Net Investment Income bug

[Alex66565]

 I have 1702 Net Investment Income 
 Tax should be 1702 * 0.038 = 64.6 = rounded to 65 
 but I get 58 

 Explanation from your AI:
 The correct amount subject to the 3.8% tax is $1,702, which matches your taxable interest income. The tax software calculated $58 as the Net Investment Income Tax, which is slightly less than 3.8% of $1,702, likely due to rounding or other minor adjustments.

[MelindaS1]

If you figure your NIIT on the basis of the other method "MAGI in excess of the applicable threshold", that should work (because the instructions say to take the lesser of the two methods). Steps:

Step one, find the AGI number on Line 11a of your 1040  

(If you have foreign income you may have to modify it)

Step two, Identify the threshold amount that applies to you in the list below based on your filing status - if you're filing as Single, use $200,000

Step three, Subtract (Your AGI - your threshold amount) = MAGI Above Threshold 

Step four, Multiply your MAGI Above Threshold * 0.038 

That should be 58.

The Net Investment Income Tax is 3.8% of the lesser of:

• Net investment income, or
• Modified adjusted gross income (MAGI) that exceeds the applicable threshold amount.

The MAGI thresholds for the NIIT are:

• $250,000 for joint returns and surviving spouses,
• $125,00 for married taxpayers filing separate returns, and
• $200,000 for other taxpayers (single filers and heads of households).

MAGI defined, from the IRS:

MAGI, for purposes of the NIIT, is generally defined as AGI for regular income tax purposes increased by the foreign earned income exclusion (but also adjusted for certain deductions related to the foreign earned income). For individual taxpayers who haven't excluded any foreign earned income, their MAGI is generally the same as their regular AGI.

See also: IRS - Topic no. 559, Net investment income tax

[Alex66565]

MAGI part does not apply, my MAGI is more than 1702

[MelindaS1]

Certainly, I'll just say this: you're safe to assume that TurboTax is using the 2nd method to calculate the Net Investment Income Tax, and that it is being calculated correctly, since it is lower than the direct method which multiplies the tax rate against the investment income itself. You will not receive a math error notice from the IRS if you go ahead and file your tax return as-is including the $58 amount of NIIT.

Just fyi, the 2nd method multiplies the tax rate against your overall excess income.

If you would still like help with verification, you can provide a token in the thread and someone here can take a look at the numbers.

[Alex66565]

Could you take a look?
My token number is: 1341851

Thank you!

[Alex66565]

Can someone take a look at this?

[MelindaS1 · Accepted solution]

You're all good on the NII front - I forgot to suggest you look at Part II (Investment Expenses) of Form 8960 (Net Inv Income Tax for Individuals), which is where the allowable state and local tax deduction is being netted against your total investment income (1,702), and leading to the smaller net investment income of 1,533. That * 0.038 = your NIIT of 58. 

If you print the PDF of your tax return, you can see where are all these numbers and pro-rations are coming from (FAQ):

TurboTax Online

Open or continue your return.

Select Continue or Start on Tax Home to enter your return.

Select Tax Tools from the menu.

Select Print Center, choose Print, save, or preview this year's return, and follow the instructions.

If you haven't yet paid your TurboTax Online fee (or registered, if you're using a free version), you'll need to do so before you can save the PDF.

TurboTax Desktop

Open or continue your return.

Select File.

Select Print/Save for Your Records.

Choose to either Save As PDF or Preview Print Copy.

Form 8960 allows you to deduct a prorated amount of certain itemized deductions which are allocable to investment income. I double checked this math and it's working correctly: (1,702/your AGI) * (Schedule A State and Local Taxes SALT Line 7) = 169. Thus, the smaller NII and the smaller NIIT than originally expected. Good catch.

IRS Instructions for Form 8960 which allow the state and local tax deduction:

Certain taxes under section 164(a) reported as itemized deductions, if properly deducted on your return when calculating your U.S. regular income tax. Allowed deductions can include state, local, and foreign income taxes; state, local, and foreign real property taxes; and state and local personal property taxes. Total tax deductions may be limited under section 164(b)(6) if the expense is not associated with a trade or business or with a section 212 activity for the production of income. These deductions under section 164 for state, local, and foreign taxes are excepted from miscellaneous itemized deductions per section 67(b)(2).

[Alex66565]

thank you!