Net Investment Income Tax (NIIT) in the United States, is an additional tax on investment income for higher-earning individuals. Many Americans are unaware of this tax until they find themselves owing it. The NIIT is a 3.8% surtax on income from sources such as interest, dividends, and capital gains, applicable when adjusted gross income (AGI) exceeds $200,000 for most single filers or $250,000 for most married couples. It affects both one-time windfalls and recurring income, potentially impacting investment decisions.
Although the 3.8% rate may seem low, the NIIT can have implications for investment choices, such as deciding between tax-free municipal bonds or taxable bonds, or considering a Roth IRA conversion. Some taxpayers can avoid the surtax with careful planning, while others may only be able to reduce its impact. The article provides further details on various aspects of the NIIT, including what types of income are subject to the tax and how it applies.
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