NIIT (Net Investment Income Tax) is a 3.8% tax on investment income that was passed as part of Obamacare. This tax only applies to investment income if total income is above a threshold that varies based on filing status. For more information, see the IRS website. Following the IRS instructions, US taxpayers are unable to use Foreign Tax Credits (for taxes paid in Australia) to offset NIIT. So Australian taxpayers who are subject to NIIT are paying a Medicare Levy in Australia AND NIIT to fund US health care under Obamacare. This is a clear case of double taxation!

Of interest is this recent post by John Richardson exploring whether the current Australia/US Tax Treaty requires the US to allow a credit against NIIT for taxes paid in Australia.

2 thoughts on “NIIT”

  1. Dual U.S.-Australian nationals living in Australia are exempt from the Unearned Income Medicare Contribution Tax; more commonly known as the Net Investment Income Tax.

    The reason I emphasize the naming difference is critical. If it’s an income tax, you would consider foreign tax credits and the income tax treaty. If it’s a Medicare tax, it’s covered by the U.S.-Australia Totalization Agreement; a separate treaty that addresses social security and Medicare taxes.

    It is most definitely not an income tax. That was a misnomer; a name given to the tax by people that are not qualified to advise on international tax matters. Shockingly, it became the norm, but it does serve to distinguish between international tax practitioners that know what they’re talking about and those that don’t.

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