Job Discussion Forums

[uaeobserver]

Morning, all ---- a general expat question (not specific to the UAE)

Anyone here have information about the impact of the tax proposals on expatriates - particularly folks like us?

[veiledsentiments]

What tax proposals?

There are no changes... only the renewal of the current situation. And even if for some reason it didn't pass, it would still not affect your overseas pay. It would still be exempt up to the... what is it $90,000 or so?

If you have more than $10,000 or so of investment or rental income within the US, it would go back to the same rates as it was under Clinton - if it didn't pass.

VS

[TeresaLopez]

My understanding is that it it bundled with an extension of unemployment benefits, making it more likely to pass, but it won�t change anything if it passes(is renewed, that is, it�s not a change).

[ckhl]

If you have more than $10,000 or so of investment or rental income within the US, it would go back to the same rates as it was under Clinton - if it didn't pass.

As I understand it, your foreign earned income does not necessarily put you in a higher tax bracket when it comes time to pay tax on rental/investment income derived in the USA. For example, if you have $20,000 rental/investment income in the USA, this income is taxed in the $20,000 tax bracket; not, for example in the $70,000 income tax bracket if your foreign earned income exclusion were $50,000.

[ckhl]

a caveat.....what did change was the rate at which foreign earned income that exceeded the exclusion was taxed. For example, if the exclusion were $90,000 and you earned $95,000, the $5000 used to be taxed in the $5000 tax bracket. Now, however, the $5000 is taxed in the higher bracket ($95,000). Hence to pay the tax you have to draw from your income that was excluded. It makes no sense and is anti-competitive for US business operating overseas.

[veiledsentiments]

Sorry ckhl, I am also an accountant and that is rather confusing. Do you have a link discussing this, as I can't get anything related to that to come up.

Since so few of us even come close to the income exclusion number, I have never paid any attention to what tax rates any amount over comes under. So you are saying that in the past, anything over the exclusion was taxed at the lowest bracket, and now it will be taxed at the same bracket as if you had been earning it in the US? That seems fair enough.

[ckhl]

sorry...say the exclusion is $90,000. Your foreign earned income is $98,000. You are liable for tax on $8000. Before this $8000 was taxed in the low tax bracket. Now it's taxed in the bracket that includes $98,000. ....so what would the tax on $8000 be if taxed at a higher rate? Probably more than $8000.

You are right...we'll never reach the upper limits of the exclusion. The concern was determining the tax bracket on investment/rental income in the USA. If your US-derived income is $20,000 and your foreign earned income is $40,000, the $20,000 would be taxed in the lower tax bracket. The exclusion would not be considered when determining your tax bracket.

[Sheikh N Bake]

Uhm, well, mine reaches the upper limits and well beyond if you're going to include housing, company car, free gas and full worldwide medical (including US) coverage. All of those are forms of income.Technically you're supposed to declare housing as income and then use one of the several loopholes to exclude it. It used to be that if the housing were required by the employer and at the convenience of the employer, you would just state that somewhere and not declare it...or simply not declare it at all. Certainly in 24 years in Malaysia, Japan, UAE, Equatorial Guinea and KSA, I've never included housing on my returns no matter what kind of free housing I was provided. In KSA now I am required to live on the military base where I work so that is obviously not income (I guess), not for tax purposes.

[veiledsentiments]

[ckhl]

ckhl wrote:
The concern was determining the tax bracket on investment/rental income in the USA. If your US-derived income is $20,000 and your foreign earned income is $40,000, the $20,000 would be taxed in the lower tax bracket. The exclusion would not be considered when determining your tax bracket.

I am still unable to find any reference to this either on the IRS site or in any of the media. Please let me know if you have a link. Did you actually read this from a legitimate source or was it just a rumor that you heard?


No, I don't have a link...but I've filed taxes as such for more than ten years. I have heard from the IRS a couple of times regarding Schedule D. In the end it was their own bumbling and fecklessness. They never questioned my tax bracket, however. The tax bracket was determined only from income derived in the USA. Foreign-earned income did not enter into the equation. Why do you think it would when determining one's tax bracket? As the term states, it's excluded.

[veiledsentiments]

[ckhl]

So, now you are saying that there is no change? Or that you are basing your comment on a change based on past returns?

There's a misunderstanding....

i thought you were referring to the foreign earned income exclusion being calculated for determining your tax bracket on income derived in the USA, which it is not.

..the change...the income above the exclusion is taxed at the higher rate. Before it was taxed at the lower rate.

I'm talking about 2 different things here.

[veiledsentiments]

[ckhl]

No the change is quite recent, dating back to two or three years. As for claiming all 'overseas income'....i've always filled out form 2555EZ...I have never approached the limit of the exclusion...and as i said, I had to sort out issues with the IRS re: my Schedule D ..in the end it was their fecklessness...but never did they question me on the filing of my Form 2555.

[ckhl]

check this out:

http://www.bankrate.com/finance/money-guides/taxpayers-abroad-can-limit-u-s-taxes-1.aspx