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I agree that double taxation is crazy BUT lets add the fact that US will tax you ONLY if your worldwide income is over a certain threshold (believe it is $90,00

I agree that double taxation is crazy BUT lets add the fact that US will tax you ONLY if your worldwide income is over a certain threshold (believe it is $90,000 currently). Not that I am defending this but there is difference between saying that you are double taxed vs you are double taxed only for a certain portion of income

kspaans 11y ago
See my sibling reply, it's _not_ double-taxation. If a US citizen works in a foreign country and happens to pay higher income taxes than they would in the US (e.g. in Canada), the US won't charge them any extra.
- drcoopster 11y ago
  But it is. If I earn $120k in let's say the Netherlands, I pay NL taxes on all of it and US taxes on about $20k of it. I'm getting double-taxed on the amount over $100k. (Nice round numbers might not be accurate, but the idea is still there.)
  - kspaans 11y ago
    That's why you claim a foreign tax credit on those income taxes you paid in NL. If NL charges less income tax than you'd be charged in the US, then your tax credits will reduce your taxable income to, say, $20k like you mentioned. But this isn't double taxation because you are only be charged tax to top up the amount of tax you pay to be in line with US income taxes. This is exactly like state income taxes. It's not "double taxation" because you get to deduct your federal taxable income by the amount you pay in state income tax.
    - arjie 11y ago
      Hang on. If it reduces taxable income, that's not the same as topping up. You were right in the first part where you said it's a tax credit. But those subtract from your tax owed, not your taxable income, a difference that's important because it's a pretty large sum in dollars. Here's a simplified model to illustrate: Wlog, suppose the US charges a straight m rate per dollar, country X charges n. Suppose first k dollars of an expat are untaxed by the US. Let's say the expat makes j dollars, an equivalent US citizen in the US makes the same, and so too a citizen of X. The citizen of X is taxed nj by X, the US citizen resident in the US is taxed mj, and the expat would be charged (j-k-nj)×m by the US and nj by X for a total of m(j-k-nj) + nj if it were a deduction to taxable income. Notably if there's no fixed deduction, every tax rate causes you to pay more than otherwise.
  - deleted 11y ago
    [deleted]

kspaans 11y ago

See my sibling reply, it's _not_ double-taxation. If a US citizen works in a foreign country and happens to pay higher income taxes than they would in the US (e.g. in Canada), the US won't charge them any extra.

drcoopster 11y ago
But it is. If I earn $120k in let's say the Netherlands, I pay NL taxes on all of it and US taxes on about $20k of it. I'm getting double-taxed on the amount over $100k. (Nice round numbers might not be accurate, but the idea is still there.)
- kspaans 11y ago
  That's why you claim a foreign tax credit on those income taxes you paid in NL. If NL charges less income tax than you'd be charged in the US, then your tax credits will reduce your taxable income to, say, $20k like you mentioned. But this isn't double taxation because you are only be charged tax to top up the amount of tax you pay to be in line with US income taxes. This is exactly like state income taxes. It's not "double taxation" because you get to deduct your federal taxable income by the amount you pay in state income tax.
  - arjie 11y ago
    Hang on. If it reduces taxable income, that's not the same as topping up. You were right in the first part where you said it's a tax credit. But those subtract from your tax owed, not your taxable income, a difference that's important because it's a pretty large sum in dollars. Here's a simplified model to illustrate: Wlog, suppose the US charges a straight m rate per dollar, country X charges n. Suppose first k dollars of an expat are untaxed by the US. Let's say the expat makes j dollars, an equivalent US citizen in the US makes the same, and so too a citizen of X. The citizen of X is taxed nj by X, the US citizen resident in the US is taxed mj, and the expat would be charged (j-k-nj)×m by the US and nj by X for a total of m(j-k-nj) + nj if it were a deduction to taxable income. Notably if there's no fixed deduction, every tax rate causes you to pay more than otherwise.
- deleted 11y ago
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