Draft of Form 8960 - Net investment income tax 

August 7:  The IRS today posted a draft version (as of August 7, 2013) of new Form 8960, Net Investment Income Tax.

The draft of Form 8960 [PDF 120 KB] is generally based on proposed regulations published in early December 2012.

The IRS explained, with the posting of the draft of Form 8960, that the regulations were generally proposed to be effective for tax years beginning after December 31, 2013, but that taxpayers may rely on the regulations for the 2013 tax year.

The IRS also stated that instructions for Form 8960 will be released later this year.


Section 1411—added to the Code by the Health Care and Education Reconciliation Act of 2010, and effective for tax years beginning after December 31, 2012—imposes a 3.8% tax on certain income and gain (“net investment income”) of high income individuals and certain estates and trusts.

Net investment income includes interest, royalties, dividends, annuities and rents; income from a passive trade or business (within the meaning of section 469); income from the business of trading financial instruments (regardless of whether it is active or passive); and net gain on the sale of assets that produce net investment income. Net investment income is the income after deductions for expenses that are “properly allocable” to the income.

Net investment income does not include a distribution from a qualified retirement plan, active trade or business income (within the meaning of section 469) that is not the business of trading financial instruments, income subject to SECA (Self Employment Contributions Act), and income that is otherwise excluded from tax, such as tax-exempt bond income or gain on the sale of a principal residence.

Threshold amounts

The net investment tax may apply to taxpayer’s modified adjusted gross income in excess of a “threshold amount” of:

  • $250,000 for married couples filing a joint tax return
  • $200,000 for single filers
  • $125,000 for married filing separately

The tax applies to estates and trusts with adjusted gross income over a “threshold amount” equal to the dollar amount at which the highest tax bracket in section 1(e) begins for the tax year. For 2013, the threshold amount for trusts is $11,950.

The tax applies to the lesser of the “threshold amount” or the taxpayer’s “net investment income.”

For example, if net investment income for a married couple (filing a joint return) is $20,000 and their modified AGI is $260,000, the 3.8% tax applies to $10,000 of income.

The tax paid is not deductible and is not withheld by an employer. The tax must be counted in determining whether taxpayers are required to make estimated tax payments.

Proposed regulations containing guidance on the net investment tax were proposed in late 2012. Read TaxNewsFlash-United States

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