# Double tax?



## Sehnsucht (Nov 25, 2008)

I am US citizen by birth, and did not live in US.

I have been living in UK for two years (before that I have been living in some other country - not US), 
Anyway, in UK, I have dependent Visa because of my husband, and I have been working nearly a year.

Recently I found out that, since I am a US citizen, I need to be paying tax to America. 
Since I did not live in US, I did not know this before.

Anyone knows, what should i do about that? and for example how much should i pay?

I will be extending my US passport in a year, and I do not want any problems when I am extending my passport.
So any suggestions, what should I do about this?


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## Bevdeforges (Nov 16, 2007)

Not so much paying taxes as filing a return. There are tax treaties between the US and UK that deal with the risk of double taxation.

If you check with the consulate in London (there is an IRS office there), they'll generally tell you to file the last 3 years' tax returns and that should absolve you from any difficulties.

As a US citizen resident abroad, you're entitle to take the Overseas Earned Income Exclusion, which effectively eliminates the first $90,000 or so of earned income (i.e. salary) from taxation. If you have other sources of income not considered "earned" then you take a tax credit based on taxes you paid at the time on this income.

Go to the IRS website Forms and Publications and download Publication 54 for the basics on filing from overseas. You'll definitely need a 1040 form, with a Schedule A/B (if you have overseas bank accounts that need to be reported) and a form 2555, which is what you need to claim the overseas earned income exclusion.

If your husband is not a US citizen or green card holder, you'll have to file as "married, filing separately" and you should only report your own income for the years in question. You do not have to split income in both names or in joint accounts - details on this are included in publication 54. If your income falls under the filing thresholds, you actually don't need to file in a given year, though the threshold for "married, filing separately" category is pretty low.

The chances that you'll actually have to pay any taxes are small, and filing those back 3 years should clear your record. They've implied or stated for years that they "check" your tax filings when you renew your passport, but I've found absolutely no evidence that they actually do so.
Cheers,
Bev


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## Fatbrit (May 8, 2008)

Bevdeforges said:


> They've implied or stated for years that they "check" your tax filings when you renew your passport, but I've found absolutely no evidence that they actually do so.


They certainly check if you apply for an immigration benefit for a non-USC family member. Like you, though, never heard of them doing it when doing a passport application.


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## Bevdeforges (Nov 16, 2007)

Fatbrit said:


> They certainly check if you apply for an immigration benefit for a non-USC family member. Like you, though, never heard of them doing it when doing a passport application.


At the moment, we're only talking about the need to file taxes for someone who is a US citizen but who have never lived in the US.

A few years ago, there was a rumor floating around that the reason they ask you for your social security number when you renew your passport from overseas was that they were running a check to see if you had filed your taxes. If you then entered the US, they would stop you if your hadn't been filing - or else you'd receive a letter from the IRS asking what the situation was and why you hadn't filed.

I just happened to renew my passport the year after I had (legitimately) not filed taxes (because I had no income in the year in question). Never got a letter, and I did go back to the US on that new passport and had no problem on entry. 

In my experience, no government department (or ministry) exchanges information with any other department. But still, it never hurts to err on the side of caution.
Cheers,
Bev


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## TimT99 (Dec 31, 2009)

Similarly I am due to renew my passport in April and have decided the Christmas break is time to come clean and catch up my US tax returns - I have lived in the UK all my working life.

Following some research 3 years (2006, 7, 8 and 2009 when due) all seem a logical place to start so I have prepared my spreadsheets from my wage slips and the like. As my wife and daughter have no US connections (both British) I have opted for Married, filing separately (although there will not be a return for my wife filed) and not included my Daughter as a dependent.

2006 went relatively well as I was just under the Foreign Earned Income Exclusion and could file 2555-EZ with the 1040. Simple.

2007 I am slightly over the Foreign Earned Income Exclusion limit and therefore I have had to complete 1040, 2555 and a separate note to explain my calculation for the taxable value of the company car (I used the UK tax calculation basis, found on my P11D). However I thought I would have to complete the 1116 (an in fact did so) however this doesn't seem to be required as the Standard Deduction and Exemptions ($5,350 and 2x$3,400) plus the Foreign Earned Income Exclusion ($85,700) covers all my earnings. Does this sound right?

I'd appreciate any thoughts / experiences anyone else has had before I go onto complete 2008 and 2009. A few other points I would also appreciate clarification on if anyone again has any useful experiences:


Should a 1116 be required, I assume this will only include UK tax deductions (i.e. not National Insurance contributions)?
Should Medical and other benefits be given a taxable value (like the company car)?
If I am over the Foreign Earned Income Exclusion limits I presume I should still claim up to the maximum and then look to other deductions / 1116 to cover the rest (to maintain continuity of filing the 2555)? Current economic climate and exchange rates I would be expect to be below the limit for the next couple of years.
Do I really not need to declare Bank Account interest (my only other 'income' - will be pence each
month, relates to joint accounts and is UK tax deducted at source)?


