US Expats paying US taxes

A while ago while reading the Dope I was surprised to learn that if you live and work in a foreign country that you could still end up owing US taxes.

What is the rational behind this? If, for example, I moved to Japan to work there, I assume I would be earning Yens instead of Dollars, right?

If I would be getting paid in dollars, I guess it makes sense to pay US taxes, but if not, then why should I owe anything when I’m not using US currency?

Unless you’re working for a US company, you have to make a lot to qualify for US taxes. Something like the equivalent of US$82,000 or $85,000 a year. But if you make at least … I think it’s $5000 a year, they still want you to file, I guess just to see, even though you don’t have to pay anything.

Right, but I’m asking, if you get paid with Yen, or Pounds, or some other non US currency then why do you owe the US anything?

Because you’re a citizen, and they want a cut. That’s it pure and simple. I’m just glad the first $80,000-something is tax free, because I believe some countries make their citizens pay tax for money earned abroad while living abroad with no deduction allowed, or at least a much lower one than the US has.

This is one good thing about the Republicans. It’s always the Democrats who try to get rid of this. I remember during the Clinton presidency, the local American Chamber of Commerce was up in arms about a Clinton administration push to abolish or drastically lower this exclusion. It was the Republican Congress that thwarted it.

The US is one of a very tiny few who tax citizens overseas. Canada’s rules are pretty strict, only eliminating taxes if you have no ties to Canada (property mostly).

I have lived overseas for more than 6 years, own nothing in America, and have paid taxes to the US every year. I still have to pay Social Security tax, some Federal tax, and as my company is in Nevada, Nevada unemployment tax too (although as a foreign resident I can’t benefit from this if I fire myself)… working for myself this tax is moronic anyway.

I also have to pay US tax on the interest I earn on my local bank accounts… it is “unearned” so the $85K exclusion doesn’t count here.

I don’t think it matters what currency I pay myself in, what matters is that I get no benefit from my tax dollars. eg Schools, Hospitals, Roads etc. I guess I do get some excitement benefit because occasionally my tax dollars help to pay to bomb nearby countries. :rolleyes:

Closest I’ve been to a bomb I helped (unwillingly) pay for: 6km.

So I made around $14K teaching English in Turkey last year as an employee of a Turkish university; am I correct in understanding I was under no obligation to pay taxes to the US on it? 'Cos I did.

That depends. You have to have been (a) a bona-fide resident of Turkey and have been there for a full tax year or (b) been in foreign countries for 330 or more days in any 12 month period covering the time you were there.


Your tax home had to be in Turkey (or other non-US place).

If the above are true, you can file an amended return but since the personal exemption and standard deduction cover most of the income it may not be worth it. If your employer provided housing that may be taxable as a benefit too. You can also offset any Turkish taxes you paid assuming there is a tax treaty (not sure).

I am not a tax lawyer, but have a lot of personal experience in my crazy-complicated overseas tax filings.

Here’s a not particularly unbiased website about Section 911 of the US tax code, which is the relevant section.

I used to run an American Chamber of Commerce abroad, and the fact that I had to lobby to protect this tax exemption used to bug the hell out of me (they didn’t pay me enough that it mattered to me, anyway). However, once I understood the issue better, I realized that the US does indeed have stupid tax laws in this regard.

I now understand that the issue is that US policy is inconsistent with what most other nations do, and as a result, US firms are at a disadvantage when trying to compete abroad.

Nobody - the currency is not especially relevant. If I grow corn in the US but sell it in Europe, should I be exempt from taxes because the corn is priced in Euros?

I believe the analysis on US companies, to be clear, is that since citizen employees are taxed (to my knowledge, the US is the only developed nation with global taxation of citizens and permanent residents), and in addition less American staff is expatriated due to disadvantageous cost structures, leading to less American expertise in operating in outside markets.

It’s one reason you see tons of UK, Aussie and other native Anglo managers around the world, but rather rare to see Americans. I think the Americans are cutting off the nose to spite the face. I understood the whole Global Taxation thing arose from Americans pseudo expatriating to Caribbean off-shore tax havens in the 1960s. Rather than coming up with a targeted solution, the global tax arose.

The good news is that you don’t usually have to pay tax in both countries because of international treaties which allow you to credit the tax you paid in one country against the other country’s taxes. As I understand it, that means you effectively pay a rate equivalent to the higher of the two countries which usually means that you don’t actually pay anything to the US but you still have to go through the hassle of doing a US tax return every year.

The big point here is that the US is unusual in this requirement. I have a rental house back in New Zealand so I pay NZ taxes (at lower non-resident rates) on the rental income but if it wasn’t for that, NZ would have no interest in me.

