Retirement tax questions

No, it would be incorrect to say that taxable social security benefits are being taxed twice.  You’re only looking at part of the picture.  

Net investment income tax is based on lines 12 through 16 of Form 8960; you’re only looking at line 13.

Let’s look at this, step by step.

Line 12 is your net investment income.

Line 13 represents your Modified AGI (MAGI) which, yes, does include wages and taxable social security.

Line 14 is the threshold amount.

Line 15 subtracts the threshold amount (line 14) from MAGI, line 13.

THEN…  and this is important… Line 16 is the smaller of line 15 and line 12, your net investment income.  

See what’s happening?  If net investment income is smaller than MAGI minus the threshold, you compute NIIT based on net investment income.

If MAGI minus the threshold is smaller that net investment income, you pay NIIT based on an amount smaller than net investment income.  

So, the maximum amount you can pay NIIT on is your net investment income, but in some cases, it’ll be based on an amount smaller than your net investment income.

Here’s the relevant portion of Form 8960:

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