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Eileen M. Carrero, CPA

Financial Advisor, CPA

 

Eileen Carrero Financial Services, LLC

Wealth Management, Tax & Accounting

4917 West 144th Place

Midlothian, IL 60445

 

Phone:  708-489-1035

Fax:      708-489-1036

 

Email: eileen.carrero@ceterafs.com

Website: www.myecfs.com

July/August 2025

Net Investment Income Tax and Who Pays It

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The net investment income tax (NIIT) affects individuals, estates, and trusts with significant investment income. In its first year (2013), about three million taxpayers were subject to the additional 3.8% net investment income tax (NIIT) in 2013. Since then, the number of affected taxpayers have more than doubled, underscoring the growing relevance of this tax.


What Qualifies as Net Investment Income (NII)
This income includes interest, dividends, capital gains, rental income, and passive income from business interests. When your modified adjusted gross income (MAGI) exceeds $200,000 for single filers or $250,000 for married couples filing jointly, the 3.8% tax kicks in on your net investment income. The tax is paid in addition to any capital gains tax.


Mitigating the Impact
Consider maximizing contributions to tax- deferred accounts like IRAs or 401(k)s to lower your MAGI in the current tax year. Try tax-loss harvesting. This technique involves selling underperforming investments at a loss to offset taxable gains. Strategic selling can lower your overall capital gains and your net investment income. If you're close to the threshold income, consider deferring income to a future year or bunching deductions to keep your MAGI below the tax limits for the current year.


Consulting a tax professional who understands the complexities of high-net- worth individuals can help you develop a tax strategy tailored to your financial situation.


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