It is a small line, near the bottom of the second page, and it has a form of its own that most people have never opened. Form 8960. Three point eight percent. On a $180,000 portfolio yield it is a little under $7,000 a year — enough to notice, not enough to investigate. In America it is one more federal number among many, and your accountant has never mentioned it because there is nothing to say about it. It simply applies.
This page is for American retirees and financially independent movers relocating on the non-lucrative visa who have meaningful investment income. It is a companion to our guide to the US–Spain tax treaty for American retirees, and it exists because that page — correctly — tells you that the US foreign tax credit is what absorbs the overlap between the two countries. This page is about the one American tax where the absorber is not connected to anything at either end.
Almost every other page on this website describes the same shape: you move, and a Spanish tax that never applied to you starts applying. This one has the opposite shape, and that is why it gets missed. The net investment income tax does not start when you land in Málaga. It has been applying to you for years, in Ohio, quietly, correctly, and at exactly the same rate. Nothing about Spain switches it on. What Spain does is remove the thing that made it survivable — the assumption, true of every other line on your return, that anything Spain takes will be credited back.
On this page
The tax you are already paying and have never thought about Chapter 1, Chapter 2A, and a credit that cannot reach across Why Spain will not credit it either The orphan: both refusals are correct Four courts, two answers, and one pending appeal The paragraph Spain does not have A Medicare contribution that does not fund Medicare, for a Medicare that will not treat you Frozen since 2013 — and the income that pushes you over without being taxed What the 3.8% does on each side of the border Protective claims, Form 8833, and the court you can only enter by paying What we actually do about it Frequently asked questions
"Clients arrive with a number in their head: the higher of the two rates. They have modelled the move on that sentence, and for almost everything they own it is a fair sentence. Then we get to the investment income and I have to explain that there is a tax their own country charges them for being their own country's citizen, that Spain has no obligation to refund and America has no mechanism to credit. It is not a trap anyone set. That is what makes it so hard to see."
— Lola Jurado · Immigration lawyer, Ilustre Colegio de Abogados de Málaga (nº 10907)
The tax you are already paying and have never thought about
The net investment income tax — the NIIT — was enacted as part of the 2010 health care legislation and took effect on 1 January 2013. It sits at section 1411 of the Internal Revenue Code. The IRS states the rule plainly: individuals are liable for a 3.8 percent tax on the lesser of their net investment income, or the amount by which their modified adjusted gross income exceeds a statutory threshold based on filing status.
The thresholds are:
- $250,000 — married filing jointly, and qualifying surviving spouse with a child
- $200,000 — single or head of household
- $125,000 — married filing separately
Net investment income generally includes interest, dividends, capital gains, rental and royalty income, and non-qualified annuities. It generally does not include wages, unemployment compensation, Social Security benefits, alimony, or most self-employment income.
Read that second list again, because it contains the whole problem in miniature. It is a list of the things a working American lives on. The NIIT was designed to fall on the income of people who do not need to work — which, after a certain birthday, describes almost every reader of this page. You did not become subject to the NIIT by getting richer. You became subject to it by retiring: by turning a salary into a portfolio. The tax has been waiting for you since 2013 and it arrived the year your income stopped being wages.
Chapter 1, Chapter 2A, and a credit that cannot reach across
Here is the mechanism, and it is worth being precise, because the imprecision is where people lose money.
The US foreign tax credit is granted by sections 27 and 901 of the Code. By its own terms, it is a credit against the tax imposed by this chapter — Chapter 1, the ordinary income tax. The NIIT is not in Chapter 1. It was codified in Chapter 2A, a chapter created for it, sitting between the self-employment tax and the payroll taxes.
So the Spanish tax you pay on a dividend can be credited against the American income tax on that dividend, and cannot be credited against the American NIIT on the very same dividend. Same money. Same day. Same 1099. One credit works, one does not, and the reason is which chapter of a filing system the drafters put the tax in.
This is not a contested reading. It is not aggressive, and no one at the IRS is being difficult. Under domestic law it is simply the answer, and the professional literature states it as settled: a credit for foreign taxes cannot offset the NIIT because the credit may only be applied against taxes codified in Chapter 1.
