# Taxes while working in US, living in France?



## OperationDinnerOut (Jan 23, 2019)

Hello All,

My wife, daughter, and I are hoping to move to my birth country of France in the next 1-2 years. My daughter and I are both dual French-US citizens. Both my wife and I are doctors, and the plan for work, since we would be unable to practice medicine in France, would be to work for a telemedicine company in the US and therefore making US income, while living in France. I am baffled how taxes would work in this situation and would love to hear your thoughts and feedback, but here are my own thoughts. Please feel free to provide corrections. 

1. We would be taxable residents in both France and the US.
2. There is a tax agreement between France and the US, such that taxes in France are deducted from my taxes paid in the US. Since taxes in France are likely significantly higher, our tax bill from the US would likely be 0. As such, we could ask for an extension on our US tax returns so that we can pay French taxes which we can later deduct.
3. Thus, the appropriate move would be to withhold no taxes our US employers paychecks.
4. I am still baffled as to how some aspects of this system would work:
a. Using a Roth account in the United States, which include contributions after tax - does that mean that the taxes collected by the US would be deducted from the taxes collected from France? 
b. Taxed deferred retirement accounts - would taxes be deferred in both countries?
c. Social Security contributions - would these be made in both the US AND France, such that I would contribute to social security in both countries? Would I thus get a return on both during retirement?
5. Please feel free to comment on any... interesting... permutations that could arise that I have not thought of yet.

Thank you so much for your time!


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## Bevdeforges (Nov 16, 2007)

OK - the situation may actually be a little less complicated than you are making it.1.


> We would be taxable residents in both France and the US.


As long as you are a US citizen, you are always going to be treated as "tax resident" in the US. So, once you return to France, yes, you'll be tax resident in both places. (I'm assuming your wife is also a US citizen here. If that's not the case, there are some other issues.)


> 2. There is a tax agreement between France and the US, such that taxes in France are deducted from my taxes paid in the US. Since taxes in France are likely significantly higher, our tax bill from the US would likely be 0. As such, we could ask for an extension on our US tax returns so that we can pay French taxes which we can later deduct.


This is the "tricky" part. You are primarily taxable in France once you are resident here. The fact that you are physically located in France while doing whatever work you are doing for whatever company (even one in the US) means that you are working in France - and potentially you'll be able to exclude all your earned income (i.e. salary) from your US tax returns. There is a limit on the Foreign Earned Income Exclusion of a bit more than $100,000 (per person - so double that if both you and your wife are working). If you'll be earning more than that, that's when the Foreign Tax Credit kicks in.


> 3. Thus, the appropriate move would be to withhold no taxes our US employers paychecks.


Ideally, your US employers should register as "foreign employers" in France and withhold French taxes and cotisations. Generally that isn't popular because the employer portion of the cotisations is quite a bit more expensive than "withholdings" in the US. 

You could both work as contractors for the US company - whereby you would bill your "employer" for your services. And pay your own tax withholdings (prelevement à la source) and cotisations.


> 4. I am still baffled as to how some aspects of this system would work:
> a. Using a Roth account in the United States, which include contributions after tax - does that mean that the taxes collected by the US would be deducted from the taxes collected from France?


Be very careful about this. There are restrictions on those Roth accounts related to foreign sourced income. (Or used to be anyhow.) Check the IRS website for their information on Roth plans.


> b. Taxed deferred retirement accounts - would taxes be deferred in both countries?


Per the US-France tax treaty, yes. Most tax deferred retirement accounts are treated like "government" retirement accounts. But again, you can only contribute to a standard IRA or 401K, etc. if you have taxable income in the US. If you use the FEIE to exclude your foreign salary from US taxes, then you can't contribute any more to the tax deferred retirement plans.


> c. Social Security contributions - would these be made in both the US AND France, such that I would contribute to social security in both countries? Would I thus get a return on both during retirement?


No. If you are resident in France, you contribute to the French retirement system only. But, the good news is that the quarters you work in France are counted toward your qualification for a US SS retirement pension. (Only need 40 quarters for this vs. 40+ years for a full French pension.) The good news is that all quarters worked in the US will also count toward your French pension (just the fact that you worked, not your salary for those quarters). But in the end, you'll draw a pension from both the US and France. (I do - and in fact I also get a pension from Germany, even though I only worked there for a couple of years. Every little bit helps!)


> 5. Please feel free to comment on any... interesting... permutations that could arise that I have not thought of yet.


The key thing you have to remember is that you'll need to report all your US bank and investment accounts each year on your French tax declarations AND you'll need to report all your non-US accounts each year in a separate FBAR filing. Investing in stocks, assurances vies or other "mutual fund" types of accounts in France or elsewhere outside the US will add to the complication factor of your US returns.

