3.8% Surtax: What It Is, Who Pays, and How It Affects Your Investments

When you earn money from investments, the 3.8% surtax, a federal tax on net investment income for high earners. Also known as the Net Investment Income Tax (NIIT), it’s not just another line on your tax return—it’s a real hit to returns if you’re earning over $200,000 (or $250,000 if married filing jointly). This isn’t a new tax—it’s been around since 2013—but most people still don’t realize how it stacks on top of capital gains taxes, dividend taxes, and even rental income. If you’re making money from stocks, ETFs, real estate, or even crypto, and your income crosses that threshold, you’re paying an extra 3.8% on top of what you already owe.

The Net Investment Income Tax, a federal surtax on passive income for high earners. Also known as NIIT, it applies to things like dividends, interest, capital gains, and rental income—but not wages or business income from active work. That’s why it matters so much for investors. If you’re selling a stock you held for years, the long-term capital gains rate might be 15% or 20%, but add the 3.8% surtax, and you’re looking at nearly 24% in federal taxes alone. For someone with $100,000 in gains, that’s $3,800 gone. It’s not a small number. And it’s not just for Wall Street types. A freelance designer who rents out a spare room and sells a few shares on Robinhood can get hit too, if their total income crosses the line.

What makes this even trickier is that the 3.8% surtax doesn’t care about your deductions or credits—it only looks at your modified adjusted gross income and your net investment income. If you’re using tax software to file, it might not even flag this unless you’re careful. That’s why people who hire a CPA for investments, a tax professional who specializes in investment income and tax planning. Also known as investment tax advisor, they help clients navigate complex tax rules like the NIIT and identify legal ways to reduce exposure. can save thousands. They’ll look at things like tax-loss harvesting, timing sales, or shifting assets into tax-advantaged accounts. It’s not about avoiding taxes—it’s about managing them so they don’t eat up your gains.

This surtax doesn’t just affect individuals. It shapes how financial products are built. Fintech apps that offer fractional shares or automated investing know their users might be close to the income threshold. That’s why some platforms now include tax impact calculators or suggest tax-efficient ETFs. Even micro-investing apps, apps that let you invest small amounts automatically, often using round-ups. Also known as round-up investing platforms, they’re popular with younger investors—but if those users start earning more, the 3.8% surtax can quietly turn $50 in gains into $60 in taxes. The same logic applies to earned wage access, services that let workers get paid before payday, often with small fees. Also known as on-demand pay, they’re growing fast—but if you’re using them because your side income pushes you over the NIIT threshold, you’re not just paying fees—you’re paying more in taxes too.

There’s no magic fix for the 3.8% surtax, but there are smart moves. Holding assets longer to qualify for lower capital gains rates helps. Putting investments in Roth accounts avoids it entirely. Moving some income into a business structure that qualifies as active income (not passive) can too. The key is knowing you’re even being taxed on it. Most people don’t realize it until April 15th. If you’re earning investment income and your income is above the threshold, you’re already paying it. The question isn’t whether you’re affected—it’s whether you’re managing it.

Below, you’ll find real, no-fluff breakdowns of how this tax shows up in everyday investing—from how it impacts your brokerage statements to how it changes your strategy when you’re selling a rental property or cashing out crypto. No theory. Just what you need to know to keep more of what you earn.