It is worth pausing on how ordinary this is. Nobody in 2010 was thinking about a widow in Andalucía. The NIIT was placed in a new chapter for reasons internal to American budget procedure, and the foreign tax credit had been pointing at Chapter 1 since long before anyone imagined a tax that would sit outside it. The gap was not created. It was left over.
Why Spain will not credit it either
The obvious next thought is: fine — then Spain should give me credit for the American tax. Spain will not, and this is the part almost nobody reaches, because it requires reading a treaty from 1990.
Article 24(1)(a) of the US–Spain Convention sets out Spain's relief obligation, and it contains a condition that decides everything. Spain gives a credit where a resident of Spain derives income which, under the Convention, may be taxed in the United States — and then five words that do all the work:
Spain's promise is to relieve the tax America charges you as America — as the country where the dividend arose. Spain never promised to relieve the tax America charges you for being American. That was always meant to be America's own problem to fix, and under the treaty's architecture, America fixes it in Article 24(3).
Now apply it. Take a portfolio dividend from a US company. Under Article 10(2)(b) of the Convention, the United States as source country may tax that dividend at up to 15% of the gross amount in the hands of a Spanish resident. That is the American bite Spain has agreed to credit. The NIIT is not part of that bite: it is charged on top, and it is charged on you only because you kept your passport. A Spanish resident who is not a US citizen, holding the identical share, pays no NIIT at all — which is, in itself, the cleanest possible demonstration that the tax is levied by reason of citizenship.
Spanish domestic law points the same way. Article 80 of the Spanish personal income tax law (Ley 35/2006) gives a credit for international double taxation equal to the lesser of the amount actually paid abroad in respect of a tax identical or analogous in nature to IRPF, and the effective average rate applied to the part of the Spanish taxable base taxed abroad. Even before the treaty condition bites, the Spanish credit requires characterising the NIIT as an income tax of an analogous nature — which is precisely the characterisation the United States government itself disputes whenever a taxpayer asks for a credit against it.
The orphan: both refusals are correct
Put the two halves together and look at what you are holding.
The United States will not let you credit Spanish tax against the NIIT, because for that purpose the NIIT is not an income tax in Chapter 1. Spain will not credit the NIIT against Spanish tax, because for that purpose it is a charge imposed solely by reason of citizenship — and, arguably, because Article 2 of the Convention covers "the Federal income taxes imposed by the Internal Revenue Code (but excluding social security contributions)", and the NIIT lives in a chapter whose statutory heading calls it a Medicare contribution.
Neither government is lying. Neither is even being aggressive. Each is applying its own instrument honestly, and the 3.8% falls through the space between two honest answers. It is too much of a Medicare contribution to be an income tax when you want a credit, and too much of an income tax to be a social security contribution when you want the totalization agreement to exempt you from it.
So the sentence you have read on every expat forum — you pay the higher of the two rates, not both — is true of your pension, true of your IRA, true of your rental income, true of nearly everything. On this line, and only on this line, you pay the higher of the two rates plus 3.8%. Every calculator that has told you otherwise is wrong by 3.8 points, in one direction, every year, for the rest of your life in Spain.
Four courts, two answers, and one pending appeal
The American half of this has been litigated, and it is live right now — which is the single best reason to read this page in 2026 rather than in 2028.
Taxpayers abroad have argued that even if the Code bars the credit, the treaty grants one independently, because a treaty is an agreement between sovereigns that is supposed to change the statutory result. The courts have split:
- Toulouse v. Commissioner, 157 T.C. 49 (2021) — the US Tax Court held that the France and Italy treaties did not allow a foreign tax credit against the NIIT. The treaty language allowed the credit "in accordance with the provisions and subject to the limitations of the laws of the U.S.", which the court read as pointing straight back at the Code, and therefore at Chapter 1.
- Kim v. United States (C.D. Cal. 2023) — the same conclusion, under the US–South Korea treaty.
