$80K of Investment Income at $230K MAGI Triggers a $1,140 Surtax Most People Don't Know Exists

We ran $80,000 of net investment income against a $230,000 MAGI through the calculator for a single filer — $30,000 over the $200,000 threshold, so the smaller of the two figures ($30,000) gets taxed at 3.8%, for a $1,140 surtax. What makes this tax unusual isn’t the rate — it’s that the threshold triggering it has never once moved since the tax began.

A threshold frozen in 2013 dollars

Every other major federal tax figure most people interact with — standard deductions, tax brackets, retirement contribution limits, the estate tax exemption — is indexed to inflation and adjusts (usually upward) every year via Rev. Proc. updates. NIIT’s thresholds are a deliberate exception. The IRS states directly that “these threshold amounts are not indexed for inflation,” and the One Big Beautiful Bill Act of 2025 left them untouched again for 2026. The practical effect: as wages, portfolio values, and rental income all rise with inflation over time, a fixed dollar threshold captures a steadily growing share of moderate-income investors — not because Congress expanded the tax, but simply because it never moves.

Two similar-sounding surtaxes that tax different things

NIIT is often confused with the Additional Medicare Tax — both are 3.8%-adjacent, both use MAGI-style thresholds in a similar range, and both were introduced by the same 2013 ACA-era legislation. But they tax different income entirely: NIIT applies to investment income (interest, dividends, capital gains, rental/passive income), while the Additional Medicare Tax (0.9%, not 3.8%) applies to wages and self-employment income. A high earner with both a demanding salary and a substantial taxable brokerage account can owe both taxes simultaneously, on different pieces of the same tax return.

Where this framework doesn’t apply

• Your income is mostly wages, not investment income. NIIT is calculated on the smaller of net investment income or excess MAGI — a high-MAGI household with modest investment income can owe little or nothing.
• The income is inside a tax-advantaged account. 401(k), traditional IRA, and Roth IRA growth and distributions aren’t counted as net investment income.
• You’re self-employed with active business income. NIIT generally doesn’t apply to income from a trade or business you materially participate in.
• You’re in a temporarily low-income year. A sabbatical, early retirement gap year, or business-loss year can drop MAGI below the threshold — a real window to realize gains or convert to Roth without triggering NIIT, similar to the gap-year logic behind Roth conversion ladders.

What to actually do

1. Check your prior-year Form 8960 or estimate your current net investment income against your projected MAGI.
2. If you’re near the threshold, consider whether timing a large capital gain differently could keep a given year under it — see tax-gain harvesting in the 0% bracket for the mirror-image low-income-year strategy.
3. Municipal bond interest is generally excluded from both regular tax and NIIT — a modest but real lever for taxable-account fixed income.
4. If self-employed, confirm with a tax professional whether specific income streams count as NIIT-exposed passive income or NIIT-exempt active business income.
5. Factor NIIT into estimated quarterly payments if you’re consistently over the threshold — the safe-harbor math still applies on top of it.

Open the Net Investment Income Tax Calculator → and see where your own MAGI and investment income land.