If you're a higher earner with investment or rental income, there's an extra 3.8% tax you may owe on top of regular income tax. It's called the Net Investment Income Tax (NIIT), and it quietly catches a lot of people who don't see it coming.
Who it hits
The NIIT kicks in when your income crosses these lines: $250,000 (married filing jointly), $200,000 (single), or $125,000 (married filing separately). Above those thresholds, the 3.8% applies to your investment income.
What counts as "investment income"
Interest, dividends, rents, royalties, annuities, capital gains, and crucially, income from passive business activities. What's not hit: wages, self-employment income, and income from a business you actively run.
The bottom line
The 3.8% NIIT is easy to overlook and adds up fast at higher incomes. Structuring your activities so income is active rather than passive can legitimately keep it out of reach. A Breadify membership plans for this so it doesn't surprise you at filing.