Take a look at "Publication 54" from the IRS website to get an overview of what you're getting into.


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## OperationDinnerOut (Jan 23, 2019)

Bevdeforges,

First and foremost - THANK YOU SO MUCH for your expertise. You seem to have a knack for translating complicated tax concepts into something far more digestible.

For 3. Thus, the appropriate move would be to withhold no taxes from our US employers' paychecks.

It sounds like what you're saying would be to work as a contractor - this would mean that I would be on a 1099 form without retirement benefits, presumably? Health insurance wouldn't be much of an issue, since we would be buying into the French system by paying taxes there. But also, if 401k/IRA accounts in the US require US-taxable income, then I suppose the point is moot since we wouldn't have tax liability.
I guess that begs the question, then, of your thoughts as to what might be a set of viable retirement accounts that could replace a 401k or IRA? I suppose a 'regular', non-retirement investment account in index funds could do the trick, but I was wondering if anybody knew of other options, or if perhaps France would also have a set of retirement accounts that we could benefit from?

For: c. Social Security contributions - would these be made in both the US AND France, such that I would contribute to social security in both countries? Would I thus get a return on both during retirement?

All quarters worked in the US will count towards French pension... does that mean that as a French citizen who has now worked in the US for several years, these years will count towards French pension, or is that our time of working in France/living in the US will count towards both? Do you have a good resource that you might be able to refer me to to better understand that?

I'll definitely be taking a look at Publication 54 from the IRS - thank you so much for your insights! Everyone, please feel free to contribute thoughts/ideas/feedback!

Warmly,

OperationDinnerOut


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## Bevdeforges (Nov 16, 2007)

OperationDinnerOut said:


> For 3. Thus, the appropriate move would be to withhold no taxes from our US employers' paychecks.


Correct. 



> It sounds like what you're saying would be to work as a contractor - this would mean that I would be on a 1099 form without retirement benefits, presumably? Health insurance wouldn't be much of an issue, since we would be buying into the French system by paying taxes there.


Basically, you would bill the US "employer" each month. It may require that you set up some sort of business entity here in France - auto-entrepreneur or some sort of small business. Talk to the CCI (or the medical board in France) - or check the CCI website for information of their assistance to new entrepreneurs.



> But also, if 401k/IRA accounts in the US require US-taxable income, then I suppose the point is moot since we wouldn't have tax liability.


Basically, yes.


> I guess that begs the question, then, of your thoughts as to what might be a set of viable retirement accounts that could replace a 401k or IRA? I suppose a 'regular', non-retirement investment account in index funds could do the trick, but I was wondering if anybody knew of other options, or if perhaps France would also have a set of retirement accounts that we could benefit from?


France has a whole bunch of these sorts of accounts - PEP, PEA, some other sets of initials, a couple of plans named after various politicians, as well as various sorts of assurance vie that are (French) tax advantaged if you hold off making withdrawals until you hit retirement age. A French bank or insurance company is probably your best source about these. But they will complicate your US tax returns - depending on how strictly compliant you want to remain. (Read any of the threads here in the Expat Tax section for what I mean about that.)



> For: c. Social Security contributions - would these be made in both the US AND France, such that I would contribute to social security in both countries? Would I thus get a return on both during retirement?


No to making contributions in both countries. Yes to getting a return from both countries. Without going into detail, I worked something like 15 years in the US, another 15 years in France, and somewhere in there about 2.5 years in Germany. You pay into each system only while you are resident in the country. However, on retirement I now get US SS, a "half pension" in France (because I didn't get the full 42 years of qualifying time) and a small monthly stipend from Germany. All are based on the full amount of time I worked wherever - but the calculation for each country is based only on what I earned while resident in the country. 


> All quarters worked in the US will count towards French pension... does that mean that as a French citizen who has now worked in the US for several years, these years will count towards French pension, or is that our time of working in France/living in the US will count towards both? Do you have a good resource that you might be able to refer me to to better understand that?


Even I didn't really understand how it all works until I applied for my French pension and the French notified the Germans. The US SS is separate, but if you work through the US Consulate here in Paris, it goes amazingly smoothly. You only need to count your years worked abroad if you have less than the necessary 10 years (40 quarters) needed to qualify for full US SS benefits.

The US SS Administration has some very good information and pamphlets available on their website in the "international" section.


