Form 8960 is the IRS form used to calculate your total net investment income (NII) and determine how much of it may be subject to the 3.8% Medicare contribution tax.
IRS Form 8960 applies if the following are true…
For taxpayers with higher incomes, the net income investment tax (NIIT) generally applies if both of the two following conditions are true:
- You have investment income.
- Your Modified Adjusted Gross Income (MAGI) is above the threshold outlined below.
TheModified Adjusted Gross Income(MAGI) threshold that applies to you is based on yourfiling statusas shown below.
For NIIT and IRS Form 8960, your MAGI is your Adjusted Gross Income (AGI) generally increased by the amount of foreign earned income you excluded. Additional adjustments to your AGI may be needed if you own, directly or indirectly, stock in a Controlled Foreign Corporation or Passive Foreign Investment Company.
Married Filing Jointly and Qualified Widow – $250,000
- Single and Head of Household – $200,000
- Married Filing Separately – $125,000
If your MAGI is above the threshold, but you don’t have investment income, you will not be subject to the NIIT. However, if you do have investment income you could still be subject to the NIIT even if you are exempt from Medicare Taxes. Keep in mind, these amounts are not indexed for inflation.
Form 8960 instructions
Essentially, IRS Form 8960 is used to help you figure out if the Net Income Investment Tax applies to you.
Here are instructions form Form 8960:
- Part 1: Investment Income– In this section, you’ll list the amounts of various types of investment income you may have earned. This may include ordinary dividends, rental income, or capital gains among other types of income.
- Part 2: Investment Expenses Allocable to Investment Income and Modifications– In this section, you’ll list any items that are deductible from Part 1. These can include investment interest expenses or state, local or foreign income taxes attributable to net investment income.
- Part 3: Tax Computation– In this section, you’ll make the final calculations to see if the tax applies to you and how much tax you owe.
If your net investment income is zero or less, the tax doesn’t apply and you will not need to file Form 8960 with your taxes. If your net investment income is above zero and your MAGI is over the threshold, you’ll determine your tax by multiplying 0.038 times thesmallerof:
1) Your calculated NII amount, or
2) Your MAGI minus the threshold.
You will report the result on Schedule 2 (Form 1040 or 1040-SR).
Need help with tax form 8960?
Looking to better understand the terms and definitions related to Tax Form 8960 and Net Investment Income Tax? For help, you can refer to theForm 8960 Instructionsas well as the IRS Net Investment IncomeFAQ site.
If you have questions about how to complete Form 8960, Net Income Investment Tax, or if you simply have questions about your return, our tax pros are here to help. They speak the tricky language of taxes and can help you better understand your return.
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FAQs
Form 8960 is also known as the Net Investment Income Tax (NIIT) form. It is a document issued by the Internal Revenue Service (IRS) in the United States. It is used to calculate and report the Net Investment Income Tax. This applies to individuals, estates, and trusts that have certain types of investment income.
Who is required to file form 8960? ›
If you earn income from any of your investments this year, you may have to pay the net investment income tax, in addition to the regular income taxes you owe. You won't know for sure until you fill out Form 8960 to calculate your total net investment income.
Who is subject to the net investment income tax? ›
As an investor, you may owe an additional 3.8% tax called net investment income tax (NIIT). But you'll only owe it if you have investment income and your modified adjusted gross income (MAGI) goes over a certain amount.
How to calculate modified adjusted gross income for net investment tax? ›
Your modified adjusted gross income (MAGI) determines if you owe the net investment income tax. You can compute your MAGI by taking your adjusted gross income (AGI) and adding back in a few deductions, like IRA contributions, passive loss or income, taxable Social Security payments, student loan interest and more.
What is the filing requirement for investment income? ›
Gains and losses must be reported on your taxes in the year they're recognized (the year the assets are sold). to report on your tax return—which means you'll also need to report your original or adjusted cost basis. The IRS uses it to calculate your capital gains tax.
What income is exempt from net investment income tax? ›
Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income. Additionally, net investment income does not include any gain on the sale of a personal residence that is excluded from gross income for regular income tax purposes.
Does everyone pay net investment income tax? ›
Not everyone will need to pay the NIIT, and only those above certain income thresholds will be subject to it. The IRS statutory income thresholds are as follows: Married filing jointly — $250,000. Married filing separately — $125,000.
What is the purpose of IRS Form 8960? ›
Form 8960 is the IRS form used to calculate your total net investment income (NII) and determine how much of it may be subject to the 3.8% Medicare contribution tax.
How to avoid net investment tax? ›
Here are eight common strategies to consider:
- Manage losses and gains on investments. ...
- Defer capital gains on sales. ...
- Donate appreciated assets directly to charities. ...
- Use qualified charitable distributions. ...
- Invest in tax-exempt municipal and state bonds. ...
- Materially participate in business activities.
For example, if you were a single filer who earned $250,000, and $25,000 of that was net investment income, your NIIT would be based on only the income you earned from your investments. That's because $25,000 is less than $50,000—the difference between the $200,000 cutoff and $250,000. Your NIIT would then be $950.
Line 9b is calculated from the state, local, and foreign income tax attributable to NII - generally Schedule A, line 7. * This amount is subject to limitation based on the ratio of Form 8960, line 8 divided by the AGI on Form 1040. For example, state income tax deducted was limited to $10,000 on Wks SALT.
What is the NIIT threshold amount for single taxpayers? ›
3. What individuals are subject to the Net Investment Income Tax?
| Filing Status | Threshold Amount |
|---|
| Married filing jointly | $250,000 |
| Married filing separately | $125,000 |
| Single | $200,000 |
| Head of household (with qualifying person) | $200,000 |
1 more rowYour MAGI (modified adjusted gross income) is your AGI plus certain deductions you must “add back.” These deductions include IRA contributions, student loan interest, one-half of self-employment tax, qualified tuition expenses, and more.
Who doesn't need to file taxes? ›
Key Takeaways. If you earn less than the standard deduction for your filing status, you likely don't need to file a tax return. Even if you don't meet the filing threshold, you may still have to file taxes if you have other types of income.
How to calculate net investment income? ›
You can also calculate it yourself by adding together all your investment income and subtracting any related fees and expenses. Then determine your modified adjusted gross income.
How much investment income is tax free? ›
Investment income may also be subject to an additional 3.8% tax if you're above a certain income threshold. In general, if your modified adjusted gross income is more than $200,000 (single filers) or $250,000 (married filing jointly), you may owe the tax. (These limits aren't currently indexed for inflation.)
What is the purpose of the 8960? ›
Form 8960 is the IRS form used to calculate your total net investment income (NII) and determine how much of it may be subject to the 3.8% Medicare contribution tax.
Who must file a tax return income? ›
Generally, you must file an income tax return if you're a resident , part-year resident, or nonresident and: Are required to file a federal return. Receive income from a source in California. Have income above a certain amount.
Which of the following payments to a taxpayer should be included in gross income? ›
Generally, you must include in gross income everything you receive in payment for personal services. In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options.
Are non residents subject to net investment income tax? ›
The NIIT for individuals applies only to natural persons who are citizens or residents of the United States.
