In the case of an individual, section 1411(a)(1) imposes a tax each year equal to 3.8% the individual’s net investment income for the taxable year, or the excess of the taxpayer's modified adjusted income (MAGI) over a threshold amount.
Additionally, the Patient Protection and Affordable Care Act (P.L.111–148), (as amended by the Health Care and Education Reconciliation Act of 2010 (Pub.L. 111-152), contains a 3.8% net investment income tax for tax years beginning after 2012.
On Nov. 26, 2013 the IRS announced the final NIIT regulations to give taxpayers much needed clarity and simplicity. On the same day, the IRS announced proposed regulations to provide additional guidance for specific aspects of the final regulations including certain partnership payments, treatment of certain capital loss carryforwards, and optional simplified reporting method for calculation of gain or loss for the disposition of interests in partnerships and S corporations.
When the IRS issued proposed regulations many criticized them for being unclear and placing an undue administrative and financial burden for taxpayers. The AICPA submitted numerous recommendations including an optional simplified method, a version of which was incorporated into the regulations.
The final regulations also exempt cemetery perpetual care funds, Alaska Native Settlement Trusts, and foreign estates from the section 1411 tax, as the AICPA suggested, and provide a safe harbor for real estate professionals to exempt their rental activities from the section 1411 tax. Lastly, the regulations further clarify properly allocable deductions including use of capital loss carryforwards and net operating losses.
To assist in planning to minimize the impact of the tax on individuals, estates and trusts, practitioners should understand what income it applies to and how the tax is calculated. The AICPA has been continually offering recommendations and guiding principles with respect to the net investment income tax regulations. This page contains resources for members to better assist their clients in planning for this new tax.
- Aug. 5, 2013 - Comments on Section 1411 NIIT Issues Related to Controlled Foreign Corporations (CFCs) and Passive Foreign Investment Corporations (PFICs)
- Aug. 1, 2013 - Comments on Section 1411 NIIT Issues Related to Section 736 Partnership Payments
- June 17, 2013 - Comments on the Section 1411 NIIT Proposed Regulations
- May 8, 2013 - Comments on the NIIT Proposed Regulations for Trusts and Estates.
- Feb. 4, 2013 - Comments on the Paperwork Reduction Act and NIIT Proposed Regulations Under Section 1411
- Explore the New IRS Form for Net Investment Income Tax, AICPA Insights blog, Jan. 29, 2014
- Interview with the team who wrote the Net Investment Income Tax, AICPA Insights blog, Jan. 29, 2014
- Self Rental Activities Under Reg. Section 1.1411-4(g)(6)
- 3.8% Healthcare Surtax Checklist for Individuals Word or PDF (updated)
- Applying the 3.8% NIIT from Bob Keebler (updated)
- Understanding the 3.8% NIIT (updated)
- Explore the New IRS Form 8960 for NIIT (AICPA Insights, Jan. 24, 2014)
- Understanding the 3.8% Net Investment Income Tax and Its Effects, AICPA Insights, Jan. 2014
- Product flyer highlighting:
- Tax Planning Opportunities After ATRA: Tax Rate Evaluator
- Tax Planning Opportunities After ATRA: Tools, Tips, and Tactics
- Tax Planning After the Healthcare Surtax: Tools, Tips, and Tactics (Toolkit - client letters, checklists, presentations, charts and flowcharts, and pdf book) ($53 for Tax Section members)
- NIIT IRS Form 8960 and Form 8959 Calculator (updated)
- Article on Gain Harvesting and the NIIT
- Article on New Brackets, Net Investment Income Tax Expand Scope of Tax Planning (Tax Adviser, Dec. 2013)
- Nov. 27, 2013 - Final and proposed regs. issued on 3.8% net investment income tax
- Nov. 26, 2013 - Podcast and related presentation available for members on the NIIT final regulations
- Aug. 1, 2013 - Planning for the "Parallel Universe" of the Net Investment Income Tax
- May 1, 2013 - Applying the New Net Investment Income Tax to Trusts and Estates
- Dec. 4, 2012 - IRS Issues Proposed Regs. on 3.8% Net Investment Income Tax
Webcasts and Events
- Jan. 30, 2014 - Implementation of the New 3.8% Net Investment Income Tax for Individuals
- Jan, 29, 2014 - Implementation of the New 3.8% Net Investment Income Tax for Estates and Trusts
- Jan 28, 2014 - Implementation of the New 3.8% Net Investment Income Tax on Partners and Partnerships and Expert Q&A Session (coming soon)
- Jan. 10, 2014 - Podcast: Interview with David Kirk and Adrienne Mikolashek and Powerpoint
- Jan. 8, 2014 - Podcast on NIIT IRS Form 8960 Draft Instructions and Powerpoint
- Jan. 7, 2014 - Implementation of the new 3.8% Net Investment Income Tax on S Corporations and their Shareholders and Expert Q&A Session following the NIIT webcast on S Corporations and their Shareholders
- Nov. 26, 2013 - 3.8% Net Investment Income Tax Final Regulations Podcast (Powerpoint)
- Oct. 22 and 25, 2013 - Overview of Year-End Planning and the Net Investment Income Tax (Practitioner oriented - Powerpoint)
- Final Instructions for Form 8960
- Final Form 8960
- Draft Instructions for Form 8960
- Dealing with the 23.8% Tax On Trust Capital Gains
- Draft instructions on Form 5227
- Dec, 4, 2013 article in Forbes on The Definitive Questions and Answers On the New Net Investment Income Tax (Updated for Final Regulations)
- IRS FAQ on the Net Investment Income Tax
- Proposed Regulation on Net Investment Income Tax
- Proposed Regulation on Additional Medicare Tax
- Article on Trusts and Estate Fiduciaries and NIIT
- A Discussion of the NIIT with the Drafters of the Regs (youtube video)
We will continue to keep you informed as IRS releases expected guidance on this issue.