How many Americans actually end up with real tax liability from a foreign country? Probably need to answer that before we determine whether it's "worth it" because my understanding is most people don't.
At least from those expats posting here, the issue isn’t the actual real tax liability, but the burden of having to show the IRS every year that you don’t think you have a tax liability.
It is awful - I'm glad you never had to deal with. It provides little revenue and causes a huge amount of hassle and makes living overseas way more difficult.
American expat here - agreed with the other expats - it’s the filing that really, really sucks. Like really. Breaking the difficulty down in terms of priority.
1 - just trying to work through what all might possibly be owed and not owed to US as well as the country(ies) one operates in.
2 - Identifying through which paperwork to declare it, while also ensuring income / business reporting is copacetic with the tax regime of the country that same is actually earned in. As a business owner, (many operating overseas are looking after a business) I have to complete corporate accounts (which costs $$$$ and takes forever) before I can file American income tax for the same accounting year.
3 - the value of the tax liability itself is a distant third in terms of hassle than any of the above. (I’ll include in this bucket the fact that Americans are taxed on income earned abroad, putting us at enormous disadvantage for work opportunities vis—a-vis peer expats who come from other countries)
And how about they make this service opt-in. I was born in the US but I have had nothing to do with the place for 95% of my life and I don't want their help. Why must I fill out their paperwork every year or pay them money to opt-out (which I can't even do anymore because of the current backlog).
Perhaps the revenue is not very great but if there were a blanket exception I think you’d suddenly find a lot more people gaming then system to not technically be US residents and thereby escape large amounts of liability.
Most countries don’t tax citizens living abroad on foreign revenue, and just forget about them once they become residents elsewhere (unless they still have income from their country of origin).
That's pretty easily dealt with through residency thresholds. We do this in the UK, counting people resident for tax purposes if they spend more than so many days in the UK in a given year. I would be very surprised if the US doesn't already do this to determine non-citizens tax status.
That's how state taxes are dealt with in the US and a number of people go to great pains to make sure they stay exactly the number of days in some high-tax state that lets them skirt liability. I'd be surprised if similar things didn't happen in Europe but I don't pretend to be as familiar with what goes on there.
If you are not allowed to open financial accounts for investments in the country you are living in because they do not want to have information sent to the IRS, you'll think differently.
I know at least one country that will not let you even open a bank account if you have a green card or US citizenship. Actually, even if you're a foreigner living in the US (student, H-1, etc), that country will not let you open a bank account - even if you are a citizen of that country. The rule is simple: If you have ties to the US that could require you reporting your bank account to the IRS, then you cannot open a bank account.
First hand experience (US citizen): When you open a bank account overseas, they ask you if you are subject to FACTA (US passport or green card). Then you are given a multi-lingual form that explains all about FACTA, and require you submit your passport (for scan/photocopy) and to sign a form acknowledging the bank will end your account details annually (at least!) to the US IRS. I confirm this is true multiple times -- different banks, different countries. Surprisingly, even ones where the service is 100% non-English (read/write/speak!), they will still bring out multi-linguage forms and do a bunch of pointing to confirm.
Funny story: Overseas, I can remember going through anti-money laundering training. The week after, I went to open a new bank account. When I told them I was a US citizen, the account rep said -- without missing a beat -- "Do you want to report?" Jeez. That question alone is probably enough to get that bank into trouble! Obviously, that person failed their own FACTA training...
> FATCA also requires such persons to report their non-U.S. financial assets annually to the Internal Revenue Service (IRS) on form 8938, which is in addition to the older and further redundant requirement to report them annually to the Financial Crimes Enforcement Network (FinCEN) on form 114 (also known as 'FBAR')
What's ridiculous is that it also "requires" foreign banks to report details of accounts by US holders - even if the bank has no relation to the US.
Find me a bank in 2021 that doesn't clear US dollars. That is the big gotcha. This is one of the ways that the long arm of the US Treasury applies force is by restricting US dollar clearing if any banks in a jurisdiction refuse to comply. Literally: They would say to a developing country: Get that local bank in order, or we will not allow any one in your country (central bank or businesses) to trade or clear any US dollar transactions. Remember: Most US dollars overseas move by SWIFT transactions.
Because they apparently require foreign banks to report it.
Now, how do they actually enforce that supposed "obligation"? I do not know.
But it doesn’t surprise me. The US has already enforced it’s laws on foreign companies' dealing abroad merely because they had used dollars in their transactions.
