Job Discussion Forums

[tEFLon]

As of now the Senate has passed its version of a tax bill that would repeal the foreign tax exclusion enjoyed by many of us working overseas. They will meet and haggle with Congress where the repeal may (hopefully) not survive. I shudder to think about what will be to come as teacher of EFL overseas if it does. As things stand, it's no small jump to a retirement at 65.

[bnix]

Actually,they will meet with the House of Representatives to hash out different versions of the bill.Congress is the Senate and House together.I know...a minor point.

This is why we need a good organization...a good union.If we had had one,they could have lobbied against this repeal and it perhaps would not have made it through the Senate.But as it is,we are disorganized...TESOL teachers...how many congressmen really give a dead rat's you know what?They probably do not even know what a "TESOL" is!

Hopefully,the repeal will not make it through the House...or if it does...maybe it will be rewritten so they will not repeal the total benefit(maybe they will not tax the first $30000....but I am not saying they will do that...hopefully)

Otherwise,a "profession" which has a lot of problems is set to get another very large one.And for anyone who is contemplating just not reporting foreign income...I do not recoomend that one.And no,I do not work for the IRS,and I have no vested interest.They have a long arm.Even if you are not in the US physically,you might have bank accounts and property in the US.Play it straight with them.

But hopefully,the repeal thing will not pass.Write or email your congresspeople and ask them to oppose HR2.

[tEFLon]

Of course. I stand corrected.

The amendment to drop the repeal to the foreign tax exclusion was introduced to the Senate by Senator Breaux from Louisiana, in response to his constituency employed in the oil industry. It was voted down 51 - 49. Fortunately, it is not just teachers of EFL that are represented in significant numbers abroad.

Again, the repeal is not expected to survive the upcoming House - Senate conference. It would seem that there are conservative GOP reps on our side who do not want a tax increase for anyone.

[chuckie]

Can anyone who comments on this issue please cite your references?

Does anyone know the specific BILL Number?

If you write your senator or congressman - they will want to know what you are talking about.

I've done a search on Thomas's and this is the closest I can get to what you are talking about:

H.R.2046
Jobs and Growth Reconciliation Tax Act of 2003 (Introduced in House)
--------------------------------------------------------------------------------
SEC. 303. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME .
(a) IN GENERAL- Section 114 is hereby repealed.
(b) CONFORMING AMENDMENTS-
(1) Subpart E of part III of subchapter N of chapter 1 (relating to qualifying[b] foreign trade income [/b]) is

BUT NOTICE it is talking about foreign TRADE income.

If this problem is real - let's get real with some good accurate data.
Please cite your sources to help us all.

[chuckie]

Are you talking about HR43 or HR 490?

This MAY be the Herald Tribune article people are talking about?? If it is, read it carefully - and unless you are making a whole lot more money that I am - you've got nothing to worry about

Income tax cut? U.S. law has an alternative
Minimum levy, More families abroad are liable
By Barbra D. Murray (International Herald Tribune)
Friday, October 25, 2002


WASHINGTON>en<>res<: A growing number of Americans at home and abroad who were looking forward to a reduction in their federal income tax are finding themselves largely cut out of the bonanza engineered by President George W. Bush because of a long-standing and not widely understood "class tax" that Congress left on the books. Hidden amid the hoopla of the Bush tax-cut package was a dirty little secret: the alternative minimum tax, which renders much of the promised tax cut moot.

The AMT comes into play when a person's tax bill, after deductions, falls too low relative to his income. It is calculated after disallowing many deductions that taxpayers take for granted, including the foreign tax credit. On the books since 1969, the AMT was originally intended to prevent wealthy taxpayers from cleverly using deductions to reduce or eliminate their tax obligation. (Congress discovered at the time that 155 families with incomes over $200,000 were left without a single dime of taxes to pay after calculated adjustments.)

But because the threshold for eligibility was not indexed for inflation, the definition of "wealthy" has not kept up with the times, and now more and more people are falling under the AMT definition. According to a recent study by the Urban-Brookings Tax Policy Center, a joint effort of two Washington think tanks, the Urban Institute and the Brookings Institution, about 3 percent of filers with household incomes between $75,000 and $100,000 found themselves facing the AMT this year, and 78.6 percent of all filers will face the AMT come 2010 (including 40 percent of households with annual earnings between $50,000 and $75,000).

Under AMT guidelines, for example, taxpayers may not take a deduction for state income taxes or interest on a home equity loan (if part of it was not used for home improvement), and the AMT allows for no miscellaneous itemized deductions. Americans living abroad, thought of by some in the Treasury as traitors - "economic Benedict Arnolds," as one official put it, evoking the name of the American Revolutionary traitor - will fare no better than domestic taxpayers. Normally, Americans abroad may claim a credit on taxes they pay to their host country, thereby avoiding double taxation, which certain treaties seek to prevent. But AMT rules allow a credit of only 90 percent of foreign taxes paid, thereby ensuring that some U.S. tax will always be due, even if the foreign tax bill exceeds what a domestic taxpayer would have paid on the same income.

"You are guaranteed to be double-taxed on a portion of the foreign income that gets you into the AMT range," noted Andy Sundberg, a founding member of American Citizens Abroad and the director of the organization's Geneva branch.

