6 ms·

The US and Eritrea. I knew this was a thing, but I had always assumed a US citizen living abroad only ended up paying tax to the IRS if the tax they paid to th

The US and Eritrea. I knew this was a thing, but I had always assumed a US citizen living abroad only ended up paying tax to the IRS if the tax they paid to the foreign government was less than what they would have paid to the US, and only the difference is paid. But it seems that’s not the case, and you get an exemption for “only” the first $108,700 of your earnings. As with everything the IRS does, it seems complex and full of exemptions, but I have read that (badically) correctly? You could end you being double taxed if you earn more than that?

Trias11 5y ago
Why person needs to go through the hassles and expenses to file tax return every year to the country where he/she doesn't not live in any longer? What kind of state sponsored racket is this?
- vinay427 5y ago
  With the major caveat below, on the face of it, it doesn't seem much less arbitrary to tax by citizenship than by residence in certain cases. For instance, as someone that grew up in the US and went to public schools, I certainly used far more public resources there than in my current country of residence, and would also (as a citizen) have access to an indefinite further amount of resources such as consular representation, retirement benefits if retiring there, etc. It seems about as arbitrary to me to pay taxes in a country that I cannot unilaterally choose to continue living in, due to immigration obstacles. However, given that the global consensus is to tax by residence, the US should absolutely change its policy to avoid the hassles due to this inconsistency.
  - marcan_42 5y ago
    It's possible to be a citizen of a country without having ever used any resources from it (it's also possible to have dual citizenship, which complicates things). Taxation isn't about retroactively collecting money for the resources you used during your childhood, it's about collecting money for the resources you're using today. Children, the unemployed, etc. are sponsored by the rest, they aren't taking a loan on their taxes.
- tonfreed 5y ago
  The US is one of two countries that does it. California wants to levy a similar thing for people moving away from there
- selectodude 5y ago
  The idea is that you receive the services and benefits of your US passport even when residing overseas. Also keep in mind that you can write off any taxes paid to a foreign government so it's really just a tax on those who make lots of money in low-tax jurisdictions.
  - geomark 5y ago
    About those benefits of having a US passport, could you mention a few of them? Because I'm a US expat and wondering why I have to keep filing tax returns but receive no benefits whatsoever. A number of important examples: Being a non-citizen in the country I live means I am at the end of the queue for vaccination, while the US State Dept says it won't arrange for vaccinations of US expats, but countries like France and China are doing it for their citizens. I can't maintain a bank account in the US because without a US mailing address the banks simply refuse to provide me services. The US government could care less, has no requirement that banks provide services to US citizens overseas.
    - selectodude 5y ago
      I'd consider the services provided by the US Department of State and the US Military to have some value for American expats.
vinay427 5y ago
It seems quite unusual to be double taxed according to what I could understand from the relevant laws. The first X amount of earned income is exempt as you noted. The amount above that, if a tax treaty is in place with the other country of taxation (i.e. your country of residence), is generally subject to the rule of paying the difference, although the details on this may vary by individual country and tax treaty.
ne0flex 5y ago
A friend of mine that is a Canada & US dual citizen got royally screwed by the IRS. Canada has tax free savings accounts (TFSA) that are essentially retirement accounts that are similar to Roth IRA in the US, except with a lot less restrictions. He had opened his TFSA account in Canada when he was 18 and was investing since then. Eventually he got a green card and became a US citizen. It was at that point he realized that the US doesn't consider the TFSA to be a retirement account and that it's fully taxable. This is an account he had prior to moving to the US / having anything to do with the US, and he had to pay taxes on it. I can't remember if the amount was exempted under $108,700 but I don't think it was given how mad he was that he closed the account because the paper work wasn't work dealing with. My dad's friend told me a horror story about his friend's mom who was born in the US while he parents were on vacation but she never lived there. The mother is currently retired and is collecting a pension, then she got a letter from the IRS saying that she owed back taxes because she's a US citizen and never filed.
- silverpepsi 5y ago
  >I can't remember if the amount was exempted under $108,700 Most unlikely, that's an earned income exemption. So basically salary or say invoices paid for consulting that year when the work was performed while physically on foreign soil (US taxes you 100% for any work done on the seas or in international air space)
astrange 5y ago
> The US and Eritrea. And China, in theory and sometimes in practice. https://www.bloomberg.com/news/articles/2020-07-10/china-starts-taxing-its-citizens-global-income-for-first-time https://www.bloomberg.com/news/articles/2020-07-10/china-sta...

