A taxpayer has Net Investment Income (NII) of $50,000 and Modified AGI of $220,000. The filing status is Single (Threshold $200,000). What is the Net Investment Income Tax (NIIT) liability?

Answer options:

$1,900

$760

$950

How to approach this question

NIIT Formula: 3.8% * Lesser of (1) NII or (2) Excess MAGI over Threshold. Excess = $220k - $200k = $20k. NII = $50k. Lesser is $20k. $20k * 3.8%.

Full Answer

B.$760✓ Correct

IRC §1411 imposes a 3.8% tax on the lesser of (a) Net Investment Income ($50,000) or (b) the excess of MAGI over the threshold ($220,000 - $200,000 = $20,000). The lesser is $20,000. $20,000 * 3.8% = $760.

Common mistakes

Applying the tax to the full NII without checking the excess MAGI limit.

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