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WSJ: Overseas Americans: Time to Say 'Bye' to Uncle Sam?


Aquaponicsman

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No! For decades, at least, the US has taxed earnings differently than most countries. As a US citizen working in Australia, for example, I was liable for income taxes for both Australia and the US. My peers from other countries did not pay taxes to their home countries, but US citizens did. In my case, my employer paid my Australian taxes so I was not affected.

It is not this administration, it is the way the US government does things.

Luisa,

You are NOT on the hook for US income tax on EARNED income EARNED outside the USA. (form 2555 - Foreign Earned Income- file along with your 1040). The income is capped however at $95,100 for 2012. You will still pay into SS and MediCare like anyone else.

Cannot speak to any Australian taxes. Maybe you should file some amended returns and get a refund(s).

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Luisa,

You are NOT on the hook for US income tax on EARNED income EARNED outside the USA. (form 2555 - Foreign Earned Income- file along with your 1040). The income is capped however at $95,100 for 2012. You will still pay into SS and MediCare like anyone else.

Cannot speak to any Australian taxes. Maybe you should file some amended returns and get a refund(s).

Thanks, but wasn't my problem. Company paid KPMG to handle expat taxes. I just paid my US taxes. The problem was not the US taxes--they were on money earned as a US employee of a US company. The problem was the taxes owed to foreign country while I was working in that country and being paid in the US. Many countries have reciprocity agreements that eliminate home taxes while working overseas. US doesn't.

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The problem was the taxes owed to foreign country while I was working in that country and being paid in the US. Many countries have reciprocity agreements that eliminate home taxes while working overseas. US doesn't.

You mean Australia didn't. You were paid in the US, so you should pay US taxes. The problem was with Australia, you seem confused. :(

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For any number of good reasons.Lots of Mexicans have bank accounts in the US.

And, they all should not complain about the taxes that come with that territory, right? And, if they do, they can always take their money home. :)

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Thanks, but wasn't my problem. Company paid KPMG to handle expat taxes. I just paid my US taxes. The problem was not the US taxes--they were on money earned as a US employee of a US company. The problem was the taxes owed to foreign country while I was working in that country and being paid in the US. Many countries have reciprocity agreements that eliminate home taxes while working overseas. US doesn't.

I still think you may have been screwed, KPMG or not. Read form 2555 and its instructions. If you meet the tax home test, or the bona fide residence test or the physical presence test (in Australia), if you are employee of a USA based company or corp., you can exempt yourself for paying taxes on up to $95,100. (2012) of the earned income. You may technically be 'paid' in the USA via automatic draft or ACH but your are 'earning' that income while overseas. Not trying to be argumentative, just trying to be helpful.

I think to purpose of the Foreign Earned Income exemption is to eliminate to possibility of income being double taxed.

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I still think you may have been screwed, KPMG or not. Read form 2555 and its instructions. If you meet the tax home test, or the bona fide residence test or the physical presence test (in Australia), if you are employee of a USA based company or corp., you can exempt yourself for paying taxes on up to $95,100. (2012) of the earned income. You may technically be 'paid' in the USA via automatic draft or ACH but your are 'earning' that income while overseas. Not trying to be argumentative, just trying to be helpful.

I think to purpose of the Foreign Earned Income exemption is to eliminate to possibility of income being double taxed.

Here's an explanation that may help you better understand:

"Tax equalization" is a policy that is followed by many employers of expatriate employees. The underlying theory of tax equalization is to ensure that the expatriate assignment is "tax neutral" to the expatriate employee. In other words, while the expatriate employee is on foreign assignment, the employee will pay approximately the same amount of income and social security taxes (referred to as "stay-at-home" or "hypothetical" tax liability) as they would have paid had they remained in the U.S., or their home country, and only earned the items of compensation that they would normally earn such as base wages and bonuses. The company pays any taxes that exceed the expatriate's hypothetical tax liability. Companies also implement tax equalization policies so that expatriate employees are treated fairly and consistently throughout the world (an expatriate in Saudi Arabia is treated the same as an expatriate in the U.K. although the tax laws in these countries are vastly different). Further, tax equalization policies allow large expatriate employers to standardize and streamline administrative processes.

