Is Net Investment Income Tax (Form 8960) double taxation? Confused by how my interest/dividends get taxed twice

Yes, this is actually working as intended! The Net Investment Income Tax (NIIT) on Form 8960 is indeed an additional tax on certain investment income for higher-income taxpayers. It's not a mistake - it's a separate 3.8% tax that applies on top of your regular income tax. The NIIT was created as part of the Affordable Care Act (Obamacare) to help fund healthcare initiatives. It applies to individuals with MAGI above certain thresholds ($200,000 for single filers, $250,000 for married filing jointly). Your understanding of the calculation is correct. Your investment income (interest and dividends in your case) gets taxed first as part of your regular income tax, and then that same investment income gets hit with an additional 3.8% tax if you're over the MAGI threshold.

I was super confused by this too! I found https://taxr.ai really helpful when I was dealing with Form 8960. I was in almost the exact same situation - had dividend and interest income that I thought was getting taxed twice. I uploaded my tax docs and the AI explained that yes, NIIT is an additional tax on top of regular income tax, and walked me through exactly how to fill out the form correctly. The system even flagged that I had made a mistake in my calculation by including tax-exempt interest in line 1 (which doesn't belong there). Saved me from potentially triggering an audit because I was accidentally over-reporting my taxable interest.

I was skeptical about using AI for tax help, but I decided to try https://taxr.ai after seeing it mentioned here. Totally changed my perspective on dealing with complicated forms like 8960! I uploaded my documents and it immediately highlighted that I was about to make an expensive mistake. I had included some capital gains distributions from my mutual funds on both line 1 and line 4c of Form 8960 - essentially double-counting them. Would have overpaid by several hundred dollars! The step-by-step explanation of the NIIT calculation made so much more sense than the IRS instructions. And yes, unfortunately it confirmed what others are saying - this is essentially a second layer of tax on investment income for higher earners.

If you're struggling with the NIIT form or trying to get clarification from the IRS, good luck getting through on the phone. I spent DAYS trying to reach someone at the IRS about Form 8960 last year. Finally used https://claimyr.com and it changed everything - got me through to an actual IRS agent in about 20 minutes. There's a video that shows how it works: https://youtu.be/_kiP6q8DX5c The agent confirmed everything you're saying - yes, the Net Investment Income Tax is working exactly as intended. Your investment income gets taxed twice if you're over the MAGI threshold. Once as part of your regular income tax and then an additional 3.8% for the NIIT. The agent also gave me some tips on making sure I was calculating my MAGI correctly, which ended up saving me money.

I was totally skeptical about Claimyr but ended up eating my words. After my snarky comment here, I was still stuck with questions about NIIT calculation and couldn't get through to the IRS. Waited on hold for 2+ hours one day before giving up. Finally broke down and tried https://claimyr.com. Got connected to an IRS tax specialist in about 45 minutes (was expecting hours). The agent confirmed that yes, NIIT is indeed a second layer of tax on investment income - 3.8% on top of regular income tax rates. But the really helpful part was they explained how to potentially reduce my NIIT liability for next year through some strategic moves with my investments. Might save me $1000+ next tax season. Sometimes you just need to talk to a human who can answer follow-up questions.

If it helps you feel better about this "double taxation," consider that the government taxes lots of money multiple times. Your employer pays tax on their profits, then they pay you, and you pay income tax. Then you buy something and pay sales tax. Money gets taxed at almost every transfer point! But there are ways to minimize NIIT. I shifted some of my investments to tax-exempt municipal bonds and growth stocks that don't pay dividends. That way I'm not generating as much current investment income that would be subject to both regular tax and NIIT.

What software are you using? I had the same confusion with TurboTax but they have a section that explains this. They specifically say that yes, NIIT is an additional tax on investment income - so your understanding is correct.

You're absolutely correct - this is indeed how the NIIT is designed to work! I went through the exact same confusion when I first encountered Form 8960. It does feel like double taxation because, in a way, it is. Think of the NIIT as a separate Medicare contribution tax that kicks in for higher-income earners. Your investment income gets taxed once as part of your regular income tax (on lines 2b and 3b of Form 1040), and then if your MAGI exceeds the threshold ($200K for single filers), that same investment income gets hit with an additional 3.8% tax. Your calculation looks spot-on: $20,250 in net investment income × 3.8% = $769.50. This is completely separate from and in addition to whatever regular income tax rate you're paying on that same $20,250. It's frustrating, but it's been the law since 2013 as part of the ACA. The good news is you're filling out the form correctly - many people get tripped up thinking they made an error when they see this "double taxation" effect for the first time.