US Citizens get a raw deal...

[Ali G. 37]

Regardless of the amount earned, since I am taxed in the US, I am not taxed in Aus. One would think that is common sense.

Edited February 19, 2010 by Booyah

[Mr. Big Dog 10,747]

Now the first $91,500 is supposedly tax free - but you have to file your income in US dollars (based on the prevailing exchange rate?), so if you are working in a country that has a high rate of exchange with the dollar, then that 91 grand isn't a whole lot.

The exchange rate matters rather little:

Median Household Income in the UK is USD 39K (GBP 25K)

Median Household Income in the US is USD 50K

Median Household Income in Canada is USD 50K (CAD 53K)

Median Household Income in Switzerland is USD 69K (CHF 75K)

So, the $91K exemption would actually be working out quite well for the UK, won't it? You're less likely to hit that threshold over there than you'd be in, say, Canada or Switzerland even though both those currencies have a much lower exchange rate to the USD.

[Trumplestiltskin 5,791]

If you qualify for the exemption (which you don't until you've lived in the foreign country for 330 days of the tax year). It will make next year's taxes rather expensive to say the least.

[SMR 368]

Yes. It's a private retirement system where your employer is required to pay 9% on top of your salary to a private retirement account of your choice. This money can only be accessed once you are 60. The employee then has the chance to supplement this using their own funds. The last article I read about it stated that Australians (on average) have double the retirement amount of the country in second position.

Of course they also have the age pension, which everyone qualifies for after 65, and is means / income tested.

We need to dump SS and get something like this.

[Ali G. 37]

We need to dump SS and get something like this.

Especially after looking at this..

States short $1 trillion to fund retiree benefits

Edited February 19, 2010 by Booyah

[scandal 951]

Funny that the same rule doesn't apply to US businesses which can supposedly escape high taxation

by moving their operations overseas (or so we keep hearing!)

Who says they have to move operations? All they have to do is move their official business address to Cayman Islands or some such, and benefit from favorable offshore tax treatment. Even when plant and operations remain in the US.

By the way, for the discussion regarding filing of US taxes by residents of foreign countries, don't forget about the AMT. Even after applying the Foreign Earned Income Exclusion, you have to calculate the AMT based on the full amount of foreign earnings, even those excluded for normal tax calculations. This is a relatively new gotcha introduced a few years ago. NOTE!!! I'm not a tax attorney. THIS IS NOT TAX ADVICE.

From IRS website: http://www.irs.gov/businesses/small/intern...d=96817,00.html

Effective for tax years beginning after 2005, the amount of foreign earned income (and foreign housing costs) excluded from an individual's gross income will be used for purposes of determining the rate of income and alternative minimum tax (AMT) that applies to his or her nonexcluded income. The Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) adds a new section 911(f) to the Internal Revenue Code. An individual's tax will be the excess of the tax that would be imposed if his or her taxable income were increased by the amount(s) excluded, and the tax that would be imposed if his or her taxable income were equal to the excluded amount(s). For this purpose, the excluded amount(s) will be reduced by the aggregate amount of any deductions or other exclusions otherwise disallowed. In many cases this will have the effect of increasing an individual’s U.S. federal income tax to an amount greater than it would have been under prior law.

[Ali G. 37]

By the way, for the discussion regarding filing of US taxes by residents of foreign countries, don't forget about the AMT. Even after applying the Foreign Earned Income Exclusion, you have to calculate the AMT based on the full amount of foreign earnings, even those excluded for normal tax calculations. This is a relatively new gotcha introduced a few years ago. NOTE!!! I'm not a tax attorney. THIS IS NOT TAX ADVICE.

From IRS website: http://www.irs.gov/businesses/small/intern...d=96817,00.html

These tax codes just gets more ridiculous. The thought that my spouse will have worry about this ####### when moving to AUS is ridiculous. What part of permanently residing overseas does the US fail to grasp? I could earn a billion dollars in income while I am here, yet as long as I pay tax here, it will not be taxed double-taxed by the AUS government.

Edited February 20, 2010 by Booyah

[Trompe le Monde 1,107]

you would get credit for taxes paid to the UK on earned income so you would be unlikely to pay double tax on that income since at that income level you would be in the 40% tax bracket, which is a little bit more than the tax you would owe in the US.

Where this really sucks is if you live and work in low-tax or no-tax countries Saudi Arabia, Hong Kong, Singapore, etc

Where this becomes an issue that I think you need to think carefully about is if you have passive income - investments, rental properties, etc. Capital gains tax tends to be lower in the UK, and you have a certain level where you are tax exempt which is not the case in the US. Also, tax-free savings instruments such as ISAs

[Kathryn41 3,205]

If you are working in a foreign country and pay taxes in that country, you are able to file a US return claiming your world income and then claim the foreign tax credit. It basically cancels out the taxable income amount from your gross income. From my understanding of how this works, if the tax rate overseas is higher than in the US, then it is almost impossible you would have to pay any taxes in the US. If the overseas tax rate is lower than in the US, there is the possibility that you would pay taxes that would equalize the taxed amount to what you would be paying if you lived in the US. The tax treaties negotiated by the US with foreign countries generally do try to prevent double taxation.