Expatriate employees are subject to a worldwide tax burden during their foreign assignment that is either higher or lower than what they would have paid had they not left their home country. The reasons for their worldwide tax burden being higher or lower include:

  • Higher Tax Base Employers typically provide additional compensation to the expatriate to cover increased housing, tax, and cost of living expenses. In many cases, these additional compensation items are subject to tax in the home and host locations.
  • Tax Rates - Depending on the host country, foreign tax rates may be significantly higher or sometimes lower than the U.S.
  • U.S. Foreign Earned Income Exclusion The foreign earned income and housing exclusions reduce the U.S. tax base (regardless of whether the foreign country taxes the expatriate's income).

Most of the time, the expatriate employee is subject to higher taxes, so tax equalization provides for great comfort and piece of mind for the employee.

Tax equalization policies generally provide that the expatriate employee pay to their employer his or her an estimated hypothetical tax liability during the tax year through hypothetical withholding from each paycheck. In return, the company will pay all the actual home and host country taxes owed during the foreign assignment. After the expatriate employees tax returns are completed, an annual tax equalization settlement is prepared, which determines the expatriate's hypothetical tax liability for the tax year, and that is compared to the hypothetical withholding to see if the hypothetical withholding was too much or too little. Depending on this comparison, the expatriate may be due money back from the company, or the expatriate may owe the company additional money towards his or her hypothetical tax liability for the year.

Although tax equalization policies and procedures are very similar among companies, the key differences are usually related to the treatment of the following items when calculating the tax equalization settlement calculation:

  • What items of income are subject to tax equalization? Some will tax equalize company compensation only, while others will tax equalize some income from other sources including investment income and spousal income. Also, companies may, or may not, tax equalize stock option income.
  • What deductions are allowed when computing the hypothetical income taxes? Companies generally have special methodologies for determining itemized deductions.
  • Will the expatriate be tax equalized to their former state of residence or some other state (an expatriate's hypothetical tax liability for the tax year generally includes, when looking at U.S. expatriates, federal and state income taxes, as well as FICA taxes)?
  • Tax equalization policies may or may not address items such as the sale of a principal residence or rental properties.
  • If you receive a hardship allowance or foreign service premium, are these amounts subject to tax equalization?

Note that there are also policies referred to as "Tax Protection" policies that generally provide for the same outcome for the employee when the worldwide taxation is greater than his or her hypothetical tax liability (the company pays the additional tax). However, under a tax protection policy, if the employee saves on taxes while on assignment, then the employee keeps the tax savings. Tax protection policies are less common than tax equalization policies. Tax protection policies tend to be used more often by small expatriate programs or companies with many expatriate employees that are in low tax countries. The procedures for a tax protection policy are usually quite different from a tax equalization policy.

If you are new to tax equalization or tax protection policies, I suggest that you spend some time with a qualified expatriate tax advisor to understand your tax equalization policy or to help your company implement a policy. Usually, under both types of policies, the employer will provide for home and host country tax return preparation and consulting to ensure that the worldwide tax costs are kept to the minimum allowable by law, and that filing requirements are properly met.

http://www.expatexchange.com/lib.cfm?articleID=718

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What is a non resident alien? Why would you use the US banking system if you want your citizenship in Mexico? Have your cake and eat it too?

Jim Bowie: I think you are making your statements to get a rise out of people. The questions you ask are so ridiculous. I find myself typing a response and then realize..... you got me again!

In any case, the policy of the US, in terms of Exit tax for Citizens and Non Resident Aliens is really a huge money grab. Many of my former co-workers were from India, Canada and Mainland China. American corporations recruited them for their skill in Technology. Now they are retirement age and want to move "back home". Many people have aging parents and miss their home land. They have saved and invested and paid taxes (HUGE amount of taxes), while in the US. Now, the US wants to grab a significant portion of their assets if they leave. How is that fair? They paid their taxes already.

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Now, the US wants to grab a significant portion of their assets if they leave. How is that fair? They paid their taxes already.

This I don't understand. All the money and possessions that I have paid taxes on fully in the US, are mine to do with as I see fit, in whatever country I choose. Only those possessions and investments that I have currently, or with pending taxes (upon the sale of said possessions) must be paid in full before I can reap the rewards of those gains on my part., but this is normal. Please explain in detail for us slower students.

