In the majority of cases, however, U.S. citizens don’t end up owing U.S. federal tax due to offsetting foreign tax credits. The problem for dual income tax filers since 2013 has been that, under U.S. domestic law, foreign tax credits are not available to offset the 3.8 per cent NIIT, meaning that high-income, dual-filers, have been paying an extra 3.8 per cent U.S. tax on their worldwide investment income. The lack of a foreign tax credit meant that investment income is punitively taxed since tax is paid on that income in a foreign jurisdiction (such as Canada) which is not being fully credited against the NIIT paid in the U.S.
