American expats: your taxes just went up

[Guest]

and if you are paid in cash?

[ThaiHome]

Putting aside the definition an expatriate and whether one pays taxes (personally I prefer to not have my US Passport jeopardized) this thread really shows the different packages companies use and how people understand them. Just to throw more gas on the fire, here is a theoretical income and tax scenario:

 

Total Compensation: 156,000

Form 2555 deduction -80,000

Adjusted Gross Income 76,000

Standard Deduction -9,700

Taxable Income 66,300

Tax 8,544

Alternate Minimum Tax 472

Total Tax 9,016

Foreign Tax Credit -8,544

Total Tax due 472

 

Since $ 17,000 (700k THB) was theoretically paid in Thai Tax (they saw about half the income), only about half the available foreign Tax credit would be used. This can carryover I believe for 5 years. In any one year one can have well over $30,000 in current year and carryover Foreign Tax credit.

Oh, I almost forgot, this person?s company gave a $900 tax equalization payment. All this means one would have paid about 11% in taxes.

 

People working in countries with no, or low income tax will be hit much harder with change in the housing allowance exemption.

TH

[cavanami]

Yes, very confusing.

 

I worked three years in Italy for GE. The Italian law at that time said something like if I worked over 180 days in Italy, I had to pay Italian tax, which was like 40% or some huge number.

After GE and KPMG got done grinding thru the numbers, I suddenly didn't have to pay any tax...even though I was there for three solid years??? ::

 

Like they say, figures don't lie but liars do figure!

 

For sure, each US company has their own x-pat package and few are the same. Bottom, all governments want $$$, all companies want to make $$$ and reduce expenses (to make higher profits)...the people on the front lines bear the burden ::

 

Yes, I sailed with a lad from Ireland, who was living (hiding) in Scotland and he hadn't pay any tax in over 20 years! The rules for the UK and some countries (Canada) are much better when it comes to working outside one's home country. The USA, no, we have to pay to assure that our politicians get their 80% raises every year...but we have the best politicians that money can buy ::

[ThaiHome]

Well, since I haven't paid over $2,000 in US taxes in any given year over the past 8 years, I?m not complaining too much about US taxes. I have paid huge amounts to foreign governments, the record being $45k to People's Republic of you know what. Luckily company paid that for me but it was considered income which increased my gross, I was still able to pro-rate a good bit as foreign income credits. Ended up paying about 1$1,800 in US tax that year. Of course company deducted a theoretical income tax (which they kept) in order to keep my take home in line.

 

Over the years, I have averaged about 15% or so in taxes to someone. Not much different the working in the US, as best I can remember.

[gummigut]

ThaiHome:

 

In your example:

 

Taxable Income is 66,300

Tax is 8,544.

 

But that 66,300 starts on top of the 80,000 when you calculate your tax bracket.

 

From 80k to 150.150k the fed tax rate is 28%.

 

28% of 66,300 is 18,564 !!!!

 

<<burp>>

[ThaiHome]

gummigut said:

ThaiHome:

 

In your example:

 

Taxable Income is 66,300

Tax is 8,544.

 

But that 66,300 starts on top of the 80,000 when you calculate your tax bracket.

 

From 80k to 150.150k the fed tax rate is 28%.

 

28% of 66,300 is 18,564 !!!!

 

<<burp>>

 

This is the second time you have mentioned this and I am have no idea what you are on about. Maybe this is a new ruling you can direct me to?

 

To my knowledge there is no place on the 1040 form or the tax tables that says you must start at a higher bracket if you are taking the form 2555 deduction. All I know is that my income as been about double the deduction every year for the past 8 years and we have calculated the tax strictly by the tables and not at a higher bracket. How have you calculated your tax on your income over the deduction?

TH

[..]

I'm with ThaiHome on this G. If you make $96k/year, take the $80k deduction, the IRS sees you as making $16K.

 

You pay tax at the rate of the $16k (15% or $2400), not at the $96k rate (33% or $5333).

 

Cheers,

SD

[gummigut]

Look, this coming year is nothing like the past years because of the "Tax Increase Prevention and Reconciliation Act of 2005".

 

Talk to some expat tax attorneys.

 

My understanding is that Foreign Earned Income and Housing Exclusion is now added back to to income to determine graduated tax rates applicable to all non-excluded income.

 

Thus your tax rate starts at 28%.

 

Yes, the IRS sees you making 16k, but you're now at the 28% tax bracket.

 

Course I could be getting this confused with the stack provision between US source income for people who file for the Foreign Earned Income exclusion, but I'm pretty sure I'm not. I was talking with some pretty high powered folks but it was a couple a months ago.

 

Why won't I site sources? Because 1) this doesn't effect me. I haven't earned more than the FEI exclusion since I worked in the US. I still remember the pain of having 49%+ of my last bonus check withheld due to taxes!!! 2) It effects you guys and a quick call to your expat tax attorney should confirm what I'm talking about. They get paid for this stuff, I don't

 

Though if you guys want to pay me....

 

 

<<burp>>

[ThaiHome]

gummigut,

You are indeed correct that starting this year, your income gets stacked back to calculate tax percentage. Really sucks.

But as I said earlier, for myself, and most others working in Thailand and other high income tax countries, this will not be too bad. People working in the ME, HK and Singapore are going to be really upset.

 

TH

[Neo]

The other disadvantage of claiming the foreign exemption is you can't use the money for retirement plans. If you claim it as regular US income, you can put about 25% of it tax free into retirement plans and it will grow tax free every year. Seems a better way to go to me.