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This I don't understand. All the money and possessions that I have paid taxes on fully in the US, are mine to do with as I see fit, in whatever country I choose. Only those possessions and investments that I have currently, or with pending taxes (upon the sale of said possessions) must be paid in full before I can reap the rewards of those gains on my part., but this is normal. Please explain in detail for us slower students.

http://www.internationalestatetax.com/content/pdfs/KPLAW_%20The%20new%20US%20exit%20tax%20scheme%20-%20breaking%20off%20a%20long-term%20relationship%20with%20Uncle%20Sam.pdf

There are many articles available, like the one at the link above. It will not impact someone unless they have significant assets. Think about the immediate taxation on unrealized gains. There has been a significant change since 2008. I have absolutely no background in accounting but I know several former coworkers who are in a situation where they can not sell their real estate, but must pay capital gains if they leave.

I guess the biggest problem is that they have to pay taxes before they can reap the rewards. There is some impact, also, on the 401Ks that have been carefully managed so that the income could be deferred and managed throughout retirement. That all changes if you leave. I do not understand all of the implications.

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Val gal , I am a non- resident alien and what the US does now is to withold 30% of any withdrawal from my 401k until I pay the taxes. Tthe refund can take 18 months to get back to me. I now know to withdraw my money in December to shorten the amount of time they have my money but it just happens that the paperwork you need to file is delayed so they can take their sweet time to give you the refund.

What also happens is that you need to withdraw 30% more than what you need and that put you in a higher tax bracket so I end up paying more taxes than my US counterpart . So much for the alien being a drain on the country.

Capital gain also has to be paid if you leave the country but you really need to have a large capital gain before you are affected. The moral of the story is that if you are a resident alien you should become a citizen before exiting the country and then they only withhold 10%.

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Val gal , I am a non- resident alien and what the US does now is to withold 30% of any withdrawal from my 401k until I pay the taxes. Tthe refund can take 18 months to get back to me. I now know to withdraw my money in December to shorten the amount of time they have my money but it just happens that the paperwork you need to file is delayed so they can take their sweet time to give you the refund.

What also happens is that you need to withdraw 30% more than what you need and that put you in a higher tax bracket so I end up paying more taxes than my US counterpart . So much for the alien being a drain on the country.

Capital gain also has to be paid if you leave the country but you really need to have a large capital gain before you are affected. The moral of the story is that if you are a resident alien you should become a citizen before exiting the country and then they only withhold 10%.

Thanks. I am a couple of years away from taking the 401K loot and I can see that I better be prepared to have them withhold the 30%.

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For any number of good reasons.Lots of Mexicans have bank accounts in the US.

Then why do these people complain about the rules, if they used their own banks, maybe things would be better for them, and they would be better off, no? The rules only change to catch "cheaters", so they are the only ones that should be hurt. :)

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  • 4 weeks later...

Why do Mexicans have bank accounts in the US? Remember the 1980's? The inflation of the Mexican Peso was horrible. People move money to places where it will not lose value or be stolen by greedy governments. Now it appears that the US government wants to be able to seize as many assets as possible. People don't want to cheat, but there is only so much money. Remember in the 1980's Mexican people were eating cereal three times a day; we may see that in the US soon.

Worse, when you see what the US government is doing with the money they take from the people that actually work for a living, it is sickening. Seventeen per cent of the people in the state of Arizona are on food stamps. That program was intended to be a safety net, not a hammock. It would be alright if the economic situation would heal, but I am afraid it is a permanent thing now. Those jobs that went overseas will never come back. We have lost our industrial base.

The plethora of federal regulations and laws makes it almost impossible to not be a crook. Things are so complicated now days. I remember when my mother used to send money to family in Mexico, she would put the currency in between the pages of a religious magazine and send it in the mail. It always got there; sometimes it took quite a while, but it got there.

Sorry for the rant, but the IRS has already cleaned me out.

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Valgal they are taking 30% from me because I am not a citizen, right now they are holding 10% from my husband who is a citizen.

The 30% are taken from the money I pull from my IRA money as I have no other asset there . If you are a green card holder this is what you have to count on but you may also plan to get citizenship so you get treated a little better...maybe.

Yes there is abuse on programs for the poor and the government should go after the abusers but I do not resent that money going to poor people on food stamps or for their medical however I do resent the rich like Romney with a tax rate of 13% and some rich people I knew while I was working who were living like kings and paid no taxes: that is what I resent not some loser cheating and getting food stamps that he does not deserve.

It is the people like us that are taking it on the chin not the rich which should carry their weight.

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It is a natural thing for people to look for jobs they are good at or enjoy or just plain know and not that easy to move and retain for something else, people will eventually recycle but it is not an easy process and ever worst after 40. I would not begrudge the little help they are getting.

. It maybe frustrating to see people not moving on but not nearly as frustrating for you than for them. .

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