- Christensen v. United States, 168 Fed. Cl. 263 (2023) — the Court of Federal Claims allowed the credit, but on a narrow footing: it held that the general treaty credit in Article 24(2)(a) of the France treaty was barred by that same US-law limitation, and that the taxpayers won instead under a separate paragraph, Article 24(2)(b) — the "three-bite rule" that applies specifically to US citizens resident in France.
- Bruyea v. United States, 174 Fed. Cl. 238 (2024) — the same court, same outcome, broader reasoning, under Article XXIV(4) of the Canada treaty. The court leaned on the treaty's own definition of "United States tax" as any tax on income imposed by the United States irrespective of the manner in which it is levied — wording broad enough, in the court's view, to reach the NIIT.
The government appealed both. The Federal Circuit consolidated Bruyea with Christensen and heard them together as companion cases; oral argument was held on 3 March 2026, before Judges Chen, Hughes and Stark, with an amicus brief filed in support of the taxpayers by H. David Rosenbloom and Fadi Shaheen. As at the date of this page, no decision has issued. Commentators expect one late in 2026 or in 2027, and either side could seek Supreme Court review after that.
You will find this reported all over the American expat press as good news, and for a US citizen in Toronto or Paris it may well turn out to be. Before you count on it in Málaga, read the next section.
The paragraph Spain does not have
Notice what actually won those two cases. In Christensen and in Bruyea alike, the paragraph that lost was the general credit clause — the one carrying the "in accordance with the provisions and subject to the limitations of the law of the United States" wording. The paragraph that won was, in both cases, a separate three-bite rule: a distinct provision that grants its own credit to a US citizen resident in the treaty country. France Article 24(2)(b). Canada Article XXIV(4). Different treaties, same architecture, same winning paragraph.
Now open Article 24 of the US–Spain Convention and read what a US citizen resident in Spain is given.
Paragraph 2 is the general credit — and it is word for word the clause that has never won: "In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle thereof), the United States shall allow to a resident or citizen of the United States as a credit against the United States tax on income (a) the income tax paid to Spain..."
Paragraph 3 is the provision written for exactly our client — the US citizen living in Spain. And it is not a credit at all. It reads:
Read it twice. It re-sources income. It moves income, on paper, to Spain. It does not grant anybody a credit against anything. It is a rule about where income is deemed to arise, and it only does you any good if there is a credit mechanism waiting downstream to receive the re-sourced income — and the only credit mechanism in Article 24 is paragraph 2. The paragraph with the US-law limitation. The paragraph that lost in Toulouse, lost in Kim, and lost even in Christensen, in the very decision the expat press is calling a taxpayer victory.
There is a second point, and it is the one we find most striking. Bruyea's broader reasoning rested on the Canada treaty defining US taxes covered as taxes on income "irrespective of the manner in which they are levied" — the classic OECD-model formula that catches a tax whatever chapter it has been filed under. That phrase does not appear anywhere in the US–Spain Convention of 1990, and it does not appear anywhere in the 2013 Protocol either. Spain's Article 2 is a bare enumeration: "the Federal income taxes imposed by the Internal Revenue Code (but excluding social security contributions)". The textual hook Bruyea reached for is not in our treaty to reach for.
So the American retiree in Nerja is watching, with real hope, an appeal about the treaties of Canada and France, to learn the fate of a paragraph that neither of those treaties shares with hers.
One more piece of context worth having: the United States and Spain renegotiated this Convention in a Protocol signed in 2013 and in force since 2019. They rewrote the dividends article, the interest article, parts of the capital gains article, the limitation-on-benefits article, and added arbitration. That was three years after the NIIT was enacted. Article 24 was not touched. Not a word. The relief architecture that decides whether an American in Spain pays this tax twice is the text of 1990 — drafted twenty years before the tax existed, and left alone by negotiators who had every opportunity to look at it.
A Medicare contribution that does not fund Medicare, for a Medicare that will not treat you
The statutory heading of Chapter 2A calls this the Unearned Income Medicare Contribution. The rate, 3.8%, is exactly the employee and employer shares of the Medicare tax plus the Additional Medicare Tax. Everything about the name says: this is your contribution to American health care.
