The 3.8% Net Investment Income Tax on Crypto: Who Pays It and On What

People who plan around capital gains brackets often forget the surtax that sits on top of them. The net investment income tax adds 3.8 percent to investment income for higher-income taxpayers, and crypto gains are squarely in its path.

The tax is in section 1411 of the Code. It has been in effect for taxable years beginning after December 31, 2012. Here is how it applies to crypto.

The formula

For individuals, section 1411(a)(1) imposes a tax equal to 3.8 percent of the lesser of two amounts:

• your net investment income for the year, or
• the excess of your modified adjusted gross income over the threshold amount.

Section 1411(b) sets the threshold at $250,000 for joint returns and surviving spouses, one-half of that ($125,000) for married individuals filing separately, and $200,000 in any other case. The statute states these as fixed dollar amounts. Unlike the capital gains brackets, they are not adjusted for inflation each year.

Modified adjusted gross income for this purpose is adjusted gross income increased by certain foreign earned income excluded under section 911, under section 1411(d). For most taxpayers, it is simply AGI.

Crypto gains are net investment income

Section 1411(c)(1)(A)(iii) includes in net investment income the net gain, to the extent taken into account in computing taxable income, attributable to the disposition of property other than property held in a trade or business that is not a passive activity or a trading business in financial instruments or commodities.

For the typical crypto investor, that means gains from selling, swapping or spending crypto held for investment are net investment income. Losses reduce net gain, and only net gain taken into account in taxable income counts.

Staking and other crypto income

The statute's first category of net investment income is gross income from interest, dividends, annuities, royalties and rents, other than income derived in the ordinary course of a trade or business not described in section 1411(c)(2). Staking rewards are not listed by name, and the IRS has not issued guidance on whether they are net investment income.

There are reasonable arguments both ways. Rewards could be viewed as similar to interest or other passive returns on capital, or as compensation for validation services that falls outside the listed categories. If your staking is a passive activity of a trade or business, section 1411(c)(1)(A)(ii) would bring it in. The answer can matter for large stakers above the thresholds. Take a position deliberately and apply it consistently.

Mining and other active businesses

Section 1411(c)(6) excludes from net investment income any item taken into account in determining self-employment income on which self-employment tax is imposed. Notice 2014-21, Q&A-9, says mining that constitutes a trade or business produces self-employment income. So the net earnings from an active mining business subject to self-employment tax are generally not hit by both taxes. Gains on later sales of mined coins held as investments are a different question, and generally fall under the disposition rule.

Traders

Section 1411(c)(2)(B) treats a trade or business of trading in financial instruments or commodities, as defined in section 475(e)(2), as a business whose income is included in net investment income. Whether and how crypto fits within those definitions is not settled by specific guidance. For most individuals, the practical point is that being an active trader does not take crypto gains out of the net investment income tax. See the existing guide on crypto day trading tax rules.

A worked example

A married couple filing jointly has $210,000 of wages in 2026 and realizes a $120,000 long-term crypto gain, with no other investment income. Their MAGI is $330,000.

• Net investment income: $120,000.
• MAGI over threshold: $80,000 ($330,000 minus $250,000).
• The tax applies to the lesser amount, $80,000: 3.8 percent is $3,040.

If they had realized only $30,000 of the gain this year and the rest next year, MAGI would have been $240,000, below the threshold, and no net investment income tax would apply to that year. Spreading gains across years can keep some or all of them under the line.

What is not net investment income

• Wages and other compensation.
• Self-employment income subject to self-employment tax, under section 1411(c)(6).
• Distributions from qualified plans and IRAs, under section 1411(c)(5), although they increase MAGI.
• Gain on property held in an active trade or business that is not a passive activity or a trading business in financial instruments or commodities.

Section 1411(c)(1)(B) also lets you subtract deductions properly allocable to net investment income, so investment-related deductions that are otherwise allowed reduce the base.

The married filing separately trap

The separate-return threshold is half the joint threshold, $125,000. Couples who file separately for other reasons sometimes discover that one spouse's crypto sale triggers the surtax at an income level that would have been safely under the line on a joint return. Run both ways before choosing a filing status in a year with large gains.

Planning points

• Timing: because the thresholds are fixed, spreading large sales over multiple years can keep MAGI below the line in some years.
• Losses: harvesting crypto losses reduces net gain, and therefore net investment income. See the existing guide on crypto tax-loss harvesting.
• Charitable gifts: donating appreciated long-term crypto instead of selling it avoids realizing the gain at all. See donating crypto.
• Retirement plan distributions: section 1411(c)(5) excludes distributions from qualified plans and IRAs from net investment income, though they still raise MAGI.
• Estimated taxes: the surtax is part of your total tax and can create underpayment exposure if a big gain comes late in the year. See extensions and estimated payments.

A one-time sale versus a steady drip

Consider a single filer with $150,000 of wages who holds crypto with $200,000 of built-in long-term gain. Selling it all in one year pushes MAGI to $350,000. The lesser of net investment income ($200,000) and the excess over the $200,000 threshold ($150,000) is $150,000, so the surtax is $5,700. Selling $50,000 of gain per year over four years keeps MAGI at $200,000 each year, at the threshold rather than over it, and no surtax applies in any of those years.

Spreading the sale out is not free; it carries market risk for the unsold portion and may change the long-term rate band. But the surtax arithmetic is often large enough to justify running the numbers.

Estates and trusts

Section 1411(a)(2) applies the tax to estates and trusts on the lesser of undistributed net investment income or AGI above the dollar amount where the highest bracket begins for estates and trusts. For 2026, Rev. Proc. 2025-32 sets the long-term capital gains maximum 15 percent rate amount for estates and trusts at $16,250, which gives a sense of how quickly trust income reaches the top. Crypto held in a non-grantor trust can reach the surtax at far lower income than the same crypto held by an individual.

Paying it on time

The surtax is part of your federal income tax for the year. A large crypto sale early in the year can create estimated tax obligations for the surtax as well as the regular tax. Withholding from wages can be increased to cover it. Either way, include the 3.8 percent in your projection rather than discovering it in April. If the sale is large enough to cross the threshold, the surtax is often several thousand dollars, which is real money to pay late.

Who it does not apply to

Section 1411(e) says the tax does not apply to nonresident aliens or to certain charitable trusts. For everyone else above the thresholds, it applies to crypto gains as surely as it applies to stock gains.

The net investment income tax is the reason the top long-term rate on crypto is generally 23.8 percent, not 20. Plan for the real number. See crypto capital gains tax rates.

Frequently asked questions