Figures provided by PricewaterhouseCoopers illustrate the situation of a hypothetical expatriate American married couple with two children and an annual income of $200,000. If the family lived in the United States they would pay roughly $47,000 in federal income tax. But as expatriates in Britain, they would be liable for about $70,000 in British income tax. Normally the credit on British tax paid ($70,000) would more than offset what would have been owed Uncle Sam ($47,000). But under AMT rules, the family would be assessed a further $1,500 in U.S. income tax, for a total tax bill of $71,500.

So while the Bush administration's sweeping income tax reduction package does reduce regular taxes, an increasingly large portion of the population will not fully benefit from those reductions. Many taxpayers who thought they would be in for a cut in taxes via such breaks as the child tax credit, the child and dependent care tax credit, or marriage-penalty relief will find themselves thrust into a category that forces them to pay the AMT.

Representative Richard Neal, a Democrat of Massachusetts who is a member of the House Ways and Means Committee, said, "There are unintended consequences that have developed" because the AMT "was never indexed for inflation. The problem you have with it is that it costs more to fix year after year, so that the mentality in Congress has been to postpone action on it. But by postponing action you only aggravate the cost."

Indexing the AMT for inflation would lead to a 70 percent decrease in the population falling under that taxpaying category in 2010, the Urban-Brookings study said. However, that procedure would cost an estimated minimum of $440 billion through 2012.

"I think that it is a refusal to bow to reality," Neal said of the administration's inaction. "But people are going to start to fall into this trap of AMT, and I think they are about to become very angry citizens."

Those on the ground floor of crafting and monitoring tax policy in the Bush administration, as well as congressional leaders, are aware of the problem. In recent years the Department of the Treasury has published research with findings similar to those of the Urban-Brookings study. "Treasury is actively seeking to find potential solutions to mitigate these problems of the AMT in the future," said the assistant secretary for tax policy, Pamela Olson.

No one on either side of the political fence has come out openly in defense of the AMT as it currently exists. "It is a country-wide, system-wide problem, and we need to address it," Representative William Thomas, a Republican of California, said in April. Thomas is chairman of the House Ways and Means Committee and vice chairman of the congressional Joint Committee on Taxation.

"To fix the individual alternative minimum tax," he said, "it takes about $0.5 trillion. And if we don't begin addressing it, over the next five years it will take three-quarters of a trillion, and you can see what happens with the math."

The failure to address the issue before now, according to Michael Jones, executive director of Republicans Abroad, has more to do with the Democrats' desire to please the lower-income crowd than with the Bush administration's reluctance to confront what would be a multibillion-dollar correction to the AMT system.

"If you're a member of Congress and you're representing a blue-collar constituency, to be arguing on behalf of people who simply make $175,000 a year doesn't play well with the constituents," he said. "But nobody who's representing overseas Americans feels that the AMT is O.K. There are 4 million Americans overseas, which is larger than the individual populations of 24 states. It does represent a broad group of folks, and these folks are out there selling American products and goods, which creates jobs back at home."

Several bills are pending, both Republican and Democratic, that would address the problem. Among them are the Republican-sponsored Real AMT Relief Act of 2001, which would repeal the AMT on individuals, and an untitled Democratic-led House Resolution that would allow state and local taxes - but no provision for foreign taxes - to be deducted in computing the alternative minimum tax. For those living abroad, there is a Republican-sponsored item calling for the repeal of the 90 percent limitation on foreign tax credits under the alternative minimum tax.

[chuckie]

As I read it, here's why there is no problem - at least for the common EFL teacher.

What everyone is worried about is the Foreign Tax Exclusion. Not the Foreign Income Exclusion - which is the US$80,000 that you get automatically. After that $80k, when you begin to owe US taxes - the Foreign Tax Exclusion says that you can credit whatever income taxes you paid to the foreign country where you are living against your minimum income tax that would be due in the USA.

Read the example in the IHT article and it might be clear as mud.

Since most of us aren't breaking that $80k bar , I wouldn't worry about it.

Tell me if I am wrong - and cite references.

[veiledsentiments]

Sorry Chuckie, you're wrong, but it's past midnight and I am not going to bother to slog around the internet to find you the bill number. It is the current tax cut bill passed by the senate last week.

It has been widely reported on all the media - CNN, MSNBC, FOX, Washington Post and on and on. It has been discussed at length on CNBC. If you don't believe us, check out any of those sites. I doubt that they are all confused.

The senate removed the foreign tax exclusion and 100% of all earnings abroad will be fully taxable for all Americans. This is in order to be able to help out all of those rich guys who have lots of dividend income. The idea is that we can pay taxes so that they don't have to - great eh?

So, yes there is a problem. It is now in conference committee and it is pretty much up to the House to stop it. So, I recommend that those of you who are concerned write to your Congressperson now.

[tEFLon]

http://www.quicken.com/investments/news_center/story/?story=NewsStory/dowJones/20030515/ON200305152021001979.var&column=P0DEC

[chuckie]

Thank you TEFLon,
Just wanted a real reference. No insult intend to others, but a large amount of BS does pass on this board.
Will write my emails TODAY.