What does the Net Investment Income Tax (NIIT) apply to?

The Net Investment Income Tax (NIIT) specifically applies to net investment income that exceeds a certain threshold. This tax was introduced as part of the Affordable Care Act and targets individuals, estates, and trusts, applying to investment income such as interest, dividends, capital gains, rental income, and certain royalties.

For individuals, the tax is levied on net investment income if their modified adjusted gross income exceeds specified thresholds—$200,000 for single filers and $250,000 for married couples filing jointly. The NIIT is designed to tax high earners on their investment income as an additional measure to address healthcare funding.

Other forms of income, such as wages from employment, state income taxes, and unrealized capital gains, do not fall under the scope of this specific tax. Therefore, the focus on net investment income exceeding a set threshold accurately reflects the intent and application of the NIIT, making this answer correct.