Updated July 29, 2026. Quick answer: Because a regulation says so in its heading. Treas. Reg. §1.1411-1(e) is titled “Disallowance of certain credits against the section 1411 tax”. The 3.8% net investment income tax sits in its own chapter of the Code, and the foreign tax credit machinery does not reach it. So an American abroad can be fully credited against regular US tax by foreign taxes paid and still owe the 3.8% with nothing to apply against it.
The structural reason, not merely the rule
Treas. Reg. §1.1411-1 closes with paragraph (e), whose heading is “Disallowance of certain credits against the section 1411 tax”. Section 1411 imposes its tax under chapter 2A of the Code. The foreign tax credit operates against the chapter 1 income tax. Credits do not travel between chapters unless a provision sends them, and no provision sends them here.
| Regular US income tax | The 3.8% tax | |
|---|---|---|
| Chapter of the Code | Chapter 1 | Chapter 2A |
| Foreign tax credit available? | Yes | No |
| Reduced by the foreign earned income exclusion? | For earned income | The exclusion does not reach investment income at all |
| Threshold | Ordinary brackets | $250,000 joint, $200,000 otherwise — no indexing mechanism in the statute |
The compounding problem for someone in a high-tax country. Move to a jurisdiction that taxes investment income heavily and you generate large foreign tax credits — which wipe out the regular US tax and are then useless against the 3.8%. Move to a jurisdiction that taxes nothing and you generate no credits, but §865(g)(2) keeps your gain US-source so there was nothing to credit anyway. Both directions arrive at the same place: the 3.8% is paid out of pocket.
What the thresholds do and do not do
IRC §1411(b) sets the thresholds at $250,000 for a joint return and $200,000 otherwise, and the statute contains no inflation-adjustment mechanism — which is why they are the same figures they have always been and why they capture steadily more people. They are measured against modified adjusted gross income, and the foreign earned income exclusion’s interaction with that measure is its own question that this page does not answer.
Paragraph (e) disallows credits allowable against the chapter 1 tax; the credits it names are the ones the cross-border reader cares about, and the point of the page is the disallowance rather than the enumeration. It does not follow that no credit of any kind can ever apply to a §1411 liability — only that the foreign tax credit does not.
Sources
Treas. Reg. §1.1411-1(e); IRC §1411(a) and §1411(b), whose thresholds carry no indexing mechanism; IRC §901 and §27(a) for the credits disallowed. Fetched July 2026.
This states what the cited authority says. It is not tax, legal or investment advice. Cross-border tax turns on your citizenship, your tax home, the country you move to and any treaty between it and the United States — none of which a page can see. No filing deadline is stated here; deadlines change and the current instructions govern.