Written by U.S. citizens living abroad remain subject to U.S. income tax on their worldwide income and can additionally owe the 3.8% Net Investment Income Tax (NIIT) (IRC section 1411). The tax equals 3.8% of the smaller net investment income or the amount by which modified adjusted gross income (MAGI) exceeds a threshold: $250,000 if married filing jointly or a qualifying surviving spouse, $125,000 if married filing separately, and $200,000 if single or head of household. This is a separate tax to U.S. income tax – which is also charged in this covered (investment) income.
Covered income includes interest, dividends, annuities, royalties, rents, passive-business income, and taxable net gains, reduced by related deductions. Wages, active business income, qualified retirement distributions, and self-employment income are generally excluded. But any foreign earned income you exclude under section 911 (on form 2555) is added back in figuring your NIIT MAGI, so it can push taxpayers over the threshold even though the wages are not investment income.
Foreign tax credits (section 901) cannot reduce the NIIT (Treasury Regulation section 1.1411-1(e)). Tax treaties generally do not change this for U.S. citizens, because their saving clauses preserve U.S. taxation of citizens – the U.S. / Ireland tax treaty does not allow you to set your Irish tax on this income against U.S. tax on this income (either does the U.K. treaty).
Helpful IRS resources:
IRS 2025 Form 8960 Instructions • IRS NIIT Questions and Answers • IRS Publication 54