The Net Investment Income Tax (NIIT)

The Affordable Care Act includes an additional Medicare tax in the form of a 3.8% Net Investment Income Tax (NIIT) on certain investment income of individuals, estates, and trusts that have income above the statutory threshold amounts. Individuals are subject to the NIIT if they have; 1) Net Investment Income and, 2) Modified Adjusted Gross Income (“MAGI”) over certain applicable thresholds. Even if you are exempt from Medicare taxes, you may still be subject to the NIIT.

This new tax leads to double taxation of those US citizens living overseas since foreign tax credits cannot be applied against this tax. Additionally, US citizens living overseas have no access to the Affordable Care Act. ACA urged Congress to apply tax fairness and to allow foreign tax credits against the additional Medicare tax.

A recent court case has ruled that the French/US tax treaty allows US citizens in France to use foreign tax credits to offset the NIIT.  ACA is watching closely as this would indicate that the same treatment is available with other foreign government and US tax treaties.