I’m an Australian citizen who has been living in the US as a permanent resident to be eligible for US citizenship. However, I won’t apply for it, because if I became a US citizen, I’d be subject to this law for the rest of my life, i.e., having to file and pay taxes in the US even though I will eventually retire and return to Australia.
I feel particularly badly treated because I have a significant part of my income tax-free in Australia, but I have to pay US income tax on it. (It’s a superannuation pension, and I’m over 60 years old). I suspect that if I became a US citizen I’d continue to have to pay taxes on it even if I left the US and never returned to the country.
What about credits for taxes paid to foreign governments?
We live in the US and own stock in a Brazilian mining company. We get a few dollars in dividend income from the company, of which part is withheld to pay Brazil taxes. We get a credit for that against our US return. Admittedly it’s only about a dollar, but still…
This is incorrect. As a permanent resident living in the US you are already subject to taxation. If you remained in the US after you were to become a US citizen, your requirement to pay US taxes would not change.
IRS form 1116. I’ve been doing that for several years. Countries that take tax out of your dividends usually take 15% - Canada, Brazil and The Netherlands, among others. The UK is among the countries that do not take tax out of investment income. You can also deduct it, but, of course, that isn’t as good as getting it all taken off as a credit. But there are limits that apply to foreign tax credits, and some foreign tax (such as tax on income from sanctioned countries) which is disallowed. You are also out of luck in a sheltered account, such as an IRA.
I got more of this a few years back when I had a lot of positions in Canadian royalty trusts, before Flaherty decided to sunset them. At one point, the Canadian government even honored the sheltered status of income for trusts held in IRAs and didn’t withhold tax. That changed a couple years before Flaherty’s rule changes.
Tax treaties, which most developed countries all have with each other, get complex. When you have citizens of country A living in country B, and getting income on investments in countries C, D and E, there is no clear cut logical answer as to just who should get to take a bite out of them. The treaties are ostensibly to insure that individuals and corporations aren’t multiply taxed.
Is it 91K USD converted - no matter what. Example - if the Canadian dollar goes up to being worth $1.50 USD, does that mean that if a US expat living in Canada makes over ~61K CND (=~91K US in this scenario) they will be double taxed on the difference?
I doubt this actually happens. I know a few American expats who don’t bother filing their US taxes and who’ve lived abroad for long enough that they would have had to renew their passports at least once.
It prevents US citizens becoming tax exiles, which is a significant problem for many other countries. Ireland for example loses a significant source of revenue by wealthy Irish citizens claiming residency in other countries - not always entirely legitimately - in order to avoid paying Irish taxes, and has had to develop a costly and complicated system of monitoring the amount of time these people actually spend in Ireland to ensure they really are resident abroad. There have been calls for Ireland to adopt a US style system for this reason. (I do think the threshold at which the US starts taxing your foreign income is too low.)
I’ve never heard this. My understanding is that the US deems you to be still liable for income taxes for ten years after you renounce your citizenship - though I’m not sure how they could enforce this.
No. A lot of countries have “double taxation” agreements with each other precisely to avoid the scenario where the person was paying tax to both countries. I remember when the EU expanded in 2004 there were a lot of complaints by the thousands of Poles who went to work in Britain and Ireland that they were being taxed twice on the same income. I think this has since been resolved by double taxation agreements.
Same here. But I also think the people I know don’t actually have any tax burden and are well below the foreign income exclusion, so maybe the IRS just doesn’t care.
Interesting thread.
I retired from a US government agency, and remained living and working in Spain. During that time, I used the FEIE, and essentially paid little or no taxes to the US, due to the small amount of my pension and my salary being below the cap ($75,000 at the time) SS and Medicare excluded.
No, however, I am buying a home in Spain and will retire to it next year. I will have no income other than US pension(s) and small capital gains, except for the ocassional consulatation with my current government agency.
I know US taxes will continue to be deducted at source, but I wonder what tax liability I will have to Spain.
Anyone have a source to cite for me to research?
Yup. When the pound is strong, my tax-reportable income is correspondingly higher. When it’s weaker, I make less money according to the IRS, even if my actual salary in pounds has not changed.
Here’s the IRS page (from the London embassy site) suggesting exchange rates to use - note that they will accept other rates if justifiable.
I had another question: for joint filing, I always assumed that the 91K foreign earned income exclusion would be doubled (to cover both spouses), so that a married couple would have a combined exclusion of >180K. Is that right? What if only one spouse is working?
I think you’re confusing two different things - taxation on income, regardless of source country, and taxation of non-resident citizens.
Canada certainly taxes on world-wide income - a resident of Canada who earns income from a foreign source, such as investments in the US, must report that income and is taxed on it. I think all countries with an income tax would do that, or else you would have residents investing most of their money abroad to avoid taxes.
The concern in this thread is imposing an income tax on citizens who do not live in the US, and who may never have lived in the US. That seems to be specific to the US - I don’t know if there are other countries which do that.
How can that possibly be enforced? (e.g. “Taxes, shmaxes; I’m not going to be a citizen of a country that [launches wars of aggression|illegally elects a furrin-born President|covers up the truth about Area 51|whatever]…”)
Not so - if you were born abroad to US citizens, you would have the right to US citizenship, but you would not automatically become a US citizen. Your parents would have to register your birth with the local US consulate.
If your parents didn’t bother to do so, you would still be entitled to US citizenship for the rest of your life but you would never actually be a US citizen (assuming you didn’t apply).
Of course, presumably your parents would register you with the US consulate, unless they planned on not returning to the US.
You are assumed to be leaving for tax purposes if you make over a certain amount (currently $124,000) or have a certain net worth (currently $600,000ish). In those cases, you have to request a ruling from the IRS that you are not becoming a tax exile, basically by citing whatever else it is you’re leaving for (angry about wars, want to diddle Thai sex workers, house in Tuscany, etc.)
(Speaking from personal experience, it’s a fun morning out at the Embassy - registering the birth and applying for a SSN and passport for the littl’un was actually a relatively hassle-free process, but the US Embassy in London is not very baby-friendly inside.)