Expat US Tax FAQ’S
The Foreign Bank Account Reporting is just that; reporting accounts held off-shore if the balance or aggregate balance is $10,000 or more at any time during the year. Reporting includes the name and address of the bank, the account number, the highest balance during the year, and the names on the account.
Which offshore bank accounts do I need to include
- All your personal accounts
- Any bank account that you have signing authority over, including business accounts
- Business bank accounts that you own or have signing authority over
- Foreign Pension accounts
- Stock trading accounts
What’s the easiest way to check if I need to file?
- Gather monthly statements for each bank account that you need to include
- Look through the statements for the highest balance in the tax year and write it down
- Once you have been through every statement add up the highest balances
- If the total number is over USD $10,000 then you need to file an FBAR
How do I file?
- Get in touch and we will take care of everything for you
How much does it cost?
- It depends what other services you are purchasing from us, many packages have FBAR filing included, get in touch for all your tax needs
CHECK The Foreign Earned Income Exclusion (FEIE) and Foreign Housing Exclusions help to balance some of that income. For 2020 the FEIE is $107,600 and the housing exclusion is based on where you live. The limits are different for each region;
- Dubai limit is $57,174 subject to a threshold amount of $17,216
- Abu Dhabi limit is $49,687 subject to a threshold amount of $17,216
The FEIE and housing exclusions are prorated based on the number of days actually outside the US.
These exclusions are applied in one of two ways, either by the Physical Presence Test (PPT) or the Bona Fide Residence Test (BRT).
With the Physical Presence Test or PPT we are looking for 330 days in a 12 month period outside the US. The 12 months can start any day of the year and may well include portions of two separate calendar years. The 330 days outside the US do not have to be consecutive, so trips to the US for work, vacation or holidays usually don’t make a difference, as long as you spend no more than 35 days in the US. Travel days are considered US days.
The Bona Fide Residence Test (BFR) is met when your tax home (where you live and work) is established prior to January 1 and remains established outside the US through December 31. In other words, for an entire calendar year.
Generally, the following four tests must be met for any foreign tax to qualify for the credit:
- The tax must be imposed on you
- You must have paid or accrued the tax
- The tax must be the legal and actual foreign tax liability
- The tax must be an income tax (or a tax in lieu of an income tax)
Tax Must Be Imposed on You
You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U.S. possession. For example, a tax that is deducted from your wages is considered to be imposed on you.
A foreign country includes any foreign state and its political subdivisions. Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit.
Tax must be the Legal and actual Foreign Tax Liability
Your qualified foreign tax is only the legal and actual foreign tax liability that you paid or accrued during the year. The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. The amount of the foreign tax that qualifies for the credit must be reduced by any refunds of foreign tax made by the government of the foreign country or the U.S. possession.
Example 1: You received a $1,000 payment of interest from a Country A investment.
Country A’s withholding tax rate on interest income is 30% ($300), but you are eligible for a reduced treaty withholding rate of 15% ($150) if you provide a reduced withholding statement/certificate to the withholding agent. Your qualified foreign tax is limited to $150 based on your eligibility for the reduced treaty rate, even if $300 is actually withheld because you failed to provide the required withholding statement/certificate.
Tax Must Be an Income Tax or Tax In Lieu of Income Tax
Generally, only income, war profits, and excess profits taxes (collectively referred to as income taxes) qualify for the foreign tax credit. Foreign taxes on wages, dividends, interest, and royalties generally qualify for the credit. The tax must be a levy that is not payment for a specific economic benefit and the predominant character of the tax must be that of an income tax in the U.S. sense.
A foreign tax is not an income tax and does not qualify for the foreign tax credit to the extent it is a soak-up tax. A soak-up tax is a foreign tax that is assessed only if a tax credit is available to the taxpayer. This rule only applies if and to the extent the foreign tax would not be imposed if the credit were not available.
Foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. The tax must be a foreign levy that is not payment for a specific economic benefit and the tax must be imposed in place of, and not in addition to, an income tax otherwise generally imposed.