Someone might be able to clarify this but I’ve read that something similar applies to US companies only and this tends to encourage the use of offshore tax shelters in Bermuda or the Cayman Islands etc much more so than for companies from other countries.

If there is a treaty - which is usually the case I would presume with Western Europe, but emerging markets? Also as I understand from reading those articles, due to different tax analysis on what is taxable income versus social benefits (the US having a less “social” position than Europe and the UK), you can end up paying both in middle high income (translating the US 80k into Euros or Pounds, this gives a number that does not seem terribly high to me for highly skilled technical or managerial staff that would be presumably expatted).

I recall reading this in some screed, but I am not sure it is true. Anyone have a link to a proper tax analysis between US and say UK or W. Europe, in terms of domiciliation?

In any case, the impression one gets is that US has terribly inefficient tax policy for its exporting / international segments of the economy (unless the export is set up in a classic 1950s production style…). I shouldn’t wonder that US exports seem to lag behind where the macroeconomics say they might be if this is true

Nope - got residency but was there from August 2007 to July of this year. Looks like I fell afoul of the tax laws. So much for that.

You can probably use the 330 days then. As long as you were out 330 of 365 days (you chose the 12 month block), you can probably get credit for the August-Dec (and next year for the Jan-Jul).

It may or may not be worth it depending on the cost of the more complex tax filing.

Yes, it depends on if you’re really living abroad or if you’ve just popped over for a few months.

I can’t recall offhand the countries I know do tax their citizens abroad, but I know I’ve heard complaints from some. They may indeed be in the minority, though.

There was a journalist who lived in Bangkok for a long time, then moved to Hong Kong. Finally, after 20 years, he returned to his native New York. He never ever filed US taxes even though he was supposed to, because he knew he didn’t owe anything anyway, so blew it off. He got a little worried about that when he returned to the US and had an accountant do up his income for the past 20 years based on his local filings, then submitted it to the IRS. Waited a long time, didn’t hear anything. Finally he contacted them. The lady he talked to looked up his file, said yeah, they got it. He asked well, what next. She said hey, you don’t owe anything, what do you want?

What I’m getting at is, if you live in a foreign country, earn their currency, buy from their businesses, and are part of their economy, since you are taking nothing out of the US economy, why should you have to put money into it?

ETA - It looks like that question has been discussed in some earlier posts though.

When I did this, you had to calculate what your salary would have been in dollars using the Feds’ specific exchange rate calculator, which of course was vastly different from the rate I actually got sending money home. I owed nothing, but I still had to spend a lot of time re-calculating each paycheck.

I never could get a clear answer from California as to whether I had to file state taxes. It all came down to whether I was a “resident.”

Pro: I was a California resident when I left and continued to vote in local California elections. I was not a resident of any other state.
Con: I lived abroad.

The jury-duty people said I was a resident, but exempt from service because I was “domiciled abroad.” The state tax people neither knew nor cared.

I don’t think you should have to pay into the US in this case, but the US gov’t obviously thinks otherwise… after all, they are bombing other countries to defend your freedom… and someone has to pay for all those bombs. :rolleyes:

The US has a non-double-taxation treaty with Japan, so you should only end up paying Japanese taxes in years you owe them. If you haven’t been there long enough to owe Japanese taxes, then you’re still on the hook for US taxes, but since it’s foreign income you can exclude the first $80,000 of it.

If I recall correctly, you need a US Form 6166 which certifies that you are a US taxpayer for tax treaty purposes. In order to get that, you have to request it by filing a form 8802. The residency rules and whatnot are kind of complicated and I’m going to try to stop explaining things that may have changed and I never fully understood in the first place. Suffice it to say that it’s worth sorting out all your foreign tax documentation because you could easily end up paying unnecessary taxes otherwise.

In Cook v. Tait, the Court said,

Otherwise, I can’t add much more to what has already been said. Just wanted to add a few links to the info others have mentioned.
Sec. 911: Citizens or residents of the United States living abroad. The exclusion amount is in (b)2(D). Definition of tax home is in (d)3.

US Model Treaty has general guidelines, but for practical purposes you’ll have to look up the treaty with the specific country where you lived/worked. When filling out tax returns, you first look at your liability under the Internal Revenue Code. Then you check the treaty and see if it gives you a better treatment. If it does, then you apply rules from the treaty (e.g. use the lower tax rates, exclude certain income). If you’d be worse-off by using the treaty, you just file based on the Code.

I’ve been away from the US 30 years and I still pay capital gain taxes (however small). A few years ago a tax preparer apparently lost or didn’t receive my documents. Uncle Sam found out I didn’t pay and I got fined. If I didn’t pay taxes and the Swiss government found out I have an account in the US, I tremble to think of what would have happened. You can’t hide any place in this world.:frowning: