# US to Dubai - Tax issue



## sallyhats (Feb 17, 2015)

Hello everyone I am new to the forum, and apologies if this has already been answered but I can't seem to find the answer any where.

I am moving to Dubai from the US sometime in couple of weeks. In regards to the tax that will be collected from the US, I do not think I am going to be eligible for the Foreign Earned Income Exclusion, as i will only be there till the end of the year and will be under the 330 day rule.

My question is what will be my tax rate, my base is 110k and do I have to pay for, SS, Medicare and Federal?

I live in New Jersey and my office is located in New Jersey as well, will I still have to pay New Jersey Tax? 

Thank you for all your responses in advance.


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## BBCWatcher (Dec 28, 2012)

You may not make 330 days within 2015, but that's not actually the requirement. By the time you file in 2016 you'll satisfy that particular requirement. You won't get the FEIE for your income before Dubai, though, but of course that makes sense.

I'm assuming you're actually moving to Dubai and your Dubai world isn't ending on December 31, 2015.

As for New Jersey, they have their own rules defining residence. It would presumably be in your financial interest to not be a New Jersey resident according to their rules, if you can, so check their definition and try to stay well clear of their dividing line.


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## sallyhats (Feb 17, 2015)

In theory the plan is to leave Dubai by December 31st 2015. At that point do I pay the normal 28% tax on my 110k salary?


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## BBCWatcher (Dec 28, 2012)

Your _marginal_ federal income tax rate is 28%. Your actual effective income tax rate on $110K will be substantially less than 28%.

But I take your point. From your description, yes, since your Dubai world ends on December 31, 2015, then you'll pay normal U.S. and (presumably) New Jersey income tax on that income. There is no income tax in Dubai, so you will have no Foreign Tax Credit. In effect it's nothing more than a long business trip.

You _might_ be able to legally avoid payroll tax if you wish. It would require you to be off U.S. payroll and on a Dubai employer's payroll for the time you're in Dubai. You cannot be self-employed in Dubai because then you'd have to pay U.S. SE tax. The disadvantage is that 2015 would go into your Social Security earnings history as a "light" year, and that'd reduce your future Social Security retirement benefits to some extent. But with January and February U.S. payroll in your record it should still make 2015 a full 4 credit year for Medicare qualification and Social Security disability coverage.

Another big disadvantage of moving off U.S. payroll is loss of U.S. benefits such as 401(k) participation and unemployment insurance. Maybe also life insurance, extra disability coverage, and medical insurance. (You obviously still need medical insurance that works in both Dubai and the U.S.) But if you can max out your 401(k) contribution before going off it might be OK.

If you stay in Dubai past 2015, even only a bit past 2015, your 2015 tax situation is likely to change. Consequently the "best" option would be to have everyone commit to, say, a March 31, 2016, end date and remain on U.S. payroll. Then you could meet the physical presence test and enjoy your FEIE. You should also still be able to make IRA contributions for 2015 and 2016 since you'll have non-FEIE earned income in both years. And you'll maintain all your U.S. benefits like 401(k), employee stock purchases, or whatever. You will pay payroll tax on that income earned while in Dubai, but your employer pays the same amount, and that goes toward your future Social Security.


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## Bevdeforges (Nov 16, 2007)

> You might be able to legally avoid payroll tax if you wish. It would require you to be off U.S. payroll and on a Dubai employer's payroll for the time you're in Dubai.


Note that this is only "payroll tax" (i.e. US social security) - not income taxes.

You'll pay US income tax at precisely the same rates (and with precisely the same exemptions, deductions and allowances) as if you were working in the US all this time. Though you won't get any FEIE or foreign tax credit, you may be able to deduct various costs of your assignment overseas as "business expenses." Of course if you are reimbursed for those business expenses, that's considered income to you so the net result is a wash.

And just be careful about fiddling around with the date of your return. Technically speaking, you can't file your 2015 return until you have met the physical presence test if you are planning on taking the FEIE. If plans change, you may find that you have to scramble to make your "estimated payments" before you file in order to avoid penalties. (Had this happen to me the year I got called back early from a foreign assignment that was supposed to last 18 to 24 months but didn't quite make the 330 day mark.)
Cheers,
Bev


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## sallyhats (Feb 17, 2015)

Hello everyone,

I landed in Dubai on Feb 23, and have been here since. My employer wants me to stay for a year with expat status. I plan on going back to US on April 3rd and come back a couple of weeks later after i get rid of the apartment and my stuff. 

Does the time i was here count towards 333 days that the FEIE credit requires or do I start the 333 when i come back?

My other question is how do I receive that credit, is it when I file my taxes or does my employer stop paying taxes? Should I speak to an accountant?

As an Expat what should i expect to be paid. If some of the form members can provide details on their deals I could know what to expect and what to ask for. I want to live in the Burj Khalifa, car, and a per diem. Is that out of the question?

I also want to substantial increase in base salary, I'm currently at 100k i want 140k. I did not request this transfer, they want me to stay and take care of a project.

I work for a large international bank.


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## Bevdeforges (Nov 16, 2007)

It's up to you whether you start your "physical presence" time in Dubai on Feb 23 or on your return in April. It's just that, if you choose the later date, you won't be able to file your US returns until the one year anniversary of your "arrival" in Dubai under the physical presence test. (Well, actually, you can - but it's a bit more complicated.) Get a copy of IRS Publication 54 and all will be revealed.

If your employer has a Dubai presence, you should be paid from there, with no US tax withholdings taken out (though make sure you're clear how your employer is going to handle your US social security and any other benefits like health insurance during this time). If they continue to pay you from the US payroll, you may have to reclaim any income taxes withheld when you file your tax returns at the end of the year. But for 2015, you will only be able to take a proportion of the full FEIE against your salary (i.e. for the actual number of days you were in Dubai - or physically outside the US - during the year). 

But take a look at pub 54 and then come back with further questions. Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
Cheers,
Bev


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