Trias11 5y ago

Why person needs to go through the hassles and expenses to file tax return every year to the country where he/she doesn't not live in any longer? What kind of state sponsored racket is this?

vinay427 5y ago
With the major caveat below, on the face of it, it doesn't seem much less arbitrary to tax by citizenship than by residence in certain cases. For instance, as someone that grew up in the US and went to public schools, I certainly used far more public resources there than in my current country of residence, and would also (as a citizen) have access to an indefinite further amount of resources such as consular representation, retirement benefits if retiring there, etc. It seems about as arbitrary to me to pay taxes in a country that I cannot unilaterally choose to continue living in, due to immigration obstacles. However, given that the global consensus is to tax by residence, the US should absolutely change its policy to avoid the hassles due to this inconsistency.
- marcan_42 5y ago
  It's possible to be a citizen of a country without having ever used any resources from it (it's also possible to have dual citizenship, which complicates things). Taxation isn't about retroactively collecting money for the resources you used during your childhood, it's about collecting money for the resources you're using today. Children, the unemployed, etc. are sponsored by the rest, they aren't taking a loan on their taxes.
tonfreed 5y ago
The US is one of two countries that does it. California wants to levy a similar thing for people moving away from there
selectodude 5y ago
The idea is that you receive the services and benefits of your US passport even when residing overseas. Also keep in mind that you can write off any taxes paid to a foreign government so it's really just a tax on those who make lots of money in low-tax jurisdictions.
- geomark 5y ago
  About those benefits of having a US passport, could you mention a few of them? Because I'm a US expat and wondering why I have to keep filing tax returns but receive no benefits whatsoever. A number of important examples: Being a non-citizen in the country I live means I am at the end of the queue for vaccination, while the US State Dept says it won't arrange for vaccinations of US expats, but countries like France and China are doing it for their citizens. I can't maintain a bank account in the US because without a US mailing address the banks simply refuse to provide me services. The US government could care less, has no requirement that banks provide services to US citizens overseas.
  - selectodude 5y ago
    I'd consider the services provided by the US Department of State and the US Military to have some value for American expats.

vinay427 5y ago

It seems quite unusual to be double taxed according to what I could understand from the relevant laws. The first X amount of earned income is exempt as you noted. The amount above that, if a tax treaty is in place with the other country of taxation (i.e. your country of residence), is generally subject to the rule of paying the difference, although the details on this may vary by individual country and tax treaty.

ne0flex 5y ago

A friend of mine that is a Canada & US dual citizen got royally screwed by the IRS. Canada has tax free savings accounts (TFSA) that are essentially retirement accounts that are similar to Roth IRA in the US, except with a lot less restrictions. He had opened his TFSA account in Canada when he was 18 and was investing since then. Eventually he got a green card and became a US citizen. It was at that point he realized that the US doesn't consider the TFSA to be a retirement account and that it's fully taxable. This is an account he had prior to moving to the US / having anything to do with the US, and he had to pay taxes on it. I can't remember if the amount was exempted under $108,700 but I don't think it was given how mad he was that he closed the account because the paper work wasn't work dealing with. My dad's friend told me a horror story about his friend's mom who was born in the US while he parents were on vacation but she never lived there. The mother is currently retired and is collecting a pension, then she got a letter from the IRS saying that she owed back taxes because she's a US citizen and never filed.

silverpepsi 5y ago
>I can't remember if the amount was exempted under $108,700 Most unlikely, that's an earned income exemption. So basically salary or say invoices paid for consulting that year when the work was performed while physically on foreign soil (US taxes you 100% for any work done on the seas or in international air space)

astrange 5y ago

> The US and Eritrea. And China, in theory and sometimes in practice. https://www.bloomberg.com/news/articles/2020-07-10/china-starts-taxing-its-citizens-global-income-for-first-time https://www.bloomberg.com/news/articles/2020-07-10/china-sta...