The NIIT is the 3.8% almost nobody quotes when they talk about capital gains rates. It came in with the Affordable Care Act and applies to the lesser of your net investment income or the amount your modified adjusted gross income exceeds the threshold — $200,000 filing single, $250,000 married filing jointly, $125,000 married filing separately. Any exit big enough to be interesting blows past those numbers, so in practice an angel with a $2M long-term gain owes $400,000 at the 20% rate plus $76,000 of NIIT on top: $476,000, an effective 23.8%.
Where it matters most for angels is the interaction with QSBS. Gain excluded under Section 1202 is excluded from gross income entirely, which means it isn't net investment income either — the exclusion takes the 3.8% off with it, and no separate election or form is needed. But gain that qualifies as QSBS and isn't excluded is a different story: it's Section 1202 gain taxed at a maximum 28% rate rather than 20%, and the NIIT still applies, for roughly 31.8% all in. That's the arithmetic behind the partial tiers on post-2025 stock. A 50% exclusion at three years doesn't halve the bill, because the half that stays taxable is taxed at a worse rate than an ordinary long-term gain would have been.
Two details are worth carrying around. The thresholds are not indexed to inflation, so more investors drift over them every year, and they're based on MAGI — meaning a large gain can push you across the line by itself even if your salary sits well below it. The NIIT is also purely federal; states run their own rates and have nothing analogous, so it never interacts with your state bill. This is general information, not tax advice.