A Quick Synopsis
Congratulations to lawyers Stuart Horwich & James Lieber for their work and success in achieving this result for Americans abroad.
U.S. citizens considering retiring abroad on their U.S. pensions, investment income and Social Security should explore the special benefits of becoming a resident of France (and I don't mean just the wine) … https://t.co/JvLMXlCK9T pic.twitter.com/XECemSynPH
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) February 6, 2023
Because of the specific provisions of the France/U.S. tax treaty, U.S. citizens who are resident in France are eligible to use French income tax paid as a tax credit against the 3.8% Obamacare surtax. Depending on the terms of the tax treaty in their country of residence, it is possible that U.S. citizens residing in other countries may be able to use taxes in their country of residence as a tax credit against the 3.8% Obamacare surtax.
As described below, I expect that to be able to use foreign taxes paid as a credit against the 3.8% Net Investment Income Tax, the “Double Taxation” article in the relevant tax treaty must include a specific provision for “U.S. citizens residing in the country of residence”. (Canada comes to mind. But, I will have to some more research …)
Note that it is very possible that this decision will be appealed. The US government will be unhappy with this decision.
For more detail and analysis, keep reading. This post in organized into the following parts:
Part A – Introduction – Background
Part B – Before moving to another country, pay special attention to the tax treaty between the US and that country!
Part C – MATTHEW AND KATHERINE KAESS CHRISTENSEN V. UNITED STATES – Why does the US/France tax treaty work for them?
Part D – Not all tax treaties are the same! What kind of tax treaty provision create the eligibility to use foreign tax credits to offset the Obamacare surtax?
Part E – It’s great that I am entitled to a foreign tax credit. But, how is the tax credit to be calculated?
Part F – The Question: I live in country X. May I use foreign tax credits to offset the Obamacare surtax?
Part G – Dang! Can I get a refund? It appears that refunds ARE available to those who improperly were charged the Obamacare surtax!
Appendix – ARTICLE 24 Of the 1994 France/US Tax Treaty with the later protocols taken into account