regrouping only once, and the new grouping applies to that first NIIT year and all subsequent years. If a taxpayer was already subject to the NIIT when the tax first applied but did not regroup at that time, the election may instead be made for the first tax year beginning after that initial year in which the taxpayer is again subject to the NIIT. The regrouping can also be done on an amended return, but only if the taxpayer was not originally subject to the NIIT and a change to the return causes NIIT to be owed for that year.
However, under the NIIT “fresh start” election, you may regroup for the first tax year you’re subject to the NIIT (without the effect of the regrouping). You may regroup only once under this election and that regrouping will apply to the tax year for which you regroup and all future tax years.
2020 Instructions for Form 8960, Net Investment Income Tax (IRS)
An excluded capital loss changes what carries forward to next year
Under IRS rules for the Net Investment Income Tax, when capital losses are excluded from net investment income because they relate to trades or businesses, the taxpayer's capital loss carryforward must be adjusted. This adjustment applies if the total of all excluded capital losses exceeds the total of all excluded capital gains for the year, creating a net loss. The annual adjustment to the carryforward is the lesser of two amounts: the entire capital loss carryforward from the prior year as reported on Schedule D, or the amount by which excluded capital losses exceeded excluded capital gains in the prior year. This rule prevents taxpayers from carrying forward losses that were already used to offset excluded income, ensuring that only losses properly attributable to investment income remain available for NIIT purposes in future years. The adjustment applies to losses excluded from the net investment income calculation on the applicable lines of Form 8960.
capital loss carryforwards must be adjusted if any sum of all capital gain or loss amounts excluded from net investment income on lines 5b and 5c was a net loss (the sum of all excluded capital losses was greater than the sum of all excluded capital gains).
2020 Instructions for Form 8960, Net Investment Income Tax (IRS)
Self-employment tax and NIIT do not both hit the same income
The IRS coordinates the Net Investment Income Tax (NIIT) with the self-employment tax to prevent the same income from being taxed under both regimes. Income that is taken into account when determining self-employment income subject to tax under Internal Revenue Code section 1401(b) is specifically excluded from net investment income for NIIT purposes. This means that if earnings from a trade or business are already subject to self-employment tax, those same earnings are not also counted as net investment income subject to the 3.8% NIIT. The exclusion applies to net income or loss from a section 1411 trade or business that factors into the self-employment income calculation. This coordination rule recognizes that both taxes apply to different types of income - self-employment tax targets earned income from active trades or businesses, while the NIIT targets passive investment income - and prevents overlapping taxation of the same dollars.
Net income or loss from a section 1411 trade or business that’s taken into account in determining self-employment income.
2020 Instructions for Form 8960, Net Investment Income Tax (IRS)
A part-year resident does not get a part-year threshold
For taxpayers who are dual-status individuals - meaning they were U.S. residents for part of the year and nonresident aliens for another part - the Net Investment Income Tax (NIIT) applies only to the portion of the year they were U.S. residents. However, the threshold amount used to determine whether their net investment income exceeds the exemption is not reduced or prorated based on the partial-year residency. This means a dual-status individual uses the same full threshold amount as a full-year resident in the same filing status category. For example, if married filing jointly, the threshold remains $250,000; if single or head of household, it remains $200,000; and if married filing separately, it remains $125,000. The taxpayer computes their net investment income only for the resident portion of the year, but compares it against the full annual threshold. This rule prevents dual-status taxpayers from receiving a proportionally smaller exemption simply because they were not U.S. residents for the entire year.
Dual-status individual. If you were a dual-status individual—that is, an individual who was a resident of the United States for part of the year and an NRA for the other part of the year—you’re subject to the NIIT only for the portion of the year you were a U.S. resident. The relevant threshold amount isn’t reduced or prorated for a dual-status individual.
2020 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.
2020 Instructions for Form 8960 (IRS)
- Rate
(b) net investment income, must pay 3.8% of the smaller of (a) or
- Married filing jointly
Married Filing Jointly or Qualifying Widow(er) 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.