5 ms·

Pay the higher to the respective country or to the US? I have friends who make less than $100k but pay both US and expat host country taxes that would benefit f

Pay the higher to the respective country or to the US? I have friends who make less than $100k but pay both US and expat host country taxes that would benefit from this.

rahimnathwani 8y ago
I am an accountant, but I am not your accountant, and what follows is NOT advice: The US government offers its overseas resident citizens two schemes to ensure they don't pay what you referred to as 'double tax'. You can choose only one or the other, not both. A) FEIE (Foreign Earned Income Exclusion): https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion https://www.irs.gov/individuals/international-taxpayers/fore... For your friends who make less than $100k, this may mean they owe zero US Federal tax. B) FTC (Foreign Tax Credit): https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit https://www.irs.gov/individuals/international-taxpayers/fore... Instead of A, you can calculate your US taxes as normal (i.e. as if you were living in the US), but then deduct the amount of any tax you paid in your country of residence. If you live in a high-tax country (e.g. UK), then IIUC your tax bill after deducting tax paid in your country of residence would be zero, i.e. you would not pay any taxes to the IRS.
- codeisawesome 8y ago
  Thanks, I’ll pass on this text to her :)
- vidarh 8y ago
  > If you live in a high-tax country (e.g. UK) According to OECD's "Taxing Wages 2017" report, an average earner in the UK pays less tax than a single average earner in the US. For a married single-earner couple, taxes will be lower in the US, and other specific situations can play in as well (e.g. while PPP adjusted income for average earners in the US and UK was almost identical, the nominal amounts diverge a bit more, so if you compare specific nominal income levels it may shift things a bit), but in general it's way too simplistic to assume the UK will be high tax and the US low tax. I know that wasn't your point - it's just a pet peeve of mine that people seem to think US tax levels are so low; they can be, if your family situation is right, your deductions are just right, and you happen to live in one of the lower tax jurisdictions, but it can just as well go the other way. Similarly that a lot of people seem to think the UK is so high - it's below the OECD average. If you want an unambiguous "high tax" example, go with Belgium - they top the OECD tax data on almost every measure by a large margin (40.7% tax + employer social security for an average earner vs. 26% for US and 23.3% for the UK according to Taxing Wages 2017) or Germany (39.7%).
  - rahimnathwani 8y ago
    Thanks. This is very interesting. Will take a look at the report. My intuition is that the US/UK difference flips around once you're well over median income, but haven't looked at the numbers.
    - vidarh 8y ago
      It may well do - there certainly are circumstances where the US will be lower.

Pay the higher to the respective country or to the US? I have friends who make less than $100k but pay both US and expat host country taxes that would benefit from this.

rahimnathwani 8y ago

I am an accountant, but I am not your accountant, and what follows is NOT advice: The US government offers its overseas resident citizens two schemes to ensure they don't pay what you referred to as 'double tax'. You can choose only one or the other, not both. A) FEIE (Foreign Earned Income Exclusion): https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion https://www.irs.gov/individuals/international-taxpayers/fore... For your friends who make less than $100k, this may mean they owe zero US Federal tax. B) FTC (Foreign Tax Credit): https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit https://www.irs.gov/individuals/international-taxpayers/fore... Instead of A, you can calculate your US taxes as normal (i.e. as if you were living in the US), but then deduct the amount of any tax you paid in your country of residence. If you live in a high-tax country (e.g. UK), then IIUC your tax bill after deducting tax paid in your country of residence would be zero, i.e. you would not pay any taxes to the IRS.

codeisawesome 8y ago
Thanks, I’ll pass on this text to her :)
vidarh 8y ago
> If you live in a high-tax country (e.g. UK) According to OECD's "Taxing Wages 2017" report, an average earner in the UK pays less tax than a single average earner in the US. For a married single-earner couple, taxes will be lower in the US, and other specific situations can play in as well (e.g. while PPP adjusted income for average earners in the US and UK was almost identical, the nominal amounts diverge a bit more, so if you compare specific nominal income levels it may shift things a bit), but in general it's way too simplistic to assume the UK will be high tax and the US low tax. I know that wasn't your point - it's just a pet peeve of mine that people seem to think US tax levels are so low; they can be, if your family situation is right, your deductions are just right, and you happen to live in one of the lower tax jurisdictions, but it can just as well go the other way. Similarly that a lot of people seem to think the UK is so high - it's below the OECD average. If you want an unambiguous "high tax" example, go with Belgium - they top the OECD tax data on almost every measure by a large margin (40.7% tax + employer social security for an average earner vs. 26% for US and 23.3% for the UK according to Taxing Wages 2017) or Germany (39.7%).
- rahimnathwani 8y ago
  Thanks. This is very interesting. Will take a look at the report. My intuition is that the US/UK difference flips around once you're well over median income, but haven't looked at the numbers.
  - vidarh 8y ago
    It may well do - there certainly are circumstances where the US will be lower.