How are Expats taxed after the 87k?

[CALDC9]

Think of it as an insurance policy. You are paying for that helicopter and the aircraft carrier that it is stationed on to come rescue you when the country you are in devolves into anarchy.


TP

TP: Well said:

 

[Skater]

Think of it as an insurance policy. You are paying for that helicopter and the aircraft carrier that it is stationed on to come rescue you when the country you are in devolves into anarchy.


Amen, Brother

 

[rtwo]

The 14% of you salary that goes to FICA is to insure your retirement. What a fine insurance policy that is. So good in fact that you participate if you wnat to or not

 

[NEDude]

How does the Foreign Tax Credit work? Most of the contract jobs I see state your income, after local taxes have been paid - ie. Indigo pays $10,000 net per month after Indian Taxes have been paid. So officially your income is something like $14,000 per month. The way I understand it is the foreign tax credit is to prevent you from getting a double tax liability, both to India and the USA. Do I understand that correctly?

 

[Sgt. Hartman]

How does the Foreign Tax Credit work? Most of the contract jobs I see state your income, after local taxes have been paid - ie. Indigo pays $10,000 net per month after Indian Taxes have been paid. So officially your income is something like $14,000 per month. The way I understand it is the foreign tax credit is to prevent you from getting a double tax liability, both to India and the USA. Do I understand that correctly?

Some countries have an income tax that all workers are required to pay even if you are an expat. Now, the US has "income tax treaties" with other countries. So if you pay tax to a foreign government and the US has a treaty with said foreign government, then you do not have to double pay on your taxes. You can get a credit for taxes paid to the foreign government. This works differently when compared to your foreign earned income exclusion. Other countries such as the UAE do not charge an income tax to their workers. So, in this specific case the US can not have an income tax treaty with a country that charges no income tax. This is where you can choose to exclude a portion of your foreign earned income. For US expats working in the UAE, since you can't get a credit for income taxes paid to the UAE you just choose to exclude up to the max allowable foreign income.

This link to the IRS website should have all the answers regarding credits and treaties versus exclusions

http://www.irs.gov/publications/p514/ar02.html#d0e252

Sgt.

 

[rtwo]

What about social security tax and medicare tax (FICA)? Are US citizens working in UAE required to pay this? If so on all income earned in UAE or only on income above $85700 and below the 90 somthing thousand where the US stops collecting FICA?

 

[Wiggums]

Social security taxes generally do not apply to wages earned outside the US, with the exceptions of that rule you see below. The exception is if you are self employed, you will pay on all earnings, the exclusion does not apply. The following is from IRS Publication 54...

In general, U.S. social security and Medicare
taxes do not apply to wages for services you
perform as an employee outside of the United
States unless one of the following exceptions
applies.
1. You perform the services on or in connec-
tion with an American vessel or aircraft
(defined later) and either:
a. You entered into your employment con-
tract within the United States, or
b. The vessel or aircraft touches at a U.S.
port while you are employed on it.
2. You are working in one of the countries
with which the United States has entered
into a binational social security agreement
(discussed later).
3. You are working for an American employer
(defined later).
4. You are working for a foreign affiliate (de-
fined later) of an American employer under
a voluntary agreement entered into be-
tween the American employer and the U.S.
Treasury Department.

 

[PadFull'oTrim]

It sounds suffeciently complicated to warrent a professional tax advisor, which I will do. It also sounds like there are many different hoops that need to be jumped through to define your tax position.

Again, if there is anyone who is on a 1 month on/off rotation who wishes to detail what they are doing regarding taxes, please post or send me a message regarding tips and processes. It would be greatly appreciated.

 

[Porch]

Just an idea.

Do the foreign govt's report your income to the US? If not, claim close to the max and put the rest in a bank and get an ATM card to withdraw. How do they know?

 

[typhoonpilot]

Below is an explanation and sample letter in regards to legislation in the House and Senate to eliminate tax on foreign earned income for Americans working abroad.

Make no mistake about it, we will be under attack with the current budget deficit. A good offense is the best defense to either increase our exclusion or entirely eliminate tax on our foreign earned income. The lobbyist has a very well thought out strategy to fight for us and this legislation is the opening salvo.


Typhoonpilot


This effort is sponsored by the Middle East Council of the American Chamber of Commerce (MECACC), and the website communication feature is funded by the American Business Association – Eastern Province (ABA-EP), Kingdom of Saudi Arabia.

AN URGENT CALL TO ACTION

An Open Letter to Taxpaying Americans Working Internationally

SUPPORT REFORM OF SECTION 911

We need your help, and you can help. U.S. Citizens abroad represent a substantial and decisive voting block. In 2000 our votes in Florida decided the outcome of the presidential election. Let’s use our influence once again correct an injustice that affects all of us who work internationally!