It is not. The revenue from section 1411 does not go to the Medicare Hospital Insurance trust fund. It goes to the general fund. The Federal Register records the point without embarrassment: amounts collected under section 1411 are not designated for the Medicare Trust Fund, and no provision is made for transferring the tax from the General Fund to any Trust Fund. In earlier drafts of the legislation the money was dedicated to the HI trust fund; the dedication was stripped out to satisfy the budget reconciliation rules the bill had to pass under. The name survived the procedure. The money did not.
Which leaves an American retiree in Andalucía paying, every year:
- a Medicare contribution
- that does not fund Medicare;
- for a Medicare that, as our page on Medicare for US retirees in Spain explains at length, will not pay for a single day of her care in Spain;
- on income her Spanish neighbour, holding the identical shares, is not charged on at all;
- while she pays a Spanish insurer separately for the cover the visa requires her to hold.
And because the money never reaches the trust fund, the tax is not a social security contribution in any sense that helps her. The US–Spain totalization agreement stops you being charged twice for social security. It has nothing to say about a general-fund levy wearing a Medicare name badge. The label is close enough to Medicare to make the tax feel like something you are buying. It is far enough from Medicare to make sure you are not.
Frozen since 2013 — and the income that pushes you over without being taxed
The $200,000 and $250,000 thresholds are not indexed for inflation. They were set when the tax began in 2013 and they have not moved since. Every other significant number on your American return climbs each year; this one does not. Over a thirty-year retirement, a threshold that stands still while everything else rises is not a threshold. It is a schedule.
Then there is the trap inside the arithmetic, and it is the one that catches careful people. The tax is 3.8% of the lesser of your net investment income or the excess of your modified adjusted gross income over the threshold. Those are two different quantities, and income that is not net investment income can still be in your MAGI — where it does no harm by itself, but pushes your MAGI up and drags your investment income into the tax underneath it.
Social Security is the clean example. Your benefits are not net investment income; the NIIT will never be charged on them. But your taxable benefits are in your MAGI. They lift the whole calculation toward the threshold without ever being taxed by the NIIT themselves — and our page on using Social Security and investment income as proof of funds exists because most of our clients are relying on exactly that combination to qualify for the visa in the first place.
The same mechanism turns several pieces of standard pre-move advice into decisions that need modelling rather than assuming:
- A Roth conversion is not net investment income. It is squarely in your MAGI. A large conversion can cost you nothing in NIIT directly and still hand 3.8% of your dividends to the IRS by lifting you over the line. The same MAGI spike can also create a delayed IRMAA Medicare surcharge if you keep Part B or Part D.
- Selling the US house: gain excluded under section 121 is not net investment income — the IRS says so directly. Gain above the exclusion is.
- A QSBS business sale, an NUA distribution of company stock, a savings bond reaching final maturity, an inherited IRA emptied in year ten: each is a spike, and a spike is what the NIIT is built to catch.
- Your US rental income and your K-1 income may be net investment income depending on how the activity is characterised — a question that is technical in America and does not become less technical for being asked from Spain.
And one currency point that sounds trivial and is not: the thresholds are in dollars, and they are measured against your MAGI, computed under US rules, in dollars. Your life is in euros. A year in which the dollar weakens does not raise your threshold. A year in which your Spanish costs rise does not lower your MAGI. The two systems do not speak to each other, and this line does not care.
What the 3.8% does on each side of the border
| US resident, before the move | Spanish tax resident, after the move | |
|---|---|---|
| Does the NIIT apply? | Yes, at 3.8% | Yes, at 3.8% — unchanged |
| Who else taxes the same income? | Your US state, possibly | Spain, on worldwide income, in the savings base |
| Can you credit foreign tax against it? | Not relevant — there is none | No, under domestic law (Chapter 1 vs Chapter 2A) |
| Will Spain credit the NIIT? | Not relevant | Very likely not — Art. 24(1)(a) excludes tax charged "solely by reason of citizenship" |
| Does a treaty argument exist? | — | Yes, but weaker than Canada's or France's: Spain's Art. 24(3) re-sources, it does not grant a credit |
| Net effect on that income | US rate, once | Higher of the two rates, plus 3.8% |
| Does your Spanish neighbour pay it? | — | No. Same shares, no NIIT. The difference is your passport. |
| Does renouncing end it? | — | Prospectively yes — it is a citizenship tax. But that decision is never made for 3.8%, and should not be. |
Protective claims, Form 8833, and the court you can only enter by paying
If the Federal Circuit rules for the taxpayers and the reasoning reaches Spain's Article 24, the money is only recoverable for years that are still open. So the practical question in 2026 is not who is right. It is: what have you preserved?
