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Discussion Starter · #1 ·
So you have to pay taxes if your an overseas American, despite what your employer says about your salary being tax free?
 

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You ALWAYS have to file US returns no matter where in the world you live. And earned income is eligible for the FEIE (Foreign Earned Income Exclusion), which is done via form 2555 (filed with your regular form 1040).

If you are working in a country with no income tax, and your earned income is less than the FEIE limit (currently about $97,000) you will, indeed, pay no taxes on your salary.

Download and read IRS Publication 54 for details.
Cheers,
Bev
 

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Discussion Starter · #5 ·
Oh, ok. Well I heard that they make you pay taxes after a certain amount (now the $97k from what you're saying), but you pay taxes starting from $0 to whatever after the allotted amount, which is $97,000. Right?
 

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After 30 years living and working abroad I also found out about my reporting requirement.

Unfortunately, it is not as easy as just taking the FEIE. Other incomes like interest, dividends, pension and retirements cannot be excluded. Here you have to take the FTC which gets very complicated.

Additionaly you have to report your bank accounts etc. to the IRS and the Dept of Treasury.
 

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:-(

Phooey! I was hoping it would still remain tax free.
I think you've rather missed the point. If all you have is earned income (i.e. salary) the first $97k is tax free under the FEIE. It gets more complicated if you have unearned (i.e. investment) income.

Read the IRS document.

Whether or not your employer withholds income tax has no bearing on your tax obligations to the US.
 

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Discussion Starter · #9 ·
No, I think understand. So, after the 97k you have to pay taxes, like if I earned 100k then I would pay taxes just on $3k......right?
 

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Just understand that if you are earning $100K and "exclude" the first $97K with the FEIE, the tax you pay on the $3K is the difference between the full tax on $100K and the tax on $97K. It's not just the tax on $3K.
Cheers,
Bev
 

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@Medic84. You can take a foreign tax credit FTC on the 3k. Since the tax rate is higher here than in the US you should remain tax free. If you have savings and receive interest on this Money you can only use the FTC to Keep from paying US tax. Starting July 2014, most European banks will report your interests directly to the IRS. This is due to the FACT agreement.
 

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Let's be precise. If you are a U.S. citizen living and working full time overseas you may owe U.S. income taxes only if all of the following three conditions are true:

1. You live in a comparatively low income tax jurisdiction;
2. You have nontrivial unearned income (interest, dividends, and/or capital gains) and/or a weighty amount of earned income (about double or more than U.S. median household income);
3. You cannot avail yourself to a sufficient degree of the various tax breaks in the U.S. tax code.

-OR- if the following condition is true:

4. You have nontrivial U.S. source income.

The U.S. Foreign Earned Income Exclusion is optional -- another important point to emphasize.
 

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The OP can correct me if I am wrong, but I did go back and check other posts - and we're talking about working in one of those Middle Eastern countries that has no income tax at all. To use the FTC, you have to be paying an income tax to your country of residence.

FEIE is the way to go under these circumstances.

Just FYI, some jobs in tax-free countries are advertised in the international press as being "tax-free." This is fine, except for the Americans interested in the positions, who always have to consider the US tax side of these "tax-free" posts.
Cheers,
Bev
 

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While you may not have any tax due as a result of the foreign earned income exclusion (FEIE) or use of the foreign tax credit, as long as you meet the filing requirements to file a tax return (which is based on income before any deductions or exclusions), you must file a tax return.
 

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...we're talking about working in one of those Middle Eastern countries that has no income tax at all. To use the FTC, you have to be paying an income tax to your country of residence. FEIE is the way to go under these circumstances.
Absolutely.

There are narrow exceptions for those with modest earned income (and modest income in general), particularly for those with U.S. citizen-children in their care who can take the Additional Child Tax Credit. A pre-tax U.S. IRA contribution -- something that cannot be done easily (or at all) if taking the FEIE -- can also help reduce or eliminate U.S. taxable income. I might have just described a fair number of U.S. spouses working part time who are married to non-resident alien spouses -- they might fit into this situation. Once your income rises above your personal exemption, standard deduction, child credits, IRA contribution, and perhaps a couple other things then the FEIE works really well in those zero income tax Middle Eastern countries.

These are pretty easy U.S. tax returns: no Foreign Tax Credit form. ;)

...some jobs in tax-free countries are advertised in the international press as being "tax-free." This is fine, except for the Americans interested in the positions, who always have to consider the US tax side of these "tax-free" posts.
Well, they are tax free to U.S. citizens up to the FEIE plus Foreign Housing Exclusion limits, which is still not bad -- and a lot better than, say, working in Texas at equal purchasing power gross earned incomes. But yes, that's an important point for those with moderately high (and above) salaries working in these jurisdictions.

RandallSamaritan said:
...as long as you meet the filing requirements to file a tax return (which is based on income before any deductions or exclusions), you must file a tax return.
Well, yes and no. If your net actual tax liability is zero or less than zero (i.e. you're owed a refund from the IRS), then there is no penalty for non-filing. Yes, you're supposed to file if you're past the filing thresholds, but it's a penalty-free sin.

Even so, non-filing can be risky. The reason is that if you're wrong -- if you actually do have a net actual tax liability -- then you could be facing some significant interest and penalties.
 

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In most situations (there are exceptions), the filing requirement is based on your standard deduction + personal deduction (deduction for yourself and spouse only). If your gross income (before any deductions) exceeds this threshold, a return must be filed. Again, there are exceptions and different thresholds, for example, if you have self-employment income, unearned income (i.e. investment income), etc.
 

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We agree, Randall, but there is no penalty for non-filing if your net actual tax liability is zero or negative. That's how Congress wrote the U.S. tax code.

An additional risk for non-filing, particularly if you have a high income that would in most cases generate a net U.S. tax obligation, is that you could get audited. And an audit is generally more work than simply filing.

In principle if you have zero or limited U.S. source income and if you live in a comparatively high income tax jurisdiction you can never file and have basically zero risk of facing any penalties or interest for non-filing.

I don't want to encourage people not to file, especially because some U.S. citizens living overseas may qualify to receive money from the IRS (refundable tax credits) and/or be able to offset future U.S. taxes (via excess Foreign Tax Credits). However, non-filing is nearly zero risk for some.

On edit: Another reason to file U.S. tax returns is that you cannot sponsor others for U.S. green cards unless you have a few years of tax returns to submit with the sponsorship application.
 
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