American expats: your taxes just went up

[enigma]

So much for the Republicans' adamant refusals to ever raise taxes, eh? And the tax increase is retroactive to the beginning of this year.

 

http://www.economist.com/displaystory.cfm?story_id=E1_SDRTPPV

 

In one area America's sense of self-defeating imperialism is truly evident: taxation. Unlike most developed countries, America taxes the income of its citizens even when they work abroad. This has long discouraged companies from employing Americans internationally, particularly in expensive places. These reservations were compounded last month when the tax on Americans abroad was increased substantially by a provision included by Charles Grassley, a senator from Iowa, in?ironically enough?a $70 billion tax-cut.

 

The change, optimistically projected to raise $2.1 billion over the next decade, is also politically symbolic: it is the Republican Congress's first renunciation of its widely trumpeted vow to block any increase in personal income taxes. Workers on foreign assignments are apparently not thought to be a particularly threatening lot. Based on tax filings from 2003, the higher taxes will affect 300,000 people, although future tweaks could ensnare many more. The increase to what is formally known as Section 911 of the tax code was buried in the broader tax-cut legislation at the last moment, and thus circumvented debate in Congress. It is only now becoming widely known.

 

?This is a self-destructive policy that kills jobs, reduces exports and raises taxes on hardworking Americans,? says Newt Gingrich, who once led Republicans in the House of Representatives. Angry faxes are being sent to politicians and a bill to reverse the change is being introduced, but is unlikely to succeed.

 

Hardest hit are those in the Middle East and Asia, where living costs can be high. Companies typically offset these with various subsidies, but now these subsidies?particularly for housing?face higher taxes as well. The tax increase will hit not only the classic expat working for a multinational company but also those of more modest means, including teachers. Small firms could face particular problems because they can find it hard to hire talented locals and many rely on sending people abroad.

[McBif]

A rather uninformative article. I like the "In one area America's sense of self-defeating imperialism is truly evident..." introduction. Real apropos.

 

Funny, I remember 20-odd years ago trying to get a leg over a Singhalese graduate Economics student. I innocently showed up at the house she shared with her pals with a copy of The Economist under my arm and was vehemently denounced as Fascist...

 

Nevermind, here's an International Herald Tribune link that actually gives some numbers:

 

http://www.iht.com/articles/2006/05/12/news/expats.php

 

"A single manager living in Paris who earns $75,000 and has his $3,000-per- month housing paid by his company would see his income tax bill rise to $5,110 from $600 because of the capping on tax exemptions for housing costs, Way said."

 

Must be tough...

[cavanami]

The US gov has been trying to screw the x-pats for a long time, now they are moving ahead to do it.

 

Even before, the US gov piled every little stinky thing they could on to one's gross income, so that the $80K deduction was quickly gone and you were paying tax.

 

The US companies have tried to eliminate all x-pat jobs and hire locals, at 1/10 the wages (or something like that). There is no incentive for a US company to want to send a US citizen to work outside the USA, costs too much, especially if they have a family and school-aged children.

International schools; Singapore $16K / year; Hangzhou, China, $12K / year, Malaysia, $8K per year, etc.

 

Plus the fact, a US citizen has to be out of the US for 330 days in a 12 month consecutive period, so like a solid year with four weeks of home leave back to the USA. Other countries (Canada? UK?), the minute you work outside your home country, it is tax free.

 

Just another example of the US gov squeezing a "soft target". ::

[UAL875]

Why did you have to remind me of this? Every year it?s something with my government. The usual suggestion is the elimination of the $80,000 exemption. Fortunately that was shot down rather quickly the few times it materialized. But this shit? absolute bollocks. And the cocksuckers Chuck Grassley from Iowa and Bill Thomas who pushed for this ?Tax Increase Prevention and Reconciliation Act of 2005??. Ugh. Tax Increase Prevention and Reconciliation ? someone explain to me what the fuck that even means. It does not prevent taxes from increasing nor reconciles anything.

 

So now they have limited the exclusion for housing to about US$12,000 per year or $1,000 a month. Do you know what $1,000 a month rent gets in Tokyo, where I reside? It gets you dick. D-I-C-K. It is not uncommon for guys out here to get $12,000 A MONTH for housing. And before the replies start pouring in about how we expats should not be complaining about having to pay rent let me shed some light. I live in Tokyo but my corporate headquarters is located in New York. A fourteen-hour time difference. The NY crew does not give a shit that when they decide to start focusing on projects at 11AM their time, it is 1AM in Tokyo. I am to be ready and alert. I am on call 24/7 ? basically giving up a big chunk of my life for the bigger pay and amenities. I need to live near my office ? which of course is in a nice part of town ? simply because there are not enough hours in a week to divide up between work and commuting (and posting here ).

