Form 8960
Net Investment Income Tax (NIIT)
The federal form computing the 3.8 percent Net Investment Income Tax owed by individuals, estates, and trusts with modified AGI above statutory thresholds.
Who Files Form 8960
Individuals with modified adjusted gross income above $200,000 (single) or $250,000 (joint), and estates and trusts with undistributed net investment income above the highest trust bracket threshold ($15,200 in 2024). Includes US citizens, resident aliens, and dual-status filers (for the resident portion).
What Form 8960 Reports
Form 8960 computes the NIIT base: interest, dividends, capital gains (including from sale of business assets), rental and royalty income, non-qualified annuities, and passive business income, less allowable expenses. The 3.8 percent applies to the lesser of net investment income or the MAGI excess. Active business income, wages, and self-employment income are excluded from NIIT.
Key Deadlines
- Filed with Form 1040 by April 15 (or October 15 with extension)
- Estimated payments should account for NIIT to avoid underpayment penalties
Common Mistakes
- Forgetting NIIT on a large RSU vesting plus capital gain year
- Missing the active-trade-or-business exception on income from a Section 162 trade or business in which the taxpayer materially participates
- Including IRA and 401(k) distributions in net investment income (they are excluded)
- Failing to include the NIIT estimated payment in quarterly Form 1040-ES safe harbor calculations
Best Practices
- Include the NIIT in quarterly estimated tax safe harbor calculations. Underpaying NIIT triggers Section 6654 penalties just like regular tax.
- Identify Section 162 trade-or-business income that is excluded from NIIT. Material participation removes business income from the NIIT base entirely.
- For real estate professionals (REPS), document material participation to keep rental income out of NIIT.
- Track investment expenses (margin interest, advisory fees) as offsets to investment income. Many taxpayers miss this and overpay NIIT.
- Coordinate NIIT with Form 8959 (Additional Medicare Tax). They have the same trigger thresholds but different bases.
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Learn how TS CPA handles Form 8960Related Tax Forms
1040
Form 1040
The annual federal income tax return filed by US citizens and resident aliens to report income, deductions, credits, and tax liability.
8949
Form 8949
The IRS form used to report each individual sale or disposition of a capital asset, with totals flowing to Schedule D.
1040-ES
Form 1040-ES
Quarterly federal estimated tax payments for self-employed individuals, investors, retirees, and others whose income is not subject to sufficient withholding.
Related Tax Terms
Net Investment Income Tax (NIIT)
A 3.8 percent additional federal tax on net investment income for taxpayers with modified adjusted gross income above statutory thresholds.
Capital Gain
The profit realized from the sale of a capital asset such as stock, real estate, or cryptocurrency, taxed at preferential rates if held longer than one year.
Tax Bracket
A range of taxable income subject to a specific marginal tax rate under the federal progressive income tax system.
Adjusted Gross Income (AGI)
Adjusted Gross Income is your total gross income reduced by specific above-the-line deductions, used as the starting point for calculating your federal taxable income.
Material Participation
The IRS standard for involvement in a trade or business that distinguishes active income (no passive loss limitation) from passive income (subject to PAL rules).
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