They haven’t enforced it yet (for the banks, for non-compliant Americans, they have). But they’ve signed treaties with many governments to allow this, and they threaten foreign banks with fines related to any US dealings.
I'm aware of restrictions in France and Pakistan from coworkers on H-1 visas from those countries. Note that both probably do provide a way to open it if you go through some lengthy "exceptions" process, but it wasn't worth the hassle.
Basically, ever since the IRS required you to report foreign accounts (2007 or 2008), some countries have made it harder for people based in the US to get accounts. They see it as an indirect means to collect intelligence by the US.
Well there are a handful right here on this comment section. I'm a Brit and have known maybe half a dozen US citizens reasonably well here in London over the years, at least two of which renounced US citizenship for tax reasons while I knew them. It's definitely a thing.
According to another post you do not owe tax on income below $108k so that’s probably not going to affect most filers, though I’m sure an anomalously high number of HN users are earning six-figure salaries.
That is only applies to so-called earned income, you still owe taxes on all of your other income. And many people earn considerably more than $108k.
Furthermore, even under tax treaties, it is not uncommon for some part of your income to be double taxed due to differences in recognition and classification of income and foreign taxes paid. Americans often have to pay more taxes than if they only had to pay taxes in either country separately.
And this is on top of the onerous reporting overhead and other difficulties.
Many people earn a lot more than that. I agree. Where I disagree is that I don't see what's unjust about asking them to pay tax for a system they benefit from.
Faulty assumption; Americans who live abroad do not benefit from the US system: social security/disability/retirement, health programs, military, public infrastructure etc. pp. is provided by the country where they live.
What's the embassy doing for me as an American citizen living abroad who uses none of their services (except passport renewal but that's only because of the other ridiculous rule that US citizens must travel there on a US passport). Why am I paying for it?
What if you live in another town and are paying for that fire department? Just kidding. But really if you live in a country which has a tax treaties with the US, you also can offset your taxes with taxes paid to a foreign country anyway, so even for high-earners nothing goes to the embassy. If you do use the embassy, you generally do pay them fees of course.
The embassy is for maintaining relations with foreign countries, not just passports and birth certificates (and pricey notary services). That seems like a sideshow. When it comes to services for the public, they appear to spend most of their time dealing with visa applicants, based on the crowds and lines I've seen. They also do offer assistance for missing persons abroad; if you have a relative that goes missing abroad the embassy will investigate. That seems nice of them. I assume other developed countries' embassies are basically the same though.
Sorry, maybe I wasn't clear, I don't ever use the services they provide and I won't because they are provided by the other country I am a national of. I have no links to the US. Zero.
Why not? I could just as well say that someone making $50k in Arkansas shouldn't have to subsidize consular services for someone making a quarter million a year abroad. They're not really paying "full price" either given the large exemption.
The US has an interest in maintaining embassies and consulates independent of its expat population. And we often pay for whatever services we get there, so you aren’t subsidizing us.
Additionally a government should think about practicality and fairness before it implements policy. It is impractical and excessively burdensome to try and tax residents of countries that aren’t the US. Despite your stated beliefs elsewhere, it does not take very much income or bizarre situations to wander into dicey tax situations that are frightening for the expat. A small business (which is taxable in the US if you net more than about $430) can mean difficult filing in the US. I don’t earn all that much, and I’ve spent a lot of this summer working on my US taxes for no purpose other than to have them piled up somewhere, unless some IRS agent decides to make my life much more difficult.
Well, wehther it's alright or not, whether it is accurately characterized as 'getting screwed' or not, at least it's only the ones who can most afford it.
Perhaps you are being sarcastic in the parent comment, but United States "screwing" its successful people and forcing them out means that these successful people will no longer contribute to United States, but to their new home country instead.
Without their contributions the Unites States will be less successful, thereby "screwing" everybody in it.
This trend within United States is especially ironic and alarming considering that United States gained its success specifically by giving home to persecuted people from other countries with capacity for success. Conversely, other countries, some obvious examples being Nazi Germany and USSR, were not successful specifically because they forced out their successful people.
I mean, am I supposed to feel sorry for high-income people because they have to pay tax to continue to benefit from US citizenship and US embassies? I don't really, nor do I consider it getting "screwed." I think it is only fair that well-to-do expats should pay into the system like everybody else. If they don't want to, I welcome them to take the article's lead and give up their citizenship.
If it was just getting taxed up to a point I think you'd have a reasonable argument, but looking at the torturous nonsense they have to go through to the point where even US banks think the costs of having them as clients isn't worth the hassle, it's clearly way beyond that. Also, many of these people don't actually owe any tax at all, or relatively small amounts, but it's ridiculously difficult and costly to prove it.