 

McBif quoted "A single manager living in Paris who earns $75,000 and has his $3,000-per- month housing paid by his company would see his income tax bill rise to $5,110 from $600 because of the capping on tax exemptions for housing costs, Way said." Guys, start doing the calculations when those numbers are tripled and quadrupled, etc. It is numbing.

 

I?ve sent in my faxes but the bottom line is that this leaves a very bad taste in my mouth as well as in the mouths of other American expats. For starters, it reminds us again that our counterparts from other countries do not even pay tax on their income earned abroad let alone their housing benefits!! American competitiveness - hahahahahahhahahahaha ? it?s out the window. Think: "World Cup Ghana/USA"!! It?s been out the window! Going, going - gone. But as long as we can outsource to India and China ? we?re ok! NOT! I love my country. I really do. But I genuinely dislike the majority of politicians who run it. Totally batty.

[Central Scrutinizer]

What I don't understand is how they can justify this. If you live and work out of the country you are using 'none' or barely any of the services that your taxes supposedly gives you. WTF? Why would you pay more taxes on services provided that you are not using? Does anyone know exactly what they said to justify these increases?

 

Glad I don't have to worry about it. But it sucks for those guys that do.

 

Cent

[ThaiHome]

cavanami said:

The US gov has been trying to screw the x-pats for a long time, now they are moving ahead to do it.

 

Even before, the US gov piled every little stinky thing they could on to one's gross income, so that the $80K deduction was quickly gone and you were paying tax.

 

The US companies have tried to eliminate all x-pat jobs and hire locals, at 1/10 the wages (or something like that). There is no incentive for a US company to want to send a US citizen to work outside the USA, costs too much, especially if they have a family and school-aged children.

International schools; Singapore $16K / year; Hangzhou, China, $12K / year, Malaysia, $8K per year, etc.

 

Plus the fact, a US citizen has to be out of the US for 330 days in a 12 month consecutive period, so like a solid year with four weeks of home leave back to the USA. Other countries (Canada? UK?), the minute you work outside your home country, it is tax free.

 

Just another example of the US gov squeezing a "soft target". ::

 

A couple of clarifications:

Americans are the most expensive expats, the added tax burden is just one factor, the biggest reason is the fact that Americans are basically paid more then Brits or Aussies (about 30% to 50% respectively). Companies do try to use them more then Americans.

 

The physical presence rule you mention usually only required the first year you are overseas, after that you use the bona fide resident rule which does not limit the amount of time you can spend in the US.

 

They have not done away with the foreign tax credit which gives you a dollar for dollar credit (not deduction) for any foreign tax you paid. Most people have excess foreign tax credits they never use. This will offset a lot (but probably not all) of the US tax increases you see quoted.

 

None of this changes the fact that this really sucks. My company?s PAC (along with a number of other MNC?s ) is starting a drive to get this repealed since it was snuck in without any review.

TH

[Neo]

Correct me if I'm wrong, but if you claim the 80K deduction (soon to be 82.4K) on foreign earned income, it is no free lunch. It means you claimed it as income in Thailand (or some other country) and paid taxes on it there, right? You can't just squirrel away this income with no taxes at all. Since I don't find the Thai tax rates favorable compared to the US, I don't see the advantage to claiming this exemption.

[cavanami]

When I worked for GE (General ELectric) it went like this:

 

Your salary, say: $100,000 / year

Per Diem (make it easy): $36,500

TOTAL Compensation: $136,500

Say I pay Thai tax, 25% fo the 100K = $25,000

My $80K US gov allowance makes a US tax for me on: $55,000

At the US tax rate of 20% = $11,000

 

So I pay, $25K to Thailand, $11K to the US gov, in round numbers.

 

Now, GE will pay my Thai tax for me as part of the x-pat package, but I have to give them that back via the $80K deduction.

Meaning that my $136K * 20% = $27K, if I didn't have the 80K deduction and I have to fully repay GE the $25K that they paid for my Thai tax.

 

Thus, I get no $80K benefit, I make no profit on any of the tax crap. Several of my fellow GE workers told GE to stick it and quit on the spot after they found this out!

 

The big gains of the x-pat are really not so big ::

[gummigut]

I believe it is worse.

 

In your example, of the $136,500 total comp, $55,000 is taxable by the US.

 

Previously, the tax calculation on that $55,000 started at 0 on the US tax table. Thus it averaged out to about 20%.

 

Now, the tax calculation on that $55,000 starts at the 80,000 level. So you are taxed at 28% right off the bat until you get to the next level of $150,150.

 

<<burp>>

[Mekong]

Confusing Thread, it seems the meaning of the word expatriate is unknown to our cousins who basterdise the native tongue.

 

v. intr.

To give up residence in one's homeland.

To renounce allegiance to one's homeland.

 

Expats don't pay tax, Psuedo expats who hide under the umbrella of a nanny state do.

 

If you want to be an true expat just follow my tagline

 

Not paid tax since 1988