Three points your US adviser should be raising with you now, not after the decision lands:
The statute of limitations here is ten years, not three. Section 6511(d)(3) gives a special limitation period for refund claims relating to foreign tax credits — ten years, rather than the general three. That is the reason this is worth a conversation today: the window on years you have already filed is far wider than people assume, and it is the single most valuable fact on this page. For current-year cash-flow, do not forget the unglamorous step: NIIT can create a real US balance that belongs in your 1040-ES estimated-tax projection, because ordinary foreign tax credits may not absorb it.
A protective refund claim keeps a year alive. Where the outcome depends on litigation that has not concluded, a protective claim preserves the right to a refund for open years without asserting a determinable amount. The IRS may hold it pending the contingency — or it may simply process and disallow it, which starts a two-year clock under section 6532(a) to file suit in a US district court or the Court of Federal Claims. Miss that clock without extending it on a Form 907, and you lose the refund even if your position ultimately wins. A protective claim is not a thing you file and forget. It is a thing you file and diarise.
Claiming it on a current return is a disclosed position, on a form with no line for it. There is no clean mechanism: practitioners describe modifying Form 8960 by adding lines to show the reduction, together with a Form 8833 treaty-based return position disclosure under section 6114 — because claiming a credit against the NIIT is a position that modifies US law and is not waived from disclosure. Expect the IRS to disallow it while the cases are pending.
And then the structural detail that we find genuinely hard to get past. Every taxpayer victory on this issue is in the Court of Federal Claims. Every loss is in the Tax Court or a district court. The Tax Court is the forum you can use without paying the tax first — you petition a deficiency and litigate from a position of not having handed over the money. The Court of Federal Claims is a refund forum: you can only be there because you already paid. So the only court that has agreed with taxpayers on the NIIT is a court you cannot walk into until you have written the cheque. The friendlier law lives on the other side of the payment. That is not a conspiracy; it is jurisdiction. It is still worth knowing before you decide which fight you are in.
What we actually do about it
We are an immigration firm, and this is a tax question that must be answered with your US adviser and a Spanish tax adviser. What we do is the part they cannot: we control the date. The visa timeline, the 183-day rule and the first Spanish tax year are the variables that decide which side of the border each of these events lands on, and those are ours.
So the practical work looks like this:
- Find out whether the NIIT is even in play. Many of our clients are comfortably below $250,000 of MAGI and none of this touches them. Pull last year's return and look for Form 8960. If it is not there, read the treaty page instead and stop worrying about this one.
- Identify the spikes. The house, the business, the concentrated stock position, the conversion, the bond. Every one-off event that lifts MAGI over the line is a candidate for happening in a year of your choosing — and for most of them, the pre-move year is the year, because pre-move you pay 3.8% instead of Spanish tax rather than on top of it.
- Model the ongoing yield honestly. A dividend investor living on portfolio income should budget the Spanish savings-base tax plus an uncreditable 3.8% on the investment income above the threshold, not the higher of the two. Our first-year budget page is the right place to put that number.
- Preserve the open years. Ask your US adviser about section 6511(d)(3) and protective claims while the Federal Circuit case is pending, not after.
- Do not let a 3.8% tax drive a life decision. We have watched people talk themselves toward renunciation, or toward keeping a US address they no longer live at, over a number that a slightly different asset allocation would have handled. The tax is real. It is not that big.
