What Is Form 8960 and When Do Expats Owe the Net Investment Income Tax?
Form 8960 calculates the 3.8% Net Investment Income Tax (NIIT) on investment income when your modified adjusted gross income exceeds $200,000 (single), $250,000 (MFJ), or $125,000 (MFS). For expats, income excluded by the FEIE is added back to MAGI for the NIIT threshold, meaning you can owe NIIT even if your taxable income is zero (IRS: Questions and Answers on the Net Investment Income Tax).
- NIIT rate: 3.8% on the lesser of net investment income or MAGI above the threshold
- FEIE add-back: excluded foreign earned income counts toward the $200K/$250K threshold
- Not indexed for inflation: the thresholds have not changed since 2013
| Filing Status | MAGI Threshold | NIIT Rate |
| Single | $200,000 | 3.8% |
| Married Filing Jointly | $250,000 | 3.8% |
| Married Filing Separately | $125,000 | 3.8% |
| Head of Household | $200,000 | 3.8% |
What counts as net investment income:
- Interest, dividends, capital gains (including from the sale of foreign property)
- Rental and royalty income (net of deductions)
- Passive activity income from businesses you do not materially participate in
- PFIC inclusions under Section 1291, QEF, or mark-to-market
- Does NOT include: wages, self-employment income, Social Security, or distributions from qualified retirement plans
Example: An expat earns $130,000 in wages (fully excluded by FEIE) and $80,000 in investment income. MAGI = $130,000 (FEIE add-back) + $80,000 = $210,000. This exceeds the $200,000 single threshold by $10,000. NIIT = 3.8% x lesser of $80,000 (NII) or $10,000 (excess MAGI) = $380.
Where to report:
- Form 8960 calculates the NIIT and flows to Schedule 2, line 18 of Form 1040
- FTC does NOT offset NIIT: the Foreign Tax Credit on Form 1116 offsets regular income tax only, not the NIIT (a separate, limited FTC for NIIT exists under proposed regulations, but is complex)
For more on investment income taxation, see our Unearned Income Tax Guide.
Last updated on April 29, 2026
