Why do I have to file a Form 8960 and Schedule 2 if I had no 'investments' but only interest income from bank CDs, social sec and salary?

[Lunna]

What is this about a $200,000 threshold?  All my income together is over 200,000 dollars, but again, there I have no investments, just interest from simple bank CDs, income from my salary at work and social security.  Has IRS somehow upped my income tax?  (the additional income is reflected at items 17 and 21 of the Form 8960.)   So, am I paying additional tax beyond even though I have no 'investments.'   Man, I'm getting killed on fed taxes this year, if so.

[DoninGA]

Disregard this requirement to file an 8960 at this time.  The TurboTax program will not have the net investment income section updated until 01/09/2025 when form 8960 has been finalized.

[Lunna]

I erroneously said it's reflected on Form 8960, Line 21 - it's just listed on Line 17 and Schedule 2, Line 12.  This seems terribly unfair.

[Lunna]

Thank you, but do you think I will actually be hit with some kind additional "net investment" tax when they update the Form?   I never heard of such a thing! 

[DoninGA]

Based on the type of income you noted in your post, the only income that would trigger the NIT would be the interest income from the CD if you are filing as Single and your MAGI is $200,000 or more.

[rjs]

Interest income is investment income. Your bank CDs are investments. You have to pay Net Investment Income Tax if you file as single or head of household, your Modified Adjusted Gross Income (MAGI) is over $200,000, and you have any investment income at all. Unless you have certain kinds of foreign income, your MAGI for NIIT will be the same as your Adjusted Gross Income (AGI).

[Lunna]

Thanks, but I have a follow up question:  I have already included my total interest earned for 2024 in my gross income for 2024 - I didn't deduct anything from that -  so why would I have to pay taxes on more than the total amount of interest I made?  (It's working out to some 2200 dollars more than if I just count the actual interest I earned in 2024).  I don't understand why.  

[rjs]

You are not paying tax on more income. You are paying tax at a higher rate on part or all of your interest income. You pay an additional 3.8% tax on part or all of your interest income. On Form 8960 your net investment income is on line 12. The amount of income that you pay the additional 3.8% tax on is on line 16, and it cannot be more than your net investment income on line 12. You are not paying tax at your regular tax rate on the line 16 amount. You are paying 3.8% additional tax on it.

Why do you have to pay the additional tax? Because the tax law says you have to.

You said your total income is over $200,000. That means your income is higher than 94% of the population. Frankly, you are not going to find a lot of people who think there's anything wrong with your having to pay a little more tax at that income level.

[VolvoGirl]

@Lunna   Couple links

What is Form 8960

https://ttlc.intuit.com/community/forms/help/what-is-form-8960/00/26274

IRS info on Net Investment Income Tax

https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax

[Lunna]

I wouldn't mind if I didn't know that so many others who are really rich are getting away with paying so little.  It's a heck of a reward for being conservative and saving and not getting involved in any get-rich-quick schemes.  It's also a disincentive to save money, which is something this boomer was taught was the right thing to do since I was a kid.

[Lunna]

And so if I had not made the money in interest, but simply had a higher salary, I would not have had to pay this extra amount.  What sense does that make?

[rjs]

Tax law does not always make sense. We don't expect it to be logical.