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Net Investment Income Tax

Lesson 7 of 10

Duration 4:16
Level Beginner

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History

The Net Investment Income Tax (or NII) is not truly a tax – at least not in the purest sense of the word.
Enacted as part of the Affordable Care Act, the intent was to have higher income taxpayers pay an
additional 3.8% tax to offset the costs of the coverage now required under the act.

What is “higher income”?

Higher income taxpayers are those with modified adjusted gross income in excess of $250,000 for
married filing jointly taxpayers or $200,000 for single taxpayers. Modified adjusted gross income, as a
simple definition, is income before itemized or standard deductions and any exemptions.

Unlike most tax thresholds the starting point for the assessment of NII is fixed and does not adjust with
inflation.

What income is subject to the tax?

The additional 3.8% tax is assessed on:
• Interest
• Dividends (including qualified dividends)
• Rents
• Royalties
• Income from passive activities such as rental real estate
• Gains from the sale of most properties and all securities.

Special Considerations for Partners/Business

If you are part of an operating business that generates interest as part of its ordinary course of business
– that is considered business income that is not passive and not subject to NII. Interest, dividends and
capital gains generated by investments made by the business is subject to NII.

Consider it this way:

• income from operations – no NII
• income from investment – yes NII.
• Passive income – – yes NII

 

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2 thoughts on “Net Investment Income Tax”

  • Anonymous

    1. Buna ziua, cum pot vedea daca am completat declaratia w-8 ca nefiind cetatean American s-au rezident fiscal la ei !
    Nu mai tin minte cand am facut contul daca am completat asa ceva si la dividente m-au taxat cu 30%…, la actiuni inca nu stiu pentru ca nu am vandut nimic in 2023 !
    2. Care este formularul cu activitatea de pe platforma pe anul 2023 ce trebuie depus la finante, ( este cumva 1042-S ) ?

    • Interactive Brokers

      Hello, thank you for reaching out. Please view this FAQ for instructions to update your W-8 form: https://www.ibkr.com/faq?id=32666329 The 1042-S tax form is generally made available by March 15 for the previous calendar year in the IBKR Client Portal. To access it, log into Client Portal and go to Tax > Tax Forms.

      Please reach back out with any additional questions. We are here to help!

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Disclosure: Tax-Related Items (Circular 230 Notice)

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