What High Earners Need to Know About Net Investment Income Tax

Investors with high income may face the net investment income tax, but strategic planning can help reduce or avoid the extra levy.

Understanding how the Net Investment Income Tax works could help investors manage or reduce their tax bill. chayanuphol/Shutterstock

It’s that time of year. Uncle Sam is coming to town. And if you’re a high earner with substantial investment income, you may owe a special tax.

It’s called the net investment income tax (NIIT).

What Is Net Investment Income Tax?

The NIIT is a 3.8 percent surtax. This tax applies to the lower of your net investment income or the amount by which your modified adjusted gross income (MAGI) exceeds certain thresholds.