Form 8960: Do You Owe the Net Investment Income Tax? | TAXtical

Form 8960: Net Investment Income Tax (NIIT) Explained | TAXtical

If you earn significant income from investments, you might owe an additional tax—and Form 8960 is how you report it.

In this article, TAXtical explains:

• What Form 8960 is

• Who needs to file it

• Why the IRS requires it

• How to avoid errors when calculating this tax

• How TAXtical helps you stay compliant while minimizing what you owe

Let’s break it down.

What Is Form 8960?

Form 8960, officially titled “Net Investment Income Tax – Individuals, Estates, and Trusts”, is used to calculate and report the 3.8% Net Investment Income Tax (NIIT) on certain investment income for high-income taxpayers.

This tax applies in addition to your regular income tax and targets income like:

• Dividends

• Capital gains

• Interest

• Rental income

• Royalties

• Passive business income

Important: The NIIT is only applied to investment income above specific income thresholds. You don’t need to pay it if your income falls below those levels.

Who Must File Form 8960?

You must file Form 8960 if you’re an individual, estate, or trust and meet both of the following:

1. You have net investment income, such as dividends or capital gains

2. Your modified adjusted gross income (MAGI) exceeds the IRS threshold for your filing status:

If both apply to you, the 3.8% tax is applied to the lesser of:

• Your net investment income, or

• The amount your MAGI exceeds the threshold

Why Does the IRS Require Form 8960?

Form 8960 ensures that high-income taxpayers contribute additional tax on unearned (investment) income, helping fund Medicare.

The form helps the IRS:

• Identify taxpayers who meet the NIIT threshold

• Prevent underreporting of passive income

• Ensure fairness in tax contribution between earned and unearned income

Common Mistakes to Avoid with Form 8960

❌ Not realizing you're subject to NIIT: Many taxpayers cross the MAGI threshold without knowing it.
❌ Failing to include rental or royalty income
❌ Incorrectly calculating deductions for investment income
❌ Overlooking Form 8960 altogether

Penalties for underpayment can apply if you ignore this form or miscalculate your NIIT.

How TAXtical Can Help

Form 8960 can get technical—especially when calculating net investment income and applying the correct deductions.

With TAXtical, you get:

✔ Expert guidance to determine if you’re subject to NIIT
✔ Accurate calculation of your net investment income
✔ Proper completion and attachment of Form 8960 to your tax return
✔ Advice on ways to legally reduce your exposure to the 3.8% NIIT

💡 Don’t Let Investment Income Trigger an IRS Surprise

If you’ve had a great year with dividends, capital gains, or rental income—congrats! But don’t forget the Net Investment Income Tax might apply.

TAXtical helps high earners stay compliant while minimizing taxes.

📞 Contact TAXtical today for expert tax help and personalized support for your Form 8960 and full return.