Understanding the Net Investment Income Tax

Minimization Strategies for High-Income Individuals

Larry Witner, LLM, CPA, and Tim Krumwiede, PhD

Beginning in 2013, noncorporate taxpayers—that is, individuals, trusts, and estates—are subject to a net investment income tax (NIIT). Specifically, such individuals are subject to a 3.8% tax on income and gain from investments, provided they have net investment income (NII) and modified adjusted gross income (MAGI) in excess of certain thresholds. It is estimated that only 2%—3% of all taxpayers will be subject to the NIIT. Under Internal Revenue Code (IRC) sections 1411(a)(1) and (b), the NIIT for individuals is equal to 3.8% times the lesser of NII or MAGI in excess of the following thresholds: $200,000 for single individuals and heads of households and $250,000 for joint filers and surviving spouses.