I mean what is the objective? Raise tax revenue from ex-pats, or drive them out of US citizenship? What's actually happening seems to be the latter, not so much the former. Surely that's a serious policy failure.
After not living in the US for a few years, your view of the US is quite disillusioned. They don’t want you to come back and live there. The need to keep everyone thinking the US is the best. /s
The thing is, many of these expats aren't even "paying into the system" anyway. I have to file US taxes but can deduct what I pay in taxes in my country of residency, which is higher than I'd pay in the US; as a result, I don't actually owe any US taxes. But, like another commenter said, I have to pay thousands to someone to figure out how to even file all this stuff. In other words, some local accountant is making bank, not the IRS.
The people who have complicated taxes also usually have complex income sources and generally higher incomes. If you just get your wage the tax forms are relatively straightforward. Being international complicates things but you'll notice people are talking about the headaches associated with running their businesses, capital gains, etc.
It doesn’t take much for an American residing abroad to have complicated taxes. I work a salaried job and am trying to save for retirement and that puts me into the complicated bracket because of the rules on pension taxation in my country of residence vs the US. Our options for investment are very limited, compared to every other resident of the country. My local brewery was doing a grassroots investment campaign and I couldn’t even buy £20 worth of shares to support them because as a US person that was forbidden.
Yeah, while you could argue that the IRS should do pre-filled electronic returns, the reality is that if you have a W2 and a couple 1099s, doing your taxes is pretty straightfoward.
As you say, it's more complex income sources and potentially deductions that lead to big accountant bills.
And you mention 1099s, i.e. self employed. Well, if you run a sole proprietorship as an expat, you still have to file US self-employment tax forms, and there are also QUARTERLY filing requirements with penalties for non-filing.
Or you need to get the paper certifying that your country has a totalization agreement with the US (not all do).
And since 1099 isn't a thing in EU, you have to file the US 'small business' tax form, which is actually 3-5 forms.
so as an expat, even what should be very straight forward turns into a massive mess.
Sure. Yes, I was assuming a US citizen/resident working for an employer who has income from a few basic sources and is taking standard deduction--which actually describes a lot of people. (And I was mentioning 1099s mostly in the context of a brokerage account.)
Most of my knowledge of it comes from all the threads about Intuit's and H&R Block's lobbying regarding what IRS could and could not do to simplify tax filling.
If you don’t me asking. If it is as straightforward, what actually is the point in said lobbying?
Many people don't realize it's straightforward to fill out a 1040 form and assume they need to buy specialty software or go to a tax preparation place like H&R Block. Naturally they're not going to tell them otherwise.
Serious question, what benefits do you think US citizenship and US embassies provide over and beyond what pretty much every other western country provides to their citizens?
As multiple people have explained, preparing the required paperwork each year is a major expense and hassle, even if you do not owe any tax.
Also, if you are technical enough to frequent this web site and you think $108K is a lot of money, you are being underpaid.
Googling, just the first one that comes up, suggests that median income for "software developer" in USA is $86,523. Meaning half make less, half make more. $100K is the 75th percentile, meaning 75% make less. (https://www.ziprecruiter.com/Salaries/Software-Developer-Sal...)
Some people that work in especially high-paid sub-industries have a mistaken idea of what typical "technical enough to frequent this web site" (?!) people make.
And even if most software developers did make over $100K, it could still be a lot of money? The median income in USA as a whole looks to be about $52K, with $100K being about 83rd percentile (83% of USA makes less than $100K).
I don’t think that zip recruiter data is accurate, apparently the average engineer salary in Sunnyvale is 100k, where I can see new grad salaries are above 120k and do that doesn’t take into account bonuses or stocks.
We can all quibble over the exact numbers but I think the point is well taken: not only does a six-figure salary place you pretty high among American workers overall, but it also puts you in a better spot than many developers. Not everybody gets to work at prestigious tech companies
> Also, if you are technical enough to frequent this web site and you think $108K is a lot of money, you are being underpaid.
Sorry, what? Exactly how much technical ability does it take to frequent a website? You have the strangest delusion I've seen on HN and that's saying something.
I just ran a search and found the median US personal income is around $35k. $108k may be low for a tech job but most people don't have high paying tech jobs.
I’m self employed, and had a green card, I paid the accountant 700€ to file the US tax form and paid a couple thousands dollars in taxes because I hit the minimum tax rate.
