26 U.S.C. § 1411
§ 1411. Imposition of tax
Explainer
The 3.8% net investment income tax
An extra 3.8% on investment income once income passes $200,000 single or $250,000 married — thresholds that have never been adjusted for inflation since 2013.
In plain English
Section 1411 adds a 3.8% surtax on investment income for higher earners. It applies to the smaller of:
- your net investment income, or
- the amount by which your modified exceeds the threshold.
"Net investment income" means interest, dividends, , rental and royalty income, and income from businesses you don't actively work in, minus related expenses. It doesn't cover wages, self-employment income from a business you run, Social Security, or withdrawals from IRAs and 401(k)s.
Who it touches
People with significant investment income, or a one-time event such as selling a stock portfolio, a rental property or a second home, that pushes income over the line in a single year.
The thresholds
| Filing status | Income threshold |
|---|---|
| Single, | $200,000 |
| Married filing jointly | $250,000 |
| Married filing separately | $125,000 |
These amounts are written into the law and have never been indexed for inflation since the tax began in 2013. Each year more households cross them.
Worked example
Tom and Ana file jointly. They earn $230,000 in salaries and have $40,000 of dividends and capital gains, so their MAGI is $270,000.
- Net investment income: $40,000
- Amount over the $250,000 threshold: $20,000
- The tax applies to the smaller, $20,000: 3.8% × $20,000 = $760
The tax is figured on Form 8960 and added to their income tax.
Watch out for
- Selling your main home: the part of the gain excluded under § 121 is exempt, but any gain above the exclusion counts.
- Rental income counts unless you qualify as a real estate professional who materially participates.
- aliens don't owe it. US citizens and residents abroad do, even if the foreign earned income exclusion covers their wages.
Draft explainer. Figures checked against IRS Rev. Proc. 2025-32 and the current text on November 5, 2026. Not yet reviewed by a licensed tax professional.
Sources
History
Added in 2010 by the Public Law 111-152. Last changed March 30, 2010 by the Public Law 111-152.
Every change, newest first (1)
- March 30, 2010Public Law 111-152 · added this section
The law as written
Current through Public Law 119-102. Amendment notes omitted.
Structure
Except as provided in subsection (e)—
In the case of an individual, there is hereby imposed (in addition to any other tax imposed by this subtitle) for each taxable year a tax equal to 3.8 percent of the lesser of—
net investment income for such taxable year, or
the excess (if any) of—
the modified adjusted gross income for such taxable year, over
the threshold amount.
In the case of an estate or trust, there is hereby imposed (in addition to any other tax imposed by this subtitle) for each taxable year a tax of 3.8 percent of the lesser of—
the undistributed net investment income for such taxable year, or
For purposes of this chapter, the term “threshold amount” means—
in the case of a taxpayer making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), $250,000,
in the case of a married taxpayer (as defined in section 7703) filing a separate return, ½ of the dollar amount determined under paragraph (1), and
in any other case, $200,000.
For purposes of this chapter—
The term “net investment income” means the excess (if any) of—
the sum of—
gross income from interest, dividends, annuities, royalties, and rents, other than such income which is derived in the ordinary course of a trade or business not described in paragraph (2),
other gross income derived from a trade or business described in paragraph (2), and
net gain (to the extent taken into account in computing taxable income) attributable to the disposition of property other than property held in a trade or business not described in paragraph (2), over
the deductions allowed by this subtitle which are properly allocable to such gross income or net gain.
A trade or business is described in this paragraph if such trade or business is—
a passive activity (within the meaning of section 469) with respect to the taxpayer, or
a trade or business of trading in financial instruments or commodities (as defined in section 475(e)(2)).
A rule similar to the rule of section 469(e)(1)(B) shall apply for purposes of this subsection.
In the case of a disposition of an interest in a partnership or S corporation—
gain from such disposition shall be taken into account under clause (iii) of paragraph (1)(A) only to the extent of the net gain which would be so taken into account by the transferor if all property of the partnership or S corporation were sold for fair market value immediately before the disposition of such interest, and
a rule similar to the rule of subparagraph (A) shall apply to a loss from such disposition.
The term “net investment income” shall not include any distribution from a plan or arrangement described in section 401(a), 403(a), 403(b), 408, 408A, or 457(b).
Net investment income shall not include any item taken into account in determining self-employment income for such taxable year on which a tax is imposed by section 1401(b).
For purposes of this chapter, the term “modified adjusted gross income” means adjusted gross income increased by the excess of—
the amount excluded from gross income under section 911(a)(1), over
the amount of any deductions (taken into account in computing adjusted gross income) or exclusions disallowed under section 911(d)(6) with respect to the amounts described in paragraph (1).
This section shall not apply to—
a nonresident alien, or
a trust all of the unexpired interests in which are devoted to one or more of the purposes described in section 170(c)(2)(B).