Form 8960 is using my social security benefits to calculate Net Investment Income Tax. Anyone have this problem?

Forum|Forum|3 years ago
April 13, 2022
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MAK70

Your social security income is included in your Modified Adjusted Gross Income which is subtracted from your Threshold amount. The NIIT is not applied to the social security income.

daharris4241Author

Thanks for the Info MaryK1101. Just to clarify... The Threshold amount is subtracted from the MAGI amount (which includes taxable SS benefits according to you) which gives you the NIIT amount to be taxed at 3.8%. So how can you say the NIIT does not include taxable SS benefits? Taxable SS benefits are being included in MAGI amount which increases the MAGI amount which is used to determine the NIIT taxable amount. IRS says that SS benefits are not to be included in the NIIT but they are included when the taxable SS benefits are included in the MAGI amount aren't they? If taxable SS benefits aren't to be included in the NIIT amount then the taxable SS benefits should be excluded from the MAGI amount because if the taxable SS benefits are included then the MAGI amount increases and that then increases the Net Investment Income taxable amount after subtracting the Threshold amount? You could say the taxable SS benefits are being taxed twice... once as ordinary income then again by increasing MAGI which increases NIIT which increases tax debt? Thank-you for your time... I welcome your input!!

JohnW152

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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geshaw

I'm having this exact problem. MAGI is 390,731. Total investment income is 356,307.

390,731 - 200,000 = 190,731. NIIT is calculated to be 7,248. NIIT should be 5,940 based on total investment income of 356,307 minus 200,000.

MAGI includes taxable SS of 28,424 and IRA Dist of 6,000.

Total Income 395,747
This includes Interest, Dividends, IRA Dist, SS taxable, SS Nontaxable, Long Term Capital Gains.

Form 1040
2b Interest 3,249
3b Dividends 2,104
4b IRA Dist - taxable 6,000
6b SS - taxable 28,424
SS - Nontaxable 5016
7 Capital Gains and Losses 350,954

Form 8960
1 Taxable Interest 3,249
2 Ordinary Dividends 2,104
5a Net gain 350,954
8 Total Investment Income 356,307 <-- This minus 200,000 is what is supposed to be subject to the NIIT.

12 Net Investment Income 356,307
13 MAGI (Same as AGI) 390,731
14 Threshold - Single 200,000
15 Subtract 14 from 13 190,731 <-- This includes Taxable SS and IRA Dist.
16 Smaller of Line 12 or 15 190,731
17 NIIT Multiply 16 by 3.8% 7,248 <-- This is 3.8% of 190,731 which includes Taxable SS and IRA Dist.