What is the Net Investment Income Tax, and to whom does it apply?
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accountinglads
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What is the Net Investment Income Tax, and to whom does it apply?
Net Investment Income Tax is a tax of 3.8% that is imposed on those people, estates, and trusts that have high income levels and significant investment income. It is applicable in case the modified adjusted gross income is more than IRS limits. NIIT is imposed on income like dividends, capital gains, rental profits, and interests. This tax is reported in Form 8960 and this is superimposed on the normal income tax. There is some tax planning (such as timing capital gains or passive income management) that can be used to reduce the exposure to NIIT. The importance of understanding NIIT is because the investors will be able to avoid paying taxes that are more than they expected to pay when filing their returns.
Re: What is the Net Investment Income Tax, and to whom does it apply?
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