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## RavHen (Jul 15, 2021)

This conversation is really helpful! To go a little deeper into the weeds: I'm a US American, French resident, married to a French citizen so my legal status doesn't depend on having a French employer. I have a job offer with a small US-based nonprofit, but we're trying to figure out how they'd pay me, how I'd declare taxes, and how much I'll ultimately owe (in France, as I should end up not paying anything in the US)... and I need the answer to all these points before we can finalize salary negotiations. Can they pay me directly as an employee, without withholding any taxes (Form 673?), and then I'd declare all my earnings in France and pay (30% for my tax bracket) ? Or do I need to set myself up as an auto-entrepreneur or a micro-entreprise ? What's the most advantageous and least cumbersome ? Thank you so much, I'm worried I'll have to let this amazing opportunity go if I can't figure out these legal/financial questions quickly.


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## Bevdeforges (Nov 16, 2007)

RavHen said:


> Can they pay me directly as an employee, without withholding any taxes (Form 673?), and then I'd declare all my earnings in France and pay (30% for my tax bracket) ? Or do I need to set myself up as an auto-entrepreneur or a micro-entreprise ? What's the most advantageous and least cumbersome ?


No, they can't pay you as an employee on their US payroll - certainly not without withholding taxes, and depending on the state and other details, you probably would not be able to get your withholdings back (especially for US SS). 

Yes, you would have to become a "contractor" and set up a business entity for yourself to bill your services back to the employer. There are a couple of potential "gotchas" here - first of all having to do with being an "independent" business entity with only a single customer/client. If you were to go the auto-entrepreneur/micro-entreprise route, this is seriously frowned upon - by both the IRS and the Fisc. In addition, you would have to negotiate your payment since you would be paying your own way on what would otherwise be "withheld" on a US payroll - and you'd be expected to pay both employer and employee portions - as well as having to fund any business expenses on your own. Don't forget that taxes and cotisations on AE/ME are based on gross revenue before any deductions for expenses.

There is also the potential VAT issue. If your revenue is above the VAT threshold, you will have to register for VAT and then bill that back (at 20%) to your "employer" in the US.

The "ideal" situation would be to set up your own business and just make sure that you have at least a couple of customers/clients - though this may wind up being more difficult to handle for you. The main issue is one of "control" - to have a business entity here in France, you need to show that you are working independently of your customers. 

The other option would be for your employer to register in France as an employer with no French presence. That way the employer would be responsible for making the appropriate payments for taxes withheld and both the employer and employee portions of your pay. This is rarely popular with US employers, however, because the employer share of cotisations usually runs about 40% of your gross salary.


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## Nononymous (Jul 12, 2011)

Bevdeforges said:


> There is also the potential VAT issue. If your revenue is above the VAT threshold, you will have to register for VAT and then bill that back (at 20%) to your "employer" in the US.


Is that really the case? I know nothing about France and it wasn't an issue for me working in Germany, but as a general rule I'm not certain you'd need to collect VAT for consulting services rendered to a foreign client. (Analogous to not paying VAT for goods that you are exporting.) It's certainly the case with the Canadian GST that one doesn't collect it from one's US clients, only from Canadian clients.


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## Bevdeforges (Nov 16, 2007)

European VAT works differently. You don't charge VAT on goods being exported from France (for example) however, to claim this exemption there is a certain amount of paperwork involved - either as part of the shipment of the goods, or if the goods are being hand carried out of France, there is a process to be confirmed on exit, with paperwork remitted to the vendor after you have shown the goods to the nice Customs agents.

Services are subject to VAT based on where the services are performed, not who they are sold to. So, if you take a consulting job where you actually go to the customer site outside France (or the EU) then the services are not subject to VAT. If a foreign firm hires you to do consulting for them but you are doing the actual work in France ("telecommuting" if you like), then the invoice has to include French VAT. One more reason why US employers usually won't go for contracting out a job like this. (Of course, the revenue has to surpass the VAT threshold - which for services is around 35,000€ a year. The threshold for sales of merchandise is considerably higher at around 85,000€.)


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## Nononymous (Jul 12, 2011)

Bevdeforges said:


> Services are subject to VAT based on where the services are performed, not who they are sold to. So, if you take a consulting job where you actually go to the customer site outside France (or the EU) then the services are not subject to VAT. If a foreign firm hires you to do consulting for them but you are doing the actual work in France ("telecommuting" if you like), then the invoice has to include French VAT. One more reason why US employers usually won't go for contracting out a job like this. (Of course, the revenue has to surpass the VAT threshold - which for services is around 35,000€ a year. The threshold for sales of merchandise is considerably higher at around 85,000€.)


Ouch. That potentially puts a huge surcharge on any consulting done from the EU, which makes one less than competitive.


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