Be really useful for me and others no doubt to get clarifications on the above.

Tim


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## Bevdeforges (Nov 16, 2007)

TimT99 said:


> 2007 I am slightly over the Foreign Earned Income Exclusion limit and therefore I have had to complete 1040, 2555 and a separate note to explain my calculation for the taxable value of the company car (I used the UK tax calculation basis, found on my P11D). However I thought I would have to complete the 1116 (an in fact did so) however this doesn't seem to be required as the Standard Deduction and Exemptions ($5,350 and 2x$3,400) plus the Foreign Earned Income Exclusion ($85,700) covers all my earnings. Does this sound right?


Sounds right. You don't need to file the 1116 unless you are claiming tax credits for UK (or other foreign) taxes paid against any US tax liability. Only "trick" is that filing the 1116 usually triggers the AMT (alternative minimum tax) calculation, which is a royal PITA.



> I'd appreciate any thoughts / experiences anyone else has had before I go onto complete 2008 and 2009. A few other points I would also appreciate clarification on if anyone again has any useful experiences:
> 
> 
> Should a 1116 be required, I assume this will only include UK tax deductions (i.e. not National Insurance contributions)?
> ...


In order:

1. You can only take UK (or other foreign) income tax on the 1116 form. This can sometimes get hairy, but check the US Consulate in London website. There is an IRS office there and they often publish guides to doing taxes from the UK.

2. Don't bother trying to work up a value for medical benefits or other social insurances included in your pay. You can't deduct your share of the cost, but you don't have to include additional income for your employer's share. (All bets are off if/when the US finally gets health care reform passed, but even that won't kick in for another couple years.)

3. Claim up to the max for the earned income exclusion, then you have to apportion your income in order to take income taxes already paid to the UK. (Instructions are part of the form 2555 instructions or see publication 54 on the IRS website.)

4. Technically, yes, you do need to declare "all" worldwide income, though joint accounts are subject to special rules. Check pub. 54 for details on how to handle that. 

Be sure you also file the Treasury form to declare your foreign bank accounts (even if they are joint accounts), if the total balance of your non-US "financial accounts" (includes investment accounts and any company accounts you have signature authority over at work - unless your employer reports them for you) exceeds $10,000 at any time during the year.
Cheers,
Bev


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## Punktlich2 (Apr 30, 2009)

Sehnsucht said:


> I am US citizen by birth, and did not live in US.
> 
> I have been living in UK for two years (before that I have been living in some other country - not US),
> Anyway, in UK, I have dependent Visa because of my husband, and I have been working nearly a year.
> ...


There are millions (some say six million) Amcits abroad and most don't in fact file tax returns; probably most don't earn enough to pay tax but in view of the new crackdown on unreported foreign accounts and investment income and the draconian penalties for not filing form 5471 (foreign companies), 3520 (foreign trust, etc.), and TD F 90-22.1 (FBAR) it remains to be seen what will become of them. (Think, for example, of Canadian residents of Stansted Québec who happen to have been born in the days before the Québec Health Insurance Plan in the maternity clinic in Newport VT.)

By and large the IRS is uninterested in failure to file for tax years more than 6 years past. 

While there is not supposed to be double taxation, in fact there often is - especially for highly-paid persons. In Europe (and to a lesser extent the UK) more tax is collected as sales tax (VAT) and wealth tax and social taxes (NIC) than in the USA and none of these is covered by tax treaty (except that FICA/SET is relieved under totalization agreements for the UK and most European countries; that said it is advisable for Amcits to contrive to get 40 quarters of Social Security coverage even at a minimum level so as to be eligible for Medicare at 65).

It is generally unwise to approach the IRS directly rather than a tax lawyer or accountant because whereas IRS policy ignores certain minor offenses, once these come to the attention of the IRS there may be no alternative to enforcement. That said, qualified cross-border tax advice - except where it is pro bono - is usually expensive. 

The best advice I can give is to buy TurboTax or TaxCut (or use their online versions) and try to work out what, if anything, you might owe to the IRS. That software may not deal properly with FICA/SET, nor does it properly exclude Social Security income from tax: you have to do this manually or tweak the result. But it's more efficient and far less time consuming than working with paper forms.

