NIIT Tax: What It Is, Who Pays, and How It Affects Your Investments

When you earn money from investments—like dividends, interest, or capital gains—you might owe something called the NIIT tax, a 3.8% surcharge on net investment income for high earners, introduced as part of the Affordable Care Act. Also known as the Medicare investment tax, it doesn’t apply to everyone, but if you’re making money from stocks, rental properties, or passive business income and your income crosses certain thresholds, this tax kicks in.

The NIIT tax, a 3.8% surcharge on net investment income for high earners, introduced as part of the Affordable Care Act is tied to your modified adjusted gross income (MAGI). For single filers, it starts at $200,000. For married couples filing jointly, it’s $250,000. Once you’re over that line, the tax applies to the lesser of your net investment income or how much you exceed the threshold. So if you’re single and make $220,000 in total income, with $30,000 from dividends and rental income, you’d pay 3.8% on $20,000—the amount over $200,000. It’s not a flat tax on all your investments, just the portion that pushes you over the line.

This tax doesn’t touch your salary or wages. It’s only for passive income streams: interest, dividends, capital gains, rental income, royalties, and income from trading financial instruments or businesses where you don’t actively work. That’s why it shows up in posts about investment tax planning, strategies to reduce tax liability on investment income through timing, asset location, and deductions, CPA for investments, professional tax advisors who help high-income earners navigate complex rules like NIIT and capital gains, and even transparent fees, clear disclosure of costs that help investors understand the true impact of taxes on returns. Many people think they’re only paying capital gains tax—until they get hit with this extra 3.8% on top. That’s why knowing your income level and what counts as investment income matters.

There’s no way to completely avoid the NIIT tax if you’re over the income limit, but you can reduce its bite. Strategies like shifting assets to tax-free municipal bonds, timing capital gains to stay under the threshold, or using tax-loss harvesting can help. Some investors even adjust how they structure rental properties or business income to lower net investment income. The key is knowing what counts—and what doesn’t. If you’re in the middle of investment planning, tax software alone won’t catch this. A CPA can spot opportunities you’d miss, especially when you’re juggling multiple income streams.

Below, you’ll find real-world breakdowns of how this tax shows up in everyday investing, what tools and strategies help manage it, and how it connects to other financial rules you’re already dealing with—from margin rates to earned wage access fees. No fluff. Just what you need to know to keep more of what you earn.