Although I would never take the words of our friends the cross-border professionals at face value, I am getting more and more confirmation from unrelated sources that the Obama 3.8% tax on unearned income cannot be offset by the Foreign Tax Credits of U.S. citizens abroad. To put it simply:
U.S. citizens abroad, who via taxation in their country of residence, pay for health care in their country of residence, are now required to pay for health care for U.S. residents. Oh well: I guess that’s consistent with the definition of citizenship that Obama gave in his State of the Union address.
We are citizens. It’s a word that doesn’t just describe our nationality or legal status. It describes the way we’re made. It describes what we believe. It captures the enduring idea that this country only works when we accept certain obligations to one another and to future generations; that our rights are wrapped up in the rights of others; and that well into our third century as a nation, it remains the task of us all, as citizens of these United States, to be the authors of the next great chapter in our American story.
U.S. citizens abroad must accept their obligations to those remaining inside the U.S. Hmm. Would that mean that Homelanders have obligations to U.S. citizens abroad? What has the U.S. government done for you lately?
She currently has PR status.
@Animal, at least that’s something. Hopefully she’ll be able to eventually acquire Canadian citizenship too so she’d hopefully enjoy more options then.
Had to sign this one….
Force Congress to Obey Obamacare
If Obamacare is good enough for the rest of America, it should be good enough for the liberal Democrats on Capitol Hill who made and passed the law.
The “Obamacare” investment surtax, for which foreign tax credits most likely cannot offset the income, is a nice example of US passing domestic legislation that “overrides” tax treaties— and Canada’s unwillingness to become aware of or complain about the treaty violation.
It seems that US “can”:”override” or trump tax treaty by domestic legislation, but the Canada-US tax treaty requires US to “promptly consult” with Canada when legislation (Obamacare surtax) reduces a treaty benefit. Apparently US never notified Canada or UK (or probably any tax treaty partner) of the violation. [For UK treaty, wording is that US must “notify” if legislation changes.]
I have sent repeated emails asking Canada Finance to complain to US on this, in part using the argument that it should be embarrassing for Finance to be seen publicly not defending tax treaty rights of Canadians—Finance has now agreed to “look into” the Obamacare matter.
Tax professional groups are often attacked (with good justification) in this forum, but it is Moodys, and not my adopted country, that has been proactive in complaining to IRS about the Obamacare surtax, e.g.:
http://www.moodystax.com/new-us-tax-law-may-negatively-affect-canadian-retirement-plans/
IRSCompliantForever,
Yours is an important point.
Will Canada stand up for what can happen to its ‘US Persons’?
Can someone explain how this will impact me? I really don’t understand. I live and work in Canada and still work remotely in the US.
I was planning on renouncing in 2014…
A good article here, for those who have exposure to taking out ObamaCare
How Big Is The Penalty If You Don’t Get Health Insurance?
As you should imagine, it is NOT a simple answer. It all depends…
http://www.forbes.com/sites/beltway/2013/11/07/how-big-is-the-penalty-if-you-dont-get-health-insurance/
http://www.hodgsonruss.com/Home/News_Seminars/Articles_and_Alerts/IRS-FTC-NIIT
‘IRS: No FTC for 3.8 Percent NIIT’
January 17, 2014
…”the IRS released final Treasury regulations (TD 9644, November 26, 2013) for the 3.8 percent net investment income tax (NIIT) and confirmed that FTCs cannot offset it. A US citizen living in Canada who previously used FTCs to eliminate US tax may owe US tax for 2013.
The NIIT applies to a US taxpayer whose modified adjusted gross income (MAGI) is at least $200,000 (a single filer) or $250,000 (joint filers). The taxable amount is the lesser of (1) the excess MAGI over the taxpayer’s threshold and (2) the taxpayer’s net investment income, which includes interest, dividends, capital gains, rental and royalty income, income from businesses involved in trading financial instruments or commodities, and income from businesses that are passive activities to the taxpayer (Code section 469).
The final regulations explicitly confirm that FTCs cannot offset the NIIT. As discussed in an earlier article (“No FTC for Medicare Surtax,” Canadian Tax Highlights, March 2013), the denial of an FTC seemed clear in the Code, but commentators questioned whether that result was intended….”….
badger,
I’m as obfuscated as ever by US IRS mumbo jumbo.
Since the NIIT cannot be offset by FTCs, this seems to be a case of *real* double taxation (as opposed to just getting the worst of both worlds). I wonder if the Canadian government tried to do anything about this.
If you really want to get into the NIIT Picky complexity of the ObamaCare Tax, this by Virginia may or may not help you. It depends where the “glaze over” factor hits you during the read…
http://taxconnections.com/taxblog/niit-picky-nuances-for-americans-overseas-or-with-offshore-investments/#.UvHVLfmSySp
No big deal. Indeed, it is easy to make more than 200K in Switzerland or Norway just to pay the bills.
But, I’m not allowed to have a bank account or investments without reporting to the FInancial Crimes Enforcement Network. Therefore I have no unearned income from any bank or investment facility.
And, according to the Securities Act of 1933, I can’t purchase American corp securities traded on US exchanges. So I can’t purhase American stocks if living outside of America, anyways.
Obamacare, the irony makes me shake my head: http://www.npr.org/blogs/itsallpolitics/2014/02/04/271636859/more-access-to-health-care-means-more-people-can-work-less?utm_medium=Email&utm_campaign=20140205&utm_source=
Which Party was in power when the 1995 US Canada tax treaty was signed? Did Pierre Trudeau write an open letter opposing it? He wrote big open letter opposing Meech Lake. He just could have easily called Chretian.