When you earn money from investments—like dividends, rental income, or selling stocks for a profit—that’s called net investment income, the profit you make from investment assets after subtracting related expenses. Also known as passive income, it’s not your paycheck. It’s what your money makes while you’re doing something else. If your total income crosses certain limits, the government adds a 3.8% tax on this income. It’s called the Net Investment Income Tax, or NIIT. You won’t see it on your W-2. It shows up on your 1040, and if you didn’t plan for it, it can surprise you.
This tax doesn’t hit everyone. It only applies if you’re single and make over $200,000 a year, or married filing jointly and make over $250,000. But once you’re in, it applies to every dollar of investment income above those thresholds. That includes interest from bonds, royalties, capital gains from selling real estate or stocks, and even income from a side business if it’s not active (like renting out a room on Airbnb). What doesn’t count? Wages, unemployment, Social Security, or income from a business where you actually work. The IRS draws a clear line: if you’re not showing up to the office, it’s probably investment income.
Related concepts like capital gains, the profit from selling an asset you’ve held for more than a year and passive income, earnings from businesses or properties where you don’t actively participate are often tangled up with net investment income. You can’t avoid the tax by just calling something a different name. But you can manage it. Strategies like timing when you sell assets, using tax-loss harvesting to offset gains, or shifting income into tax-advantaged accounts can help. Some people reduce their net investment income by increasing deductible expenses—like property maintenance for rentals or brokerage fees. It’s not about hiding income. It’s about organizing it smarter.
What you’ll find below aren’t theory-heavy guides. These are real, practical posts from people who’ve dealt with this tax themselves. You’ll see how micro-investing apps affect your tax bill, why certain fee structures matter when you’re selling assets, how tax software compares to a CPA when you have investment income, and how tools like virtual cards and cash flow dashboards help you track what’s taxable. No fluff. No jargon. Just what works when your investment income starts to climb—and the IRS notices.
The Net Investment Income Tax (NIIT) is a 3.8% surtax on investment income for high earners. Learn how to reduce or avoid it using proven strategies like tax-loss harvesting, Roth conversions, and municipal bonds.
