I'm trying to figure out the maximum effective US federal marginal tax rate for short-term capital gains. In other words, how much more federal income tax would someone owe who incurs a $3M net short-term capital gain instead of a $2M one.

In some places I've read that short-term capital gains are taxed "just like income," suggesting a 35% marginal rate in 2018. In others places, people say that NIIT applies to all passive income, which suggests a 35% + 3.8% = 38.8% marginal rate. If there are other applicable taxes such as medicare, I would like to know about those, too.

It's very hard to find examples of this worked out, because so much of the content I find is about convincing people to take long-term capital gains (at 23.8%). I'm well aware that long-term capital gains are better than short-term, but am missing information to calculate exactly how much better.


1 Answer 1


So yes it turns out that the 3.8% NIIT applies to both short- and long-term capital gains. However, it doesn't mean that short-term capital gains are taxed higher than income, but rather the same. Self-employment income is subject to a 2.9% medicare and an 0.9% supplemental medicare tax. So NIIT just makes up for the lack of self-employment tax on capital gains.

  • That's only if it's self-employment income and only if the income is subject to FICA. If either is not true, then STCG subject to NIIT is taxed more than ordinary income.
    – Nimrod
    Jun 24, 2020 at 0:56

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