Net Investment Income Tax
About Net Investment Income Tax
The Net Investment Income Tax NIIT was enacted as part of the Affordable Care Act in 2010 and took effect in 2013. The NIIT imposes a 3.8 percent tax on investment income, including interest, dividends, capital gains, rental income, and passive business income, for taxpayers with income above 200,000 for singles or 250,000 for couples. The NIIT was designed to help fund the ACA. The NIIT effectively raises the top capital gains rate from 20 percent to 23.8 percent. Combined with the top ordinary rate of 37 percent, the top marginal rate on ordinary income is 40.8 percent when including the NIIT. The NIIT has been the subject of legal challenges arguing it is unconstitutional, but courts have uniformly upheld it.
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