What Is Form 8960 and who needs to file it?

Form 8960 is the IRS form used to calculate your total net investment income (NII) and determine how much of it may be subject to the 3.8% Medicare contribution tax.

IRS Form 8960 applies if the following are true…

For taxpayers with higher incomes, the net income investment tax (NIIT) generally applies if both of the two following conditions are true:

1. You have investment income.
2. Your Modified Adjusted Gross Income (MAGI) is above the threshold outlined below.

The Modified Adjusted Gross Income (MAGI) threshold that applies to you is based on your filing status as shown below.

For NIIT and IRS Form 8960, your MAGI is your Adjusted Gross Income (AGI) generally increased by the amount of foreign earned income you excluded. Additional adjustments to your AGI may be needed if you own, directly or indirectly, stock in a Controlled Foreign Corporation or Passive Foreign Investment Company.

Married Filing Jointly and Qualified Widow – $250,000

• Single and Head of Household – $200,000
• Married Filing Separately – $125,000

If your MAGI is above the threshold, but you don’t have investment income, you will not be subject to the NIIT. However, if you do have investment income you could still be subject to the NIIT even if you are exempt from Medicare Taxes. Keep in mind, these amounts are not indexed for inflation.

Form 8960 instructions

Essentially, IRS Form 8960 is used to help you figure out if the Net Income Investment Tax applies to you.

Here are instructions form Form 8960:

• Part 1: Investment Income – In this section, you’ll list the amounts of various types of investment income you may have earned. This may include ordinary dividends, rental income, or capital gains among other types of income.
• Part 2: Investment Expenses Allocable to Investment Income and Modifications – In this section, you’ll list any items that are deductible from Part 1. These can include investment interest expenses or state, local or foreign income taxes attributable to net investment income.
• Part 3: Tax Computation – In this section, you’ll make the final calculations to see if the tax applies to you and how much tax you owe.

If your net investment income is zero or less, the tax doesn’t apply and you will not need to file Form 8960 with your taxes. If your net investment income is above zero and your MAGI is over the threshold, you’ll determine your tax by multiplying 0.038 times the smaller of:

1) Your calculated NII amount, or

2) Your MAGI minus the threshold.

You will report the result on Schedule 2 (Form 1040 or 1040-SR).

Need help with tax form 8960?

Looking to better understand the terms and definitions related to Tax Form 8960 and Net Investment Income Tax? For help, you can refer to the Form 8960 Instructions as well as the IRS Net Investment Income FAQ site.

If you have questions about how to complete Form 8960, Net Income Investment Tax, or if you simply have questions about your return, our tax pros are here to help. They speak the tricky language of taxes and can help you better understand your return.

Make an appointment to speak with a tax pro today.