Foreign Taxes for Which You Cannot Take a Credit
The following are some foreign taxes for which you cannot take a foreign tax credit:
- Taxes on excluded income (such as the foreign earned income exclusion),
- Taxes for which you can only take an itemized deduction,
- Taxes on foreign mineral income,
- Taxes from international boycott operations,
- A portion of taxes on combined foreign oil and gas income,
- Taxes of U.S. persons controlling foreign corporations and partnerships who fail to file required information returns,
- Taxes related to a foreign tax splitting event, and
- Social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. For more information about these agreements, refer to Totalization Agreements.
To access and download your files, you must ensure your browser allows Pop-ups. If your browser blocks Pop-ups, you may have difficulties downloading the file and it may appear like the CCH Portal isn’t working correctly.
Allow Pop-ups on a Mac computer using Chrome:
Chrome should prompt you on the right of the URL bar that the Pop-up blocker is on. When you click on the prompt and allow pop-ups you will be able to view and download your file.
Allow Pop-ups on a Mac computer using Safari:
From the Safari browser menu, click into Preferences and then Security. Look for and remove the tick from “Block Pop-up Windows”
Allow Pop-ups on a Windows PC using Safari:
From the Safari browser, click into General Settings (cog icon on the right). Scroll down and deselect “Block Pop-up Windows”
Allow Pop-ups on a Windows PC using Internet Explorer:
From the Internet Explorer browser, click into Tools, then Pop-up Blocker and select “Turn off Pop-up Blocker”
Allow Pop-ups on a Windows PC using Chrome:
If you aren’t automatically prompted, copy and paste this line into your Chrome URL address bar chrome://settings/content and then scroll to Pop-ups and select “Allow all sites to show Pop-ups”
Allow Pop-ups on a Windows PC using Mozilla Firefox:
From the Firefox browser open the Menu, click into Options, click Content and deselect “Block Pop-up windows”
We have a list of all the States with their particular taxation of expatriates.
The IRS considers almost all your income as taxable, here is a standard list of compensation items…
- Basic salary
- Call back, standby and overtime income
- Airfare allowances and home leave
- Administration allowances
- Transportation and internet allowances
- Education assistance
- Settling-in allowance
- All other cash or benefits received in-kind
Examples of income that generally aren’t taxed…
- Reimbursement of business expenses
- Moving expenses as long as they are dollar for dollar. A lump some that you don’t have to account for can be considered taxable income.
- Living away from home expenses
A Taxpayer Identification Number (TIN) is an identification number used by the Internal Revenue Service (IRS) in the administration of tax laws. It is issued either by the Social Security Administration (SSA) or by the IRS. A Social Security number (SSN) is issued by the SSA whereas all other TINs are issued by the IRS.
Taxpayer Identification Numbers
- Social Security Number “SSN”
- Employer Identification Number “EIN”
- Individual Taxpayer Identification Number “ITIN”
- Taxpayer Identification Number for Pending U.S. Adoptions “ATIN”
- Preparer Taxpayer Identification Number “PTIN”
Note: The temporary IRS Numbers previously assigned are no longer valid.
Do I Need One?
A TIN must be furnished on returns, statements, and other tax related documents. For example a number must be furnished:
- When filing your tax returns.
- When claiming treaty benefits.
A TIN must be on a withholding certificate if the beneficial owner is claiming any of the following:
- Tax treaty benefits (other than for income from marketable securities)
- Exemption for effectively connected income
- Exemption for certain annuities
The tax is computed first on your taxable income plus the total of the exclusions. Then, tax is calculated on just the exclusion amounts. The smaller number is deducted from the larger, determining the actual tax liability. This means the graduated tax rates are not available to you and the resultant tax rate is anywhere from 25 – 40%.
When working for a foreign entity, you have no access to withholding on your income. Federal Estimated Calculations should be done to determine projected tax liability and estimated payments made to the taxing authorities to avoid underpayment and/or late payment penalties.
As the tax rate is much higher and everything in the remuneration package is taxed, often the employer will pay the difference between what the tax would have been had you stayed in the US and what was actually paid while overseas. This payment, of course, is considered income and must be taken into account when determining total income received.