Why The 3.8% NIIT (”Net Investment Income Tax”) Is Especially Unjust For Americans Abroad

<p>August 4, 2023 - Participants Include:</p> <p> </p> <p>Virginia La Torre Jeker - <a href='https://www.twitter.com/vljeker'>@VLJeker</a></p> <p> </p> <p>John Richardson - <a href='https://www.twitter.com/expatriationlaw'>@Expatriationlaw</a></p> <p> </p> <p>On July 27, 2023 Virginia La Torre Jeker published a blog post about the<a href='https://us-tax.org/2023/07/27/net-investment-income-tax-is-hitting-more-taxpayers-americans-abroad-really-feeling-the-pinch/'> 3.8% NIIT</a> ("Net Investment Income Tax"). The post is an excellent discussion of the "Net Investment Income Tax" generally and how it impacts Americans abroad specifically.</p> <p>As a general principle the NIIT unfairly discriminates agains Americans abroad in (at least) the following ways:</p> <p>1. The NIIT applies to those who use "married filing separately" category at a lower threshold ($125,000) than to those who use "married filing jointly" ($250,000). Because a higher percentage of Americans living outside the USA use the "married filing separately" category, the NIIT applies to a higher percentage of Americans abroad.</p> <p>2. Because the US foreign tax credit rules do not allow foreign tax paid on investment income to be used as a foreign tax credit, the NIIT is virtually guaranteed to cause double taxation for Americans abroad. It is in effect a 3.8% US surcharge on non-U.S. investment income.</p> <p>3. The NIIT applies to both PFIC (non-US mutual fund income) and CFC (Subpart F income) causing additional hardship for Americans abroad.</p> <p>4. While exempting income from U.S. 401K (and similar U.S. income) from the NIIT, but applying the NIIT to non-U.S. tax deferred accounts (example Canadian RRSP) it further penalizes Americans abroad.</p> <p>Incidentally, the purpose of the NIIT was to fund healthcare for U.S. residents. This healthcare is NOT available to Americans abroad.</p> <p>Therefore, the NIIT is another particularly egregious example of U.S. citizenship-based taxation.</p> <p> </p> <p> </p> <p> </p> <p> </p> <p> </p> <p> </p>