Americans working overseas are America’s vanguard in the global marketplace but Americans working abroad face an uphill battle. We are taxed on the basis of citizenship rather than on residence. That makes us very uncompetitive and very expensive to employ internationally. We need to pull together to reform the Foreign Earned Income Exclusion (FEIE), Section 911 of the U.S. Tax Code, and level the playing field for Americans to compete on an equal footing.

For the first time, we have bi-cameral, bipartisan legislation in the U.S. Congress: “The Working American Competitiveness Act” (S-1140) sponsored by Senator Jim DeMint (R-SC), and (H.R. 4752) sponsored by Congressman Gregory Meeks (D-NY). (See list of cosponsors below)

The FEIE was severely crippled by an eleventh-hour rider in the Tax Reconciliation and Prevention Act (TIPRA) passed in May of 2006. This legislation would not only reverse that damage, but it would increase the amount of the foreign earned income exclusion to compensate for the prolonged absence of inflation adjustments. The FEIE is at the same level it was in 1986.

We have a third supporting piece of legislation “American Tax Fairness Act of 2008” (H.R. 6614) Congressman Scott Garrett (R-NJ) which contains the same text as S1140 and HR 4752, but also includes a requirement for the U.S. Treasury to produce within 1 year a report on the United States Taxation of foreign income.

We urge you to contact Congress today and support S 1140 in the Senate and H.R. 4752 and H.R.6614 in the House. Copy and paste this link Middle East Council of American Chambers of Commerce | Global Coalition of Americans Dedicated to Restoring American Trade Competitiveness in a 21st Century Economy -- Legislative Action Center into your browser and let your voice be heard!

Americans Working Abroad = U.S. Exports = Jobs at Home

The United States is the only developed country in the world which taxes its citizens working internationally in this manner. Because of America’s unbalanced and counterproductive tax policy, Americans are either choosing not to work overseas, or they are too expensive for overseas companies to employ. As a consequence, our nation is handicapping itself in the global economic competition. This problem is serious today, and it will only become worse as globalization continues its relentless march into the future.

With a soft dollar, American exports are currently in high demand. With the weak American economy, more Americans are seeking work outside the U.S. But high exports and a strong base of taxpaying Americans working abroad are not economic conditions which are likely to endure. With the probable return of a strong U.S. dollar and economy, there likely will be fewer Americans choosing to work abroad because of a reduced financial incentive to accept the risk and inconvenience of living and working away from the comforts of home and, often, family.

Without Americans working in influential international positions such as purchasing, contract management, and project management, other nations either will fill, or are now filling, those vacancies. They will order products produced in, and services available from, their own countries. The Germans, Chinese, Russians, French, Italians and a whole host of other nationalities are aggressively replacing Americans in many key business positions and on many lucrative contracts around the globe, because U.S. tax policies have weakened American international competitiveness and have reduced the attractiveness of Americans as international employees. By pulling together, we can reverse this negative economic trend. Visit Middle East Council of American Chambers of Commerce | Global Coalition of Americans Dedicated to Restoring American Trade Competitiveness in a 21st Century Economy -- Legislative Action Center .

Over 30 years ago, Congress designed and enacted the Foreign Earned Income Exclusion (FEIE) (section 911 of the U.S. Tax Code) as a tax incentive for Americans and their families to leave the comforts and security of their homes and families to work abroad. Earlier Congresses understood the essential front-line role working Americans played in global competition, and wanted to ensure our front line stood strong. Unfortunately, over the past 20 years the FEIE has been a constant Congressional target for dilution or elimination. In May 2006 TIPRA punched a hole below the FEIE water line and reduced by over half its financial benefit to working expatriates.

As an inevitable consequence, the FEIE, intended by Congress to benefit America’s global workforce, was severely devalued as an effective economic tool to persuade Americans to work overseas, or to retain them if they were already there. American workers or their foreign employers now pay twice as much in taxes as they paid prior to January 2006 (the law was retroactive). And the law affects all ordinary income for qualifying Americans working internationally. The predictable result is fewer Americans in influential business positions, and equally educated, less expensive workers from other countries literally flooding in to fill those positions.

One of the hardest hit sectors is education. American educators, who once taught at American secondary schools or universities around the globe, suddenly faced with a doubled tax burden, have left their classrooms and returned home. This is especially troublesome in the Middle East, where American values are frequently questioned. Rather than engaging in a vigorous cultural debate, American educators have been forced by our government’s tax policies to go home.

Please join The Middle East Council of American Chambers of Commerce (MECACC), other American Chambers of Commerce (AmChams), and other associations representing overseas Americans in our fight for corrective action. For a strong economy we need a strong global economic foothold around the world.

Thank you for your support.