There is a version of this page that would end by telling you we can solve it. We cannot, and neither can anyone else, because the thing you would need is a paragraph in a treaty that two governments did not write. What we can do is make sure you know the number before you sign a lease, and that the events you can control happen in the year you choose rather than the year that chooses you.
Frequently asked questions
Do I still pay the 3.8% net investment income tax after I move to Spain?
Yes. The NIIT is a tax on US citizens and residents, and US citizens are taxed on worldwide income regardless of where they live. Moving to Spain changes nothing about whether it applies, the rate, or the thresholds. What moving changes is what happens next to the same income: Spain now taxes it as well, because Spain taxes its residents on worldwide income, and the relief that would normally stop you paying twice does not reach this particular tax from either direction.
Can I use the foreign tax credit to offset the NIIT?
Not under US domestic law. The foreign tax credit in sections 27 and 901 is a credit against the tax imposed by Chapter 1 of the Internal Revenue Code. The NIIT is in Chapter 2A. That is the whole reason, and it is settled enough that the IRS is not being aggressive when it says no. There is a live argument that a tax treaty grants a credit independently of the Code, which taxpayers have won twice in the Court of Federal Claims and lost in the Tax Court, and that question is currently on appeal to the Federal Circuit. Until it is decided — and unless the reasoning reaches Spain's treaty, which is a separate question — the working assumption for a US citizen in Spain is that no credit is available.
Will Spain give me credit for the NIIT against my Spanish tax?
Very probably not, and you should plan on the basis that it will not. Article 24(1)(a) of the US–Spain treaty obliges Spain to credit US tax on income that may be taxed in the United States "other than solely by reason of citizenship". The NIIT is charged on top of what the treaty permits the United States to take as source country — under Article 10(2)(b) that is 15% on portfolio dividends — and it is charged on you only because you are a US citizen. A Spanish resident who is not American, holding the same shares, pays no NIIT. Spanish domestic law adds a second hurdle: the article 80 LIRPF credit requires a foreign tax that is identical or analogous in nature to IRPF, which is precisely the characterisation the US government itself resists. We have not found a Spanish ruling squarely on the point, and we are not going to invent one.
What are the Christensen and Bruyea cases, and will they help me in Spain?
They are two Court of Federal Claims decisions — Christensen (2023, US–France) and Bruyea (2024, US–Canada) — in which US citizens abroad were allowed a treaty-based foreign tax credit against the NIIT. Both are on appeal; the Federal Circuit consolidated them and heard argument on 3 March 2026, and no decision has issued. Whether they help in Spain is a genuinely different question. In both cases the paragraph that won was a separate "three-bite rule" granting its own credit to a US citizen resident in the treaty country — France Article 24(2)(b), Canada Article XXIV(4). The US–Spain treaty has no equivalent credit-granting paragraph: its Article 24(3) only re-sources income to Spain, leaving the credit to come from Article 24(2), which is the general clause that lost in every decision including Christensen itself. Bruyea's broader reasoning relied on the Canada treaty covering US taxes "irrespective of the manner in which they are levied" — wording that appears nowhere in the US–Spain treaty or its 2013 Protocol. A taxpayer can still argue that Article 24(3)'s words "to the extent necessary to avoid double taxation" must be given effect. It is a real argument and a harder one.
Is the NIIT really a Medicare tax? Does it buy me anything in Spain?
No, on both counts, and the name is genuinely misleading. Chapter 2A is headed "Unearned Income Medicare Contribution" and the 3.8% rate matches the Medicare tax rates, but the revenue does not go to the Medicare Hospital Insurance trust fund — it goes to the general fund. The Federal Register states that amounts collected under section 1411 are not designated for the Medicare Trust Fund and that no provision is made to transfer them to any trust fund. The dedication was in earlier drafts and was removed to satisfy budget reconciliation rules. So you are paying a Medicare contribution that does not fund Medicare, for a Medicare that does not cover you in Spain, while separately paying a Spanish insurer for the cover your visa requires. And because it is not a social security contribution, the US–Spain totalization agreement does not touch it either.
My income is mostly Social Security and pensions. Am I affected?
