# Question on US Tax & FATCA



## whaspha (Jul 17, 2011)

I need some info on the tax implications for US Permanent Residents/Citizens working in Dubai.

I understand that there is a foreign earned income tax exemption for the first $90K. 

- Is this $90K exemption only on the base salary or does it include the benefits (housing, education allowance, car allowance etc)? For example, if one earns $110K p.a. plus benefits, what components are taxable and at what rate?

- What is the % tax above $90K?

- Are there any additional tax implications with the new FATCA (Foreign Account Tax Compliance Act) law being implemented?

Any guidance would be appreciated.


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## Andrew James (Nov 6, 2010)

Hi,

All components are taxable and the rate applied to the excess (remember to also think about your housing exclusion) is determined by your filing status but the lower tax bands are "eaten up" by the exclusions.

Also think about whether you have a state tax filing obligation as this differs from state to state.

As for FATCA, I understand that HSBC has already started to compile its list of US persons. Scary times ahead.

The traditional FBAR filing remains, along with its ridiculous penalties.

Cheers,

Andrew



whaspha said:


> I need some info on the tax implications for US Permanent Residents/Citizens working in Dubai.
> 
> I understand that there is a foreign earned income tax exemption for the first $90K.
> 
> ...


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## whaspha (Jul 17, 2011)

Hi,

Thanks for the information. You mention all components are taxable, but you also mention that housing is an exclusion. Can you please clarify?

I do have to file state tax returns as well.

Also, what is the % tax above foreign earned income tax exemption limit?

Thanks.


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## Andrew James (Nov 6, 2010)

whaspha said:


> Hi,
> 
> Thanks for the information. You mention all components are taxable, but you also mention that housing is an exclusion. Can you please clarify?
> 
> ...


Foreign Housing Exclusion or Deduction

Your tax rate will likely be at least 28% on the income over and above the rate. If you think you also have state filing obligations (you may not) then I suggest you look for professional advice.


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## fcjb1970 (Apr 30, 2010)

You will not earn wages in any state, so there is no state tax on any of your wages. You may have other income (e.g. rent property) and that may require tax.

All income is income, no matter what they call it in your contract. With housing exemption and Foreign Earned Income Exclusion using the max housing amounts in the UAE you come out to about $134K. Dubai max, a bit higher than AD max.

The first $ above that is not like earning a $ it is like earning $130K and so is taxed at 28% and you go to 33% in about $40K.

FATCA just allows greater insight into the money, does not affect what you would have to pay.

My suggestion, buy a tax package and play with the numbers it will give you an insight in real $$ what you are talking about, not just percentages, which to me is more understandable.

Disclaimer: I am not a tax accountant


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## Andrew James (Nov 6, 2010)

fcjb1970 said:


> You will not earn wages in any state, so there is no state tax on any of your wages.
> 
> Disclaimer: I am not a tax accountant


I'm afraid that initial advice is simply not true, he could easily find himself with a state audit if he does that...so I like your caveat!

The truth is that all states have different tax residence rules but you will still have to file a return for some sort. PA, NJ, MA etc will keep taxing you over here, places like NY, CA, IL will let you break free of state tax in most instances.


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## CrowdedHouse (Feb 22, 2011)

Andrew Landin said:


> I'm afraid that initial advice is simply not true, he could easily find himself with a state audit if he does that...so I like your caveat!
> 
> The truth is that all states have different tax residence rules but you will still have to file a return for some sort. PA, NJ, MA etc will keep taxing you over here, places like NY, CA, IL will let you break free of state tax in most instances.


According to this, Andrew is correct:

If a taxpayer is working and residing overseas for an indefinite period of time and may not return to the State where he or she was resident before commencing the overseas work assignment, the taxpayer may wish to terminate State residency. For tax purposes, a termination is generally signified by filing a “part-year” State tax return in the year the taxpayer begins residence overseas. 

and

The taxpayer must take appropriate steps to ensure that a position of non-residency can be supported in the event the State audits the taxpayer at a later date. This is necessary to help prevent imposition of back State income taxes, penalty and interest charges which can quickly add up to large amounts if several years are involved.

Source: Worldwide Tax Laws for American Expatriates - AngloINFO Dubai (UAE) Income Taxes


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## Andrew James (Nov 6, 2010)

Hi,

To be fair, I do see a lot of people who have just not filed and they sometimes get away with it, sometimes not. I've just seen a person from MA where they audited him and he owed $40k or so over the last few years...

Just in case any of you are interested, today's the final filing deadline under regular extensions so I hope your taxes are done!

Cheers,

Andrew



CrowdedHouse said:


> According to this, Andrew is correct:
> 
> If a taxpayer is working and residing overseas for an indefinite period of time and may not return to the State where he or she was resident before commencing the overseas work assignment, the taxpayer may wish to terminate State residency. For tax purposes, a termination is generally signified by filing a “part-year” State tax return in the year the taxpayer begins residence overseas.
> 
> ...


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## whaspha (Jul 17, 2011)

Thank you everyone for the advice. I will take a look at the link shared by CrowdedHouse and post here for further guidance.


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## CrowdedHouse (Feb 22, 2011)

whaspha said:


> Thank you everyone for the advice. I will take a look at the link shared by CrowdedHouse and post here for further guidance.


Good luck. American tax laws are so complicated when you live overseas. Even though we're from a no personal income tax state, we just don't want the headache.


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## Andrew James (Nov 6, 2010)

CrowdedHouse said:


> Good luck. American tax laws are so complicated when you live overseas. Even though we're from a no personal income tax state, we just don't want the headache.


Make sure you take care of this for next year!

http://www.irs.gov/pub/irs-dft/f8938--dft.pdf

I'm not looking forward to its introduction/finalization.


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