Form 8960 and the Net Investment Income Tax: What Expats Need to Know

2026-07-09

Last reviewed: July 9, 2026. This article reflects current IRS rules and EA exam requirements as of this date.

The Net Investment Income Tax (NIIT) is a 3.8% surtax on investment income for higher-income taxpayers. It applies to US citizens and residents worldwide — including Americans living abroad.

The tax is calculated on Form 8960 and attached to Form 1040.

Who Pays the NIIT

The NIIT applies if your modified adjusted gross income (MAGI) exceeds:

$200,000 for single filers
$250,000 for married filing jointly
$125,000 for married filing separately

The tax is 3.8% of the lesser of:

Your net investment income, or
The amount by which your MAGI exceeds the threshold

What Counts as Net Investment Income

Interest, dividends, and capital gains (including from foreign accounts)
Rental and royalty income (unless derived in the ordinary course of a trade or business that's not a passive activity)
Income from businesses that are passive activities
Income from trading financial instruments or commodities
Gains from the sale of investment property

Why the NIIT Hits Expats Harder

The FEIE doesn't help. The Foreign Earned Income Exclusion excludes earned income (wages, salary, self-employment income) from US tax. It does not exclude investment income. Even if you exclude all your earned income with the FEIE, your investment income is still subject to the NIIT.

Foreign investment income is included. Dividends from French stocks, interest on Australian term deposits, capital gains on UK property — all are net investment income subject to the NIIT. The Foreign Tax Credit on Form 1116 can offset regular income tax but doesn't directly offset the NIIT. The NIIT is computed before the FTC is applied.

The NIIT threshold is not inflation-adjusted. The $200,000/$250,000 thresholds haven't increased since the tax was enacted in 2013. More taxpayers cross the threshold each year as nominal incomes rise. For expats in high-earning professions (finance, tech, consulting), the NIIT is increasingly inescapable.

Planning Around the NIIT

If you're near the threshold, consider timing capital gains across tax years to stay under the limit
If the FTC eliminates your regular tax but the NIIT still applies, consider whether the FEIE election (which reduces AGI but doesn't help with investment income) is still optimal
If you have foreign rental property, the material participation rules can recharacterize rental income as non-passive, potentially removing it from NIIT exposure
Tax-loss harvesting on foreign investments can reduce net investment income — but watch out for the PFIC rules that can override normal capital gain treatment

Start studying for the EA →