Net Investment Income Tax (NIIT)

Definition

A 3.8% surtax imposed under IRC Section 1411 on the lesser of a taxpayer's net investment income or the amount by which their modified adjusted gross income exceeds a threshold ($200,000 for single filers, $250,000 for married filing jointly). Net investment income typically includes passive activity income, capital gains, dividends, and interest. The NIIT interacts closely with passive activity rules because income from passive activities is generally subject to the tax while active business income is not.