By Harry Prabandham · Updated September 28, 2026
Tax Planning
Net Investment Income Tax (3.8%) and the 0.9% Additional Medicare Tax
The 3.8% NIIT hits investment income above $200,000 single or $250,000 joint MAGI; the 0.9% Medicare tax hits wages above the same levels.
Net Investment Income Tax (3.8%) and the 0.9% Additional Medicare Tax
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What are the NIIT and the Additional Medicare Tax?
- The net investment income tax (NIIT) is a 3.8% tax on investment income for individuals, estates, and trusts above income thresholds.
- The Additional Medicare Tax is a 0.9% tax on wages and self-employment income above similar thresholds.
- The thresholds are $200,000 single, $250,000 married filing jointly, and $125,000 married filing separately.
- Neither threshold is indexed for inflation, so more taxpayers reach them over time.
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Full Guide
What are the NIIT and the Additional Medicare Tax?
- The net investment income tax (NIIT) is a 3.8% tax on investment income for individuals, estates, and trusts above income thresholds.
- The Additional Medicare Tax is a 0.9% tax on wages and self-employment income above similar thresholds.
- The thresholds are $200,000 single, $250,000 married filing jointly, and $125,000 married filing separately.
- Neither threshold is indexed for inflation, so more taxpayers reach them over time.
How is the NIIT calculated?
- The tax is 3.8% of the smaller of net investment income or modified AGI above the threshold.
- Net investment income includes interest, dividends, capital gains, rents, royalties, non-qualified annuities, and passive business income.
- It excludes wages, self-employment income, distributions from IRAs and qualified plans, tax-exempt interest, and gain excluded on a home sale.
- It is reported on Form 8960.
How does the 0.9% Additional Medicare Tax work?
- It applies to wages, compensation, and self-employment income above the filing-status threshold.
- Employers must withhold it on wages over $200,000 paid to an employee, regardless of filing status.
- Two-earner couples can owe more than was withheld, because each employer sees only one salary.
- It is reported on Form 8959, and any shortfall can be covered by withholding or estimated payments.
Can both surtaxes apply in the same year?
- Yes: the 0.9% tax falls on earned income and the 3.8% tax on investment income, so a high earner with both can owe both.
- RSU vesting adds to wages and the 0.9% tax, while selling shares afterward creates investment gain subject to NIIT.
- Large one-time gains, such as selling a business or concentrated stock, can push MAGI above the NIIT threshold for just that year.
- Trusts reach the NIIT at a far lower income level than individuals.
What reduces exposure to these surtaxes?
- Harvesting capital losses reduces net investment income directly.
- Pre-tax contributions to workplace retirement plans lower MAGI, and later plan distributions are not investment income.
- Donating appreciated shares instead of selling them avoids realizing the gain.
- Installment sales and the timing of gains can spread income across years, and material participation can keep business income out of NIIT.
Key takeaways
- The NIIT is 3.8% on the lesser of investment income or MAGI above $200,000 single or $250,000 joint.
- The Additional Medicare Tax is 0.9% on wages and self-employment income above the same thresholds.
- Thresholds are fixed, and two-earner couples are often under-withheld for the 0.9% tax.
- Model multi-year effects with a CPA before large sales or conversions.
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