Foreign earned income exclusion is less generous than it once was (you no longer get the benefit of lower brackets on the first dollar taxed); on the other hand its benefit is no longer denied to late-filers (except in certain circumstances where the IRS gets to you first; in which case you are limited to treaty benefit and Form 1116). There are also various dangers arising from exchange rate fluctuations: you can owe capital gains tax on the sale of a UK home even though you borrowed 100% of the cost and sold at a loss: Rev. Rul. 90-79; Quijano v. United States, 93 F.3d 26 (1st Cir. 1996).

There are also state tax issues: if you left a tenacious US state (such as VA or MD) you may have an argument as to whether and/or when you lost local domicile and ceased to be subject to state tax. 

Estate taxation is another horror if you become wealthy. If US estate tax is abolished (as at least temporarily this year) there is no step-up in basis for CGT at death and heirs need to keep cost basis information in perpetuity. Estate tax elimination could cost heirs Google "QDOT" for the rules that apply to inheritance by a non-US spouse from a US one: something virtually impossible to arrange with respect to UK real property. 

There are so many issues it's hard to know where to start. No wonder so many US green-card holders living abroad, and some citizens, are abandoning US status. A broker I know who is married to an American and living in Paris saved $30,000 a year in tax by abandoning his green card. Renunciation of citizenship - Wikipedia, the free encyclopedia 

The most curious situation of all applies to those who are US citizens at birth but whose birth was never registered with a US consulate and who have never claimed any attribute of US citizenship. And those who lost US citizenship due to naturalization abroad but who had it restored retroactively by the US Supreme Court (international law prevents the USG from restoring it involuntarily and the IRS recognized that: Rev. Rul. 75-357, PLR 8138071).

As for passport renewal: while social security number needs to be put on the application and while the IRS may be informed, I have never seen enforcement action taken against nonfilers as a direct result. On the other hand, the immigration computers now record an ever-wider range of issues and offenses, though it's unlikely the IRS would flag anyone without first having opened an audit and enforcement action. 

Those intending to evade large amounts of US tax would be well advised to get a foreign nationality: quite a number of wealthy US citizens in the UK have not bothered to renounce US citizenship, instead they've taken UK nationality, abandoned any connection with the USA and taken out any assets there, and fallen off the radar. (Marc Rich has a Spanish passport and tried to do that with mixed success. One assumes he will not leave his assets to his US-based children since there would be transferee liability for tax if he did. There are clever ways to legally pass assets to children in such cases but i won't go into them here as they don't apply to the OP. Yet.)


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## Bevdeforges (Nov 16, 2007)

Thanks for the heads up, Punktlich, though most of the more dire issues you raise are only going to affect those in the upper tax brackets. For the vast majority of us US expats, getting and staying square with the IRS is fairly easy, if perhaps a little bit annoying.

A couple comments I'll add to what you've already mentioned:

The IRS personnel stationed overseas are generally far easier to deal with than the ambitious agents still working their way up the ladder back home. Or, if you don't want to face the IRS in person, check with the local US expat groups. They often run a VITA program (VITA = Volunteers in Tax Assistance) or have information about where you can get free or relatively low cost tax preparation assistance.

Or you can contact either AARO - Association of Americans Resident Overseas or ACA American Citizens Abroad - international expat groups for Americans that do considerable research on tax issues and how they affect expats.

One big caution, however, on the idea of renouncing your US citizenship in order to avoid taxes. There is a law dating back to 1996 whereby renouncing your citizenship "for tax purposes" (even if it's only suspected that is your reason) will subject you to 10 more years of filing returns and you can be denied any sort of visa ever again for entering the US. There are also a few more recent penalties they can invoke.
Cheers,
Bev


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## Punktlich2 (Apr 30, 2009)

Bevdeforges said:


> Thanks for the heads up, Punktlich, though most of the more dire issues you raise are only going to affect those in the upper tax brackets. For the vast majority of us US expats, getting and staying square with the IRS is fairly easy, if perhaps a little bit annoying.
> 
> A couple comments I'll add to what you've already mentioned:
> 
> ...


I have known as colleagues IRS reps in London. They generally are here as a reward for long, good and faithful service and will retire. But my warning stands: don't bring to their attention anything you would later want to deny or hide. You risk volunteering information that is best not volunteered if you present your case, unedited, to any IRS official.

The law on tax effects of Expatriation to Avoid Tax only applies, and can apply, to us-source income. Most of those planning to renounce expatriate all their assets and pay capital gains tax (or not, as the case may be) before renouncing.