Edited February 20, 2010 by Kathryn41

[spookyturtle 9,466]

These tax codes just gets more ridiculous. The thought that my spouse will have worry about this ####### when moving to AUS is ridiculous. What part of permanently residing overseas does the US fail to grasp? I could earn a billion dollars in income while I am here, yet as long as I pay tax here, it will not be taxed double-taxed by the AUS government.

She's not moving to Australia.

[elmcitymaven 9,712]

As someone who has been there and done that, I can tell you that in practice this has very little bite except for high earners. Sure, $91k doesn't get you that far in the UK (at least in London) but keep in mind that that the figure is net of taxes paid to the foreign government and all possible deductions. There are more than a few very legal and legitimate ways of making that bill go lower, starting with (but not limited to) charitable donations. Furthermore, keep in mind that tax needs to be paid only on the amounts earned above the threshold, and at the rates applicable for such amounts in the US. For example, the taxes paid on a net income of $100k would be only on the $9k excess, not the entire $100k. What Trompe says about passive income and CGT is correct.

There is a good reason there are so many US tax lawyers in the UK, and not all of them are at the Magic Circle or other corporate firms.

[Gary and Alla 3,694]

Yeah, the foreign-earned income exclusion comes in handy. But it is something to consider when deciding whether to go for U.S. citizenship if you plan to live abroad in the future.

we do. we will. so far i haven't found another country that would let me get away with making well into 6 figures and pay NO tax. I, no fooling, celaned up on foreign based income and could still live off it 4 years later if I wanted to. Add the tax free 40% bonus, plus tax free $800 per month for living expense, in a country where the average income is less than half what got for living expense...OMG!! Throw in 116 beautiful women for every 100 men, half of the men are perpetually drunk and not attractive to women...can you say "heaven on earth"? Oh, Gene...let me tell you about raw deals.

it was NOT for tax reasons I came back to the US.

[Gary and Alla 3,694]

I am thinking of applying for citizenship before I go back to the UK for a couple of years.

From what I understand the UK charges income taxes based solely on residency (this is actually quite common - most countries do this). I am not required to file detailed tax returns with the Inland Revenue to establish my overseas income and pay tax on that money - since it is, at best, questionable to pay taxes on services that you are not taking advantage of (like the NHS).

The US, on the other hand, requires me to file a detailed tax return for money you earn anywhere in the world, based on citizenship (not residency). Now the first $91,500 is supposedly tax free - but you have to file your income in US dollars (based on the prevailing exchange rate?), so if you are working in a country that has a high rate of exchange with the dollar, then that 91 grand isn't a whole lot.

Sounds to me like the problem is in being British, or living in the UK. I can tell you I cleaned up! Seriously, gene, it would be possible for me to live on the money I made in two years even now...four years later, even for the next 4-5 years. If you want to make more than the exclusion, without tax, you have the remainder of your salary paid as an "overseas bonus" which is entirely tax free and can exceed the base salary if you want. Set up properly, there is really no limit to what you can earn overseas tax free. Your living expense does not have to be $800 per month either, it can be $8000 per month. Such things are non-taxable.

Gene, you just have no clue how well a US citizen can live in a foreign country, particularly if it is a foreign country with a low cost of living. UK is simply expensive, that is all there is to it. But that is not a tax issue. hate to say it (not really) but you stepped in it with both feet on this topic.

signed...

Just me, a poor American who keeps getting a raw deal.

[Gary and Alla 3,694]

As someone who has been there and done that, I can tell you that in practice this has very little bite except for high earners. Sure, $91k doesn't get you that far in the UK (at least in London) but keep in mind that that the figure is net of taxes paid to the foreign government and all possible deductions. There are more than a few very legal and legitimate ways of making that bill go lower, starting with (but not limited to) charitable donations. Furthermore, keep in mind that tax needs to be paid only on the amounts earned above the threshold, and at the rates applicable for such amounts in the US. For example, the taxes paid on a net income of $100k would be only on the $9k excess, not the entire $100k. What Trompe says about passive income and CGT is correct.

There is a good reason there are so many US tax lawyers in the UK, and not all of them are at the Magic Circle or other corporate firms.

91K in Ukraine and you can live a normal life for 10 years, a luxurious life for 5 years. Or a very luxurious life for 1 year and save enough to live a normal life another 2 years in the USA. Add 60% to that for bonus and stipend and you can knock down enough tax free to live 4-5 years in the USA if you keep the money in mayonaise jars under your bed. Invest it and you are talking 10 years + for two years work. Tax free (except on the investment earnings and you can really minimize that, and it is not subject to SS and medicare tax) OMG, such a raw deal.

[Trumplestiltskin 5,791]

Actually Gary, the UK tax bracket for a decent income in the UK is about 20%.

I don't think its difficult to understand that a person who is used to paying taxes based on residency, might find something amiss if it were required not for residency but for citizenship. If you work and live in a foreign country (and I'm not talking about military #######), why is the IRS entitled to any money you make there?