Form 8960: Net Investment Income Tax—Individuals, Estates, and Trusts (2019)

What the Form Is For

Form 8960 is the IRS document used to calculate the Net Investment Income Tax (NIIT), a 3.8% surtax on certain investment income that was enacted as part of the Affordable Care Act. This tax went into effect on January 1, 2013, and applies to individuals, estates, and trusts that have investment income above specific income thresholds.

The NIIT is separate from your regular income tax—it's an additional tax that kicks in only when you meet certain income requirements. Think of it as an extra layer of taxation on investment profits for higher-income taxpayers. The tax specifically targets ""unearned"" income from investments rather than wages or self-employment earnings. IRS.gov

Form 8960 helps you determine whether you owe this tax by calculating your net investment income and comparing your Modified Adjusted Gross Income (MAGI) to the threshold amounts. Once completed, you attach Form 8960 to your regular tax return (Form 1040, 1040-SR, 1040-NR, or Form 1041 for estates and trusts). IRS.gov

When You'd Use It (Late/Amended)

Original Filing: You must file Form 8960 with your 2019 tax return if your MAGI exceeds the threshold amounts for your filing status AND you have net investment income. The form is due when your tax return is due, typically April 15, 2020 (or October 15, 2020 with an extension).

Amended Returns: You would file an amended return with Form 8960 in several situations:

• You discover errors in calculating your net investment income or MAGI that result in NIIT liability you didn't originally report
• You're making certain elections for NIIT purposes (such as the section 6013(g) or 6013(h) election to file jointly with a nonresident alien spouse, or the section 1.1411-10(g) election for controlled foreign corporations)
• You're regrouping your passive activities under the NIIT ""fresh start"" rules, but only if you weren't subject to NIIT on your original return and now owe NIIT due to changes
• You need to correct activity classifications or income allocations that affect your NIIT calculation

All amended returns must be filed before the statute of limitations expires (generally three years from the original return's due date). IRS.gov

Key Rules for 2019

Income Thresholds: For individuals, NIIT applies when your MAGI exceeds:

• $250,000 for Married Filing Jointly or Qualifying Widow(er)
• $200,000 for Single or Head of Household
• $125,000 for Married Filing Separately

For estates and trusts, the threshold is $12,750 for 2019 (the amount at which the highest tax bracket begins). IRS.gov

What's Included: Net investment income generally includes:

• Interest and dividends
• Capital gains (from stocks, bonds, mutual funds)
• Rental and royalty income (unless from an active trade or business)
• Income from passive business activities
• Annuities (except qualified retirement plan distributions)

What's Excluded: The NIIT does NOT apply to:

• Wages, salaries, and self-employment income
• Social Security benefits
• Unemployment compensation
• Tax-exempt interest
• Distributions from qualified retirement plans (401(k), IRA, 403(b), etc.)
• Gain from the sale of your primary residence (up to the $250,000/$500,000 exclusion)
• Alimony and Alaska Permanent Fund Dividends

Special Rules: Nonresident aliens are completely exempt from NIIT. Real estate professionals and traders in financial instruments have special computational rules. IRS.gov

Step-by-Step (High Level)

Part I — Investment Income (Lines 1–12)

1. Report your gross investment income from various sources: interest, dividends, annuities, rental/royalty income, and business income from passive activities
2. Calculate net gains or losses from property dispositions
3. Make adjustments for income that shouldn't be included (such as income from active businesses you materially participate in)
4. Total your net investment income

Part II — Investment Expenses (Lines 9a–11)

1. Identify deductions properly allocable to your investment income (investment interest expense, investment advisory fees, rental expenses, state taxes allocable to investment income)
2. Note: For 2019, miscellaneous itemized deductions subject to the 2% floor under section 67 are suspended through 2025
3. Subtract these deductions from your investment income

Part III — Tax Computation (Lines 13–21)

1. Determine your MAGI (typically your adjusted gross income with certain modifications)
2. Compare your MAGI to the threshold for your filing status
3. Calculate the tax: 3.8% of the LESSER of your net investment income OR the amount your MAGI exceeds the threshold
4. Transfer the tax amount to your main tax return IRS.gov

Common Mistakes and How to Avoid Them

Mistake 1: Filing When Not Required

Don't file Form 8960 if your MAGI is below the threshold, even if you have investment income.

Mistake 2: Including Excluded Income

Carefully distinguish between active business income (excluded) and passive investment income (included). IRA distributions and qualified retirement plan payouts shouldn't be on this form.

Mistake 3: Double-Counting Deductions

Investment expenses already deducted on Schedule E shouldn't be claimed again on Form 8960.

Mistake 4: Forgetting Adjustments

Remember to exclude Alaska Permanent Fund Dividends, ESOP dividends, and interest earned in the ordinary course of an active business.

Mistake 5: Misunderstanding the 2% Floor Suspension

Miscellaneous itemized deductions subject to section 67 are NOT allowed for 2018–2025, so don't claim them.

Mistake 6: Principal Residence Confusion

The standard $250,000/$500,000 home sale exclusion still applies—only gains above that amount are potentially subject to NIIT.

Mistake 7: Missing Required Statements

Certain elections and transactions require attached statements documenting your calculations and choices. IRS.gov

What Happens After You File

After filing Form 8960, the calculated NIIT becomes part of your total federal tax liability:

• For individuals: The tax from Form 8960, line 17, is entered on Schedule 2 (Form 1040 or 1040-SR), line 8, and added to your total tax owed
• For estates and trusts: The tax from Form 8960, line 21, is entered on Form 1041, Schedule G, line 5

The IRS processes your return according to standard procedures, verifying the information and calculations. You must retain all supporting documentation—worksheets, investment statements, K-1 forms, and records showing the character and origin of your income—as these may be needed if the IRS examines your return.

If you owe additional NIIT, it's included in your total tax bill and subject to the same payment and penalty rules as regular income tax. The NIIT is subject to estimated tax provisions, so if you expect to owe it in future years, you should adjust your withholding or estimated payments to avoid underpayment penalties. IRS.gov

FAQs

Do I have to pay both the 3.8% NIIT and the 0.9% Additional Medicare Tax?

You may be subject to both, but not on the same income—NIIT applies to investment income while the Medicare tax applies to wages and self-employment income.

Can tax credits reduce my NIIT liability?

Only credits that offset taxes under subtitle A of the tax code; foreign tax credits and general business credits cannot reduce NIIT.

Does NIIT apply to gain from selling rental property?

It depends—if the rental was a passive activity, the gain is generally included; if you're a real estate professional who materially participated and the activity qualifies as a trade or business, it may be excluded.

What if I'm married to a nonresident alien?

You can make special elections (section 6013(g) or 6013(h)) to apply joint return treatment for NIIT purposes.

How does this affect estates and trusts?

Estates and trusts face a much lower threshold ($12,750 for 2019) and pay NIIT on undistributed net investment income.

Is NIIT withheld from my paycheck?

No—investment income isn't subject to withholding, but you can request additional withholding from wages or make estimated tax payments.

Can I deduct state income taxes against my investment income?

Yes, state taxes properly allocable to net investment income are deductible, subject to applicable limitations. IRS.gov

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