The net investment income tax will not be repealed in the near term, and it has not been repealed by any legislation passed to date. The 3.8% surtax under 26 U.S.C. § 1411 remains fully in effect for the 2026 tax year, applying to individuals with modified adjusted gross income above $200,000 (single) or $250,000 (married filing jointly). The most recent major tax law, the One Big Beautiful Bill Act signed on July 4, 2025, left the tax completely untouched.1Office of the Law Revision Counsel. 26 U.S.C. 1411 – Imposition of Tax
The Two Recent Laws That Could Have Repealed It
Two major reconciliation bills in the last decade were the realistic opportunities to strike the NIIT from the code. Both kept it.
The Tax Cuts and Jobs Act of 2017 rewrote large sections of individual and business tax law. Early House drafts proposed eliminating the NIIT as part of a broader Affordable Care Act repeal push, with the cut projected at $172 billion over ten years. That language never made it into the final bill. TCJA retained both the preferential capital gains rates and the 3.8% surtax as enacted.2Tax Policy Center. How Did the Tax Cuts and Jobs Act Change Personal Taxes?
The One Big Beautiful Bill Act, signed July 4, 2025, was the next chance. It extended the 37% top individual rate, preserved the 20% maximum capital gains rate, and kept the companion 0.9% Additional Medicare Tax on wages. It did not include NIIT repeal language at all. The tax continues to apply as it has since 2013, with no sunset date and no scheduled phase-out.
Where Standalone Repeal Bills Stand
Standalone bills to repeal the NIIT have been introduced repeatedly over the past decade. The most direct version, typically titled the “Net Investment Income Tax Repeal Act,” would strike Section 1411 from the code without replacing the lost revenue. Sponsors frame the tax as a drag on capital formation and argue economic growth would offset the reduction in federal collections.
These bills have consistently stalled in committee. The House Ways and Means Committee holds jurisdiction over revenue measures, and companion bills sent to the Senate Finance Committee have met the same fate. No standalone NIIT repeal bill has advanced to a floor vote in either chamber during the 119th Congress (2025–2026).
Why Repeal Keeps Failing
The political math is straightforward. Repealing the tax reduces federal revenue by roughly $200 billion per decade. Any repeal moved through budget reconciliation, which is the process that avoids the Senate filibuster, must fit within agreed-upon budget targets. Other tax priorities have consumed the available budget room in both recent reconciliation packages, and the NIIT has been left out each time.
Practically, a search for repeal in either 2017 or 2025 comes up empty. If you have investment income above the thresholds, you should plan on paying the tax indefinitely. There is no pending legislation with realistic momentum that would change that in 2026.
Constitutional Challenges
Repeal through the courts is the other theoretical path, and it has not worked either. Legal challenges have argued that the NIIT functions as a direct tax on property, specifically investment returns, that is not apportioned among the states based on population as Article I requires. Challengers have cited the Supreme Court’s 1796 decision in Hylton v. United States to argue that the tax falls outside Congress’s enumerated powers.
Courts have generally rejected this reading. The accepted position is that the 16th Amendment gave Congress broad authority to tax income from any source without apportionment, that investment returns qualify as income, and that the NIIT is simply another income tax. No ruling has invalidated the tax, and given existing precedent, the likelihood of a successful challenge is low.
What This Means for the 2026 Tax Year
Because the tax is staying, the operative question is whether you owe it and how much. The 3.8% rate applies to the lesser of two amounts: your net investment income for the year, or the amount by which your modified adjusted gross income exceeds your filing-status threshold.3Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
The thresholds are set by statute and have never been adjusted for inflation:
- Single or head of household: $200,000
- Married filing jointly or qualifying surviving spouse: $250,000
- Married filing separately: $125,000
Because the thresholds are fixed, more taxpayers cross them each year as wages and asset values rise. That drift has been part of the political calculation against repeal: revenue from the tax grows over time even without any rate change.
Net investment income covers interest, dividends, capital gains, rental and royalty income from passive activities, passive business income from partnerships and S corporations in which you do not materially participate, and taxable annuity payments.4Internal Revenue Service. Topic No. 559, Net Investment Income Tax Wages, self-employment income, active business income, distributions from 401(k)s and IRAs, tax-exempt bond interest, the excluded portion of a principal residence sale under Section 121, and VA benefits are outside the tax.
Estates and trusts face a much lower threshold: for 2026, an estate or trust owes the NIIT when its adjusted gross income exceeds $16,000.5Internal Revenue Service. Revenue Procedure 2025-32 Nonresident aliens are exempt from the tax entirely unless they elect joint resident filing with a U.S. spouse under Section 6013(g) or (h).
Reporting and Penalties
If your MAGI exceeds the threshold, you must complete Form 8960 and attach it to your return, even if net investment income calculates to zero after deductions.6Internal Revenue Service. Instructions for Form 8960 The tax is added to your overall Form 1040 liability. The IRS does not bill it separately, and underpayment triggers the standard failure-to-pay penalty of 0.5% of the unpaid amount per month, up to 25%.7Internal Revenue Service. Failure to Pay Penalty Estimated tax payments should account for the NIIT if you expect to owe it, especially in a year with unusually high capital gains or dividend income.
Planning Around a Tax That Is Not Going Away
With repeal off the table for the foreseeable future, the useful moves are the ones that reduce either your net investment income or your MAGI excess above the threshold.
Municipal bond interest sits outside the NIIT calculation entirely, so shifting a portion of a fixed-income portfolio into municipals reduces the tax base directly. Contributions to 401(k)s and traditional IRAs lower AGI, and therefore MAGI, which can pull a taxpayer near the line back below it. Bunching capital gains into a lower-income year, or spreading a large gain across years using an installment sale, uses the same lever.
Material participation is the biggest structural planning point. Rental income and pass-through income from a business are included only because they are classified as passive. If you qualify as a real estate professional by spending more than 750 hours per year in real property trades or businesses and more than half your working time in those activities, rental income can be reclassified as nonpassive and fall outside the tax. The same principle applies to S corporation earnings: active operators escape the NIIT on operating income that passive investors would owe it on. The IRS allowed a one-time regrouping of passive activities in the first year a taxpayer became subject to the NIIT, and that election is generally irrevocable, so anyone newly crossing the threshold should weigh it against suspended passive losses and planned future dispositions.
None of this changes the core answer. The 3.8% net investment income tax is still on the books, still enforced, and still expected to remain on the books through the current Congress and beyond.