Possibly, but indirectly, and this is the part worth understanding. Social Security benefits and pension income are not net investment income, so the NIIT is never charged on them. But your taxable Social Security and your pension distributions are in your modified adjusted gross income, and the NIIT is 3.8% of the lesser of your net investment income or the amount by which your MAGI exceeds the threshold. So this income can push your MAGI over $250,000 and drag your dividends and capital gains into the tax underneath it, without ever being taxed by the NIIT itself. If your income is genuinely all Social Security and pension and you have little investment income, there is nothing for the tax to bite on and you can stop reading.
Should I sell my US house, my business or my concentrated stock before I move?
Usually there is a strong case for doing the big one-off events before Spanish residence starts, and the NIIT widens that case rather than changing it. Before the move, a large gain may cost you the 3.8% and US capital gains tax, and that is the end of it. After the move, the same gain can cost you Spanish savings-base tax and US tax and an uncreditable 3.8% stacked on top. Two caveats. First, gain on a principal residence that is excluded under section 121 is not net investment income at all — only the gain above the exclusion is. Second, this is a calculation on your numbers and not a rule; a US adviser should run it. What we contribute is the date: the visa timeline and the 183-day rule decide which tax year the event lands in, and that is the variable most people do not realise is theirs to set.
Is it worth filing a protective refund claim while the appeal is pending?
It is worth asking your US adviser, and the reason is that the deadline is much longer than people expect. Refund claims relating to foreign tax credits have a ten-year limitation period under section 6511(d)(3), not the usual three, so years you have already filed and forgotten may still be open. A protective claim preserves the position while the litigation is unresolved. The trap is what happens if the IRS processes and disallows it rather than holding it: that starts a two-year clock under section 6532(a) to bring a refund suit, and letting the clock run out means losing the money even if the taxpayers ultimately win on the law. So it is not a file-and-forget step. It is a decision with a diary entry attached, and it should be made with a US adviser who will still be there in two years.
Sources reviewed July 2026: IRC §1411 and Chapter 2A ("Unearned Income Medicare Contribution"); IRS "Net Investment Income Tax" (page last reviewed 1 July 2025) for the 3.8% rate, the "lesser of net investment income or MAGI over the threshold" mechanic, the statutory thresholds of $250,000 (married filing jointly and qualifying surviving spouse), $200,000 (single or head of household) and $125,000 (married filing separately), the composition of net investment income, the exclusion of wages, Social Security benefits and alimony, and the treatment of §121-excluded residence gain; IRC §§27, 901 and 6114; §6511(d)(3) and §6532(a); Forms 8960, 8833 and 907. Case law: Toulouse v. Commissioner, 157 T.C. 49 (2021); Kim v. United States (C.D. Cal. 2023); Christensen v. United States, 168 Fed. Cl. 263 (2023); Bruyea v. United States, 174 Fed. Cl. 238 (2024); Federal Circuit appeals Nos. 24-1284 and 25-1563 (consolidated), oral argument 3 March 2026, decision pending at the date of this page. Treaty: Convention between the United States and the Kingdom of Spain signed at Madrid on 22 February 1990, Articles 1(3), 1(4)(a), 2(1)(b), 2(2), 10(2)(b), 24(1)(a), 24(2) and 24(3), read against the Protocol signed 14 January 2013 (in force 27 November 2019), which amends Articles 10, 11 and 13 and does not amend Article 24. Spain: Ley 35/2006 (LIRPF) art. 80 (deducción por doble imposición internacional; "impuesto de naturaleza idéntica o análoga" and the tipo medio efectivo limit). NIIT revenue allocation: Federal Register statements that amounts collected under §1411 are not designated for the Medicare Trust Fund and that no provision is made for transfer to any Trust Fund.
This page is general information about Spanish immigration and residence planning. It is not legal, tax or US tax advice. Whether the NIIT applies to you, whether any credit is available against it in either country, the treatment of your Spanish tax credit under article 80 LIRPF and the treaty, and whether to file or preserve a refund claim must be confirmed for your own facts with US and Spanish advisers before you rely on them. The litigation described here is unresolved and the law may change.