Do Crypto Investors Need to Pay the NIIT?
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The NIIT is a 3.8% tax applied to net investment income for individuals, estates, and trusts with income above specified thresholds.
Crypto capital gains and possibly yield farming earnings may count as net investment income, making it essential to calculate your obligations accurately.
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What is the net investment income tax?
The net investment income tax is a 3.8% levy on your investment income if your modified adjusted gross income (MAGI) goes above specific IRS thresholds. NIIT generally applies to:
Interest and dividends
Capital gains (which often include crypto trading gains)
Rental and royalty income
Non-qualified annuities
Income from trading financial instruments or commodities
Income from passive business activities
Use our free crypto tax calculator.
Who has to pay the net investment income tax?
Not all taxpayers face this 3.8% tax. NIIT primarily affects those whose MAGI surpasses certain levels, including:
Married filing jointly – $250,000
Single or head of household – $200,000
Married filing separately – $125,000
Qualifying widow(er) with a child – $250,000
Those with total incomes under these amounts generally avoid NIIT. If your earnings exceed the threshold, only your investment income (or the amount over the limit) that qualifies as net investment income will be taxed at 3.8%.
What is the NIIT tax rate?
The NIIT has a 3.8% flat rate. You pay this in addition to your standard income taxes. The tax applies to the lesser of:
Your net investment income, or
The amount of MAGI that surpasses the threshold.
What qualifies as NIIT?
Investment income includes (but is not limited to) dividends, capital gains, interest, rental/royalty income, non-qualified annuities, income from businesses that trade financial instruments or commodities, and passive activity businesses.
This means many passive or investment-related sources (like stock gains and crypto trades) fall under net investment income if you cross the threshold.
How Do I Calculate My Net Investment Income Tax?
Here’s a simplified calculation:
Add your investment income: This may include crypto gains, interest, dividends, etc.
Subtract relevant expenses: Deduct expenses such as brokerage fees or other allowable costs.
Compare your MAGI to the threshold: If your MAGI is below the IRS threshold for your filing status, you won’t owe NIIT.
Identify the taxable portion: If your MAGI exceeds the threshold, the NIIT applies to the lesser of your net investment income or the amount of MAGI above that threshold.
Multiply by 3.8%: This figure is your NIIT liability.
Can I Avoid Paying the Net Investment Income Tax?
While the NIIT cannot always be outright avoided, there are ways to reduce your potential exposure.
Tax-loss harvesting: Selling underperforming crypto investments might help offset your gains. Learn more about crypto tax loss harvesting.
Contributions to tax-advantaged accounts: Reducing your MAGI by contributing to certain retirement accounts could keep you under the threshold.
Investment selection: Some investments, such as municipal bonds, can generate income exempt from federal tax (though consult current IRS rules).
Always speak to a crypto tax professional to assess which strategies fit your situation.
Does crypto qualify as investment income?
Generally, yes. Net investment income typically includes crypto capital gains from sales or trades. Yield farming and staking rewards may also be considered investment income due to their interest- or dividend-like nature.
Activities like hobbyist mining may be treated differently since the IRS has not provided complete clarity.
Learn more about crypto mining tax.
Do I need to worry about the net investment income tax?
If your total income is below the relevant threshold (for instance, $200,000 for single filers), NIIT likely doesn’t apply. NIIT impacts high earners or individuals who combine sizable wages with significant investment gains. Getting advice from a crypto tax specialist is prudent if you're near the cutoff.
NIIT and crypto: the bottom line
If you exceed the threshold for your filing status and part of your income is net investment income (including crypto), you may owe the 3.8% NIIT. Areas like staking crypto, yield farming, and hobbyist mining may require nuanced consideration due to limited IRS guidance, so it’s best to seek expert help if you have any doubts.
Calculate your crypto gains with our free crypto profit calculator.
Crypto investors and the NIIT FAQs
Who pays the 3.8% net investment tax?
Are traders subject to NIIT?
What is the NIIT threshold for 2025?
Is crypto staking subject to net investment income tax?
What is IRS Form 8960, and how does it relate to the Net Investment Income Tax (NIIT)?
Can income from cryptocurrency be subject to the Net Investment Income Tax (NIIT)?
How does the NIIT apply to taxpayers with adjusted gross income (MAGI) that exceeds the threshold?
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