What is the 3.8% Net Investment Income Tax and when does it hit me?

The Net Investment Income Tax (NIIT) is an extra 3.8% surtax on investment income – capital gains, dividends, interest, rental income – that kicks in once your modified adjusted gross income crosses $200,000 (single) or $250,000 (married filing jointly). These thresholds are not indexed for inflation, so more people get caught each year. The tax applies to the lesser of your net investment income or the amount your MAGI exceeds the threshold. So a high earner selling appreciated stock can effectively pay 15% or 20% capital gains plus 3.8% NIIT – up to 23.8% federal. It's a strong reason to spread big gains across tax years and to use tax-loss harvesting. Wages and retirement-account withdrawals aren't subject to NIIT, but they do raise your MAGI.