NS.: You mentioned in a column that 3.8% is “net investment income tax”. Is that the crorepati tax I am contemplating on Congress?
– Keith in Tampas
a.: Keith, no. Net investment income tax (NIIT) has nothing to do with a million-dollar net worth and comes into play long before income reaches one million. NIITs begin once the modified adjusted gross income (MAGI) reaches $200,000 for a single filer, $250,000 for a joint filer, and $125,000 for a married person filing separately. For a trust or estate, the NIIT will apply to the less of the undistributed net investment income (income not originally paid to the beneficiary) or adjusted gross income (“AGI”) if the trust/estate is in the top marginal tax bracket that begins is only at $13,050.
Applies to 3.8% tax lesser Net investment income or the amount by which MAGI exceeds the limit. For example, if a couple filing a joint return has a MAGI of $300,000 and a net investment income of $30,000, they exceed the $50,000 limit and are subject to $1,140 ($30,000 X 3.8%) of the $30,000 tax. If a second couple also had $300,000 MAGI but $80,000 in net investment income, their tax would be $1,900 ($50,000 X 3.8%).
I won’t list each component of MAGI or net investment income here, but I’ll give you the highlights of 2021. you can follow the details Form 8960 and its instructions, These items for Maggi and net investment income are not set in stone. As I write this, there are proposals in Congress to add additional items to the list of net investment income.
The most common components of Maggi include:
Net investment income includes among other things:
Net investment income does not include:
One consideration about this is that if you are near the thresholds mentioned earlier or are considering raising your MAGI over the threshold because of something like an IRA distribution or Roth conversion, it may be a worthwhile exercise to evaluate How these things can affect your investment income. NIIT.
For example, the taxable amount due to a Roth conversion is not included in net investment income, but if the conversion pushes you above the MAGI limit, you may subject your investment income to additional tax.
If you have any questions for Dan, please email him With “Marketwatch Q&A” on the subject line. Dan Moisand is a Moisand Fitzgerald Tamayo. financial planner in Serving customers nationwide from offices in Orlando, Melbourne and Tampa Florida. His comments are for informational purposes only and are not a substitute for personal advice. consult your