The 0.9% Additional Medicare Tax

Applies to wages and self-employment income above $250,000 (MFJ) or $200,000 (single) Unlike NIIT, this surtax applies to earned income — not investment income Employers withhold the additional 0.9% only on the individual employee's wages exceeding $200,000 For married couples with two earners, underwithholding is common and estimated payments may be needed

When Both Surtaxes Apply

A high-earning tech professional with significant investment income can face both taxes simultaneously Combined effect: wages above threshold pay 0.9% surtax + investment income pays 3.8% NIIT Example: $400K wages + $100K investment income → 0.9% on $150K wages + 3.8% on $100K NIIT Total surtax exposure can easily exceed $5,000-$10,000+ annually for high earners

The NIIT and Medicare surtax thresholds are not inflation-adjusted — more taxpayers are affected each year Proactive MAGI management and investment income timing can meaningfully reduce surtax exposure Retirement account contributions and tax-exempt investments provide structural NIIT reduction Work with a tax advisor to model your surtax exposure and develop a multi-year reduction strategy

Net Investment Income Tax (NIIT) & Medicare Surtax

Curated by: Rubric Advisors

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The 3.8% NIIT Explained

Applies to the LESSER of net investment income OR the amount by which MAGI exceeds the threshold
Thresholds: $250,000 (married filing jointly), $200,000 (single) — NOT indexed for inflation
Investment income includes: interest, dividends, capital gains, rental income, royalties, passive business income
Does NOT apply to: wages, self-employment income, tax-exempt interest, retirement plan distributions

Strategies to Reduce NIIT

Shift investments to tax-exempt municipal bonds (interest is excluded from net investment income)
Maximize contributions to retirement accounts — distributions are not investment income for NIIT purposes
Consider installment sales to spread capital gains across multiple years and manage threshold exposure
Invest in qualified opportunity zone funds — deferred gains may reduce current-year NIIT exposure

MAGI Management Tactics

Charitable contributions to a donor-advised fund in high-income years can reduce MAGI
Timing of Roth conversions matters — conversions increase MAGI and can trigger or increase NIIT
Harvesting capital losses offsets gains and directly reduces net investment income
Business owners: material participation in a trade or business can reclassify income as non-passive (excludes from NIIT)

Key Takeaways

The NIIT and Medicare surtax thresholds are not inflation-adjusted — more taxpayers are affected each year
Proactive MAGI management and investment income timing can meaningfully reduce surtax exposure
Retirement account contributions and tax-exempt investments provide structural NIIT reduction
Work with a tax advisor to model your surtax exposure and develop a multi-year reduction strategy

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The 3.8% NIIT Explained

The 0.9% Additional Medicare Tax

When Both Surtaxes Apply

Strategies to Reduce NIIT

MAGI Management Tactics

Key Takeaways

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The 3.8% NIIT Explained

The 0.9% Additional Medicare Tax

When Both Surtaxes Apply

Strategies to Reduce NIIT

MAGI Management Tactics

Key Takeaways

Related Topics

Active Income vs Passive Income

Earned Income vs Unearned Income

Selling Rental Property: Tax Playbook