Glossary · US Tax
NIIT
The Net Investment Income Tax is a 3.8% US tax on investment income above certain thresholds. It is a well-known trap for Americans abroad because foreign tax credits generally cannot be used against it, so it can apply even when regular US tax is fully offset.
Net Investment Income Tax (Form 8960)
In more detail
The NIIT applies a 3.8% charge to net investment income — interest, dividends, capital gains, rental and similar — once modified adjusted gross income exceeds a filing-status threshold, and is reported on Form 8960. The difficulty for Americans in the UK is that the Foreign Tax Credit generally cannot offset the NIIT, so UK tax paid on the same income does not relieve it. Some practitioners take a treaty-based position to relieve it, which is contested and depends on individual facts.
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