PFIC Tax Calculator 2026 β Default vs QEF vs Mark-to-Market
Calculate PFIC tax under all three methods: excess distribution (default), QEF election, and mark-to-market. Compare total cost including interest charges.
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Total Tax Under Selected Method
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Total Gain
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Interest Charges (Default Only)
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Effective Rate on Gain
PFIC Tax Breakdown
How to Use This PFIC Tax Calculator
Enter your PFIC investment details: initial cost, current value, years held, distributions received, and your tax rate. Select the PFIC method. The calculator shows the total tax burden including the punitive interest charges under the default method.
Default Method Formula (Excess Distribution)
Total Gain = Current Value β Initial Cost + Distributions
Annual Allocation = Total Excess Γ· Years Held
Tax per Year = Annual Allocation Γ Highest Marginal Rate (37%)
Interest = Tax Γ underpayment rate Γ years from allocation year to current
Total = Sum of (Tax + Interest) for each year in holding period
Annual Allocation = Total Excess Γ· Years Held
Tax per Year = Annual Allocation Γ Highest Marginal Rate (37%)
Interest = Tax Γ underpayment rate Γ years from allocation year to current
Total = Sum of (Tax + Interest) for each year in holding period
Simplified Example
$50K investment, now worth $90K after 5 years, $5K distributions:
Total gain + distributions = $45,000
Default method: $45K allocated over 5 years = $9K/year
Tax at 37% each year = $3,330/year + interest on prior years
Default total: ~$17,000+ vs QEF at 37%: ~$16,650 β interest makes default more expensive
Total gain + distributions = $45,000
Default method: $45K allocated over 5 years = $9K/year
Tax at 37% each year = $3,330/year + interest on prior years
Default total: ~$17,000+ vs QEF at 37%: ~$16,650 β interest makes default more expensive
Extended
Method Comparison Table + Form 8621 Requirements
Full cost analysis and reporting obligations for each PFIC election method
All Three Methods Compared
| Factor | Default (Excess Dist.) | QEF Election | Mark-to-Market |
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Tax Cost Comparison for Your Investment
| Method | Base Tax | Interest Charges | Total Cost | Effective Rate |
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Form 8621 Filing Requirements
Frequently Asked Questions
What is a PFIC and who does it affect?
A Passive Foreign Investment Company (PFIC) is any foreign corporation where either: (1) at least 75% of gross income is passive (interest, dividends, rents, royalties), or (2) at least 50% of assets produce or are held for passive income. Foreign mutual funds, ETFs, and many foreign holding companies qualify as PFICs. US persons (citizens, residents, green card holders) who own shares in a PFIC must report them on Form 8621 and face punitive default taxation unless they make a QEF or MTM election.
What is the default PFIC excess distribution method and why is it punitive?
Under the default excess distribution method, any distribution exceeding 125% of the average prior-year distributions is an "excess distribution." The entire gain on sale also gets excess distribution treatment. The excess amount is allocated ratably over your entire holding period, and each year's share is taxed at the highest marginal rate for that year (37% currently) plus interest charges from each year as if the tax were owed then. This eliminates the benefit of lower long-term capital gains rates and adds underpayment interest, making holding PFICs without an election extremely expensive.
What is a QEF election and when should I make it?
A Qualified Electing Fund (QEF) election allows US shareholders to include their pro-rata share of the PFIC's ordinary income and net capital gain annually, taxed at ordinary income and capital gains rates respectively β rather than waiting for distributions. The election must be made in the first year of PFIC ownership and requires the PFIC to provide an annual information statement. QEF treatment eliminates the excess distribution trap and allows capital gains rates on eventual sale. It is generally the preferred treatment if the PFIC will provide the required information statements.
What is mark-to-market (MTM) PFIC election?
The MTM election (IRC Β§1296) requires you to recognize gain (or loss, limited to prior gains) on PFIC shares annually based on the change in fair market value, even without selling. Recognized gains are taxed as ordinary income. This prevents the buildup of untaxed appreciation that creates the excess distribution problem, but you pay tax on paper gains each year. MTM requires that the PFIC shares be "marketable stock" (publicly traded on a national securities exchange or foreign exchange that the IRS recognizes). It is often chosen for publicly traded foreign ETFs.
Do I need to file Form 8621 every year for PFIC holdings?
Yes, if you have made a QEF or MTM election, Form 8621 must be filed annually. Under the default method, Form 8621 is required in years when you receive an excess distribution or dispose of PFIC stock. However, following FATCA and tighter reporting rules, most tax practitioners recommend filing Form 8621 for all PFIC holdings in all years to ensure compliance. Failure to file 8621 can suspend the statute of limitations on the entire return, not just the PFIC items.