Some technical references: Health Insurance Portability and Accountability Act of 1996 (H.R. 3103), Pub. L. 104-191, 110 Stat. 2093, § 511, 26 U.S.C. § 877 (2005); see JOINT COMMITTEE ON TAXATION, REVIEW OF THE PRESENT-LAW OF TAX AND IMMIGRATION TREATMENT OF RELINQUISHMENT OF CITIZENSHIP AND TERMINATION OF LONG-TERM RESIDENCY (JCS-2-03), Feb. 2003; Richard A. Westin, Expatriation and Return: An Examination of Taxdriven Expatriation by United States Citizens, and Reform Proposals, 20 VA. TAX REV. 75 (2000).

As for denial of re-entry thereafter: that is deemed by many (probably most, and certainly including State Department) lawyers unconstitutional and State has refused to implement it. 

The practical problem is that many of those who would like to expatriate have US assets and income. Think of Norman F. Dacey: 
Norman F. Dacey v. Commissioner., United States Tax Court - Memorandum Decision, T.C. Memo. 1992-187, Docket No. 24512-88., Filed March 30, 1992 - ?????????? ????????
In re Petition of New York County Lawyers' Ass'n v. Dacey
427 F.2d 1292

The most interesting issue these days for me is those Americans who moved their money into secret Stiftungen and Anstalten in Liechtenstein banks, lived abroad quite happily but then died -- and now their heirs want to get the money but face transferee liability for unpaid tax and penalties. They can disclaim, but then what? I am also working on situations where the tax amounts to 100% or more of the income and assets. Often assets are just abandoned in such cases unless there is a generation outside the scope of the taxes in question.

Yes, issues such as these are probably irrelevant to persons who want free advice from a forum such as this. But they are nevertheless interesting and serve as warnings as to what could happen. Often people present only enough facts ... to get a wrong answer.


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## Sehnsucht (Nov 25, 2008)

Thanks for answers,
I already have my social security number.. 
My earnings in UK is below the Foreign Earned Income Exclusion. So does that mean I only need to fill 2555-EZ and 1040?
My husband is not American, so I will be showing just my own income.. Do I need to show bank account details? We have joint account.


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## Bevdeforges (Nov 16, 2007)

Sehnsucht said:


> Thanks for answers,
> I already have my social security number..
> My earnings in UK is below the Foreign Earned Income Exclusion. So does that mean I only need to fill 2555-EZ and 1040?
> My husband is not American, so I will be showing just my own income.. Do I need to show bank account details? We have joint account.


When filing US tax forms, you need to declare all worldwide income from any sources - which includes interest or dividends, etc. 

The bank account details are only necessary (i.e. for the Treasury form) if you have signature authority over foreign accounts with a total balance of $10,000 at any point during the year. Signature authority means that you can write a check on the account or otherwise withdraw money from the account or fund, and this would include any joint accounts.
Cheers,
Bev


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## Punktlich2 (Apr 30, 2009)

Sehnsucht said:


> Thanks for answers,
> I already have my social security number..
> My earnings in UK is below the Foreign Earned Income Exclusion. So does that mean I only need to fill 2555-EZ and 1040?
> My husband is not American, so I will be showing just my own income.. Do I need to show bank account details? We have joint account.


The main reason for needing to file if your income is at a low level is to be able to check the box on the bottom of Sched B that says you have a foreign account. If the balance in all foreign accounts is less than $10,000 equivalent, that's all you need to do.

When you file, submit your 2555-EZ and 1040. If you don't yet have ten years of Social Security coverage there are ways to contrive to subject enough income ($4,480 NET of deductions, so about $5,000 is right Quarter of Coverage ) to SET so that when you reach 65 you and your spouse will be covered by Medicare if you happen to visit or live in the USA. The SS totalization agreement exempts you from paying both NIC and FICA/SET - but the IRS does not object to your effectively waiving that by filing some of your UK salary as if it were self-employment income Sched C-EZ. Nobody is going to say that officially, but lots of people do it.

I remember the schoolteacher who retired to the USA from the American School in London, and while she got her National Insurance state pension was shocked to find she was ineligible for Medicare.


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## Bevdeforges (Nov 16, 2007)

Sehnsucht said:


> Thanks for answers,
> I already have my social security number..
> My earnings in UK is below the Foreign Earned Income Exclusion. So does that mean I only need to fill 2555-EZ and 1040?
> My husband is not American, so I will be showing just my own income.. Do I need to show bank account details? We have joint account.


Given that you're filing simply to fulfill the requirement as a US citizen, and to avoid any hassle on renewal of your passport, you should be fine with the 2555 (-EZ or not) and the 1040. You should also file a Schedule A/B but unless you have substantial interest income in your own name, you only need to fill out the little part at the bottom of the B side of the form to declare your foreign bank account. It's just a yes/no question, and you give them the name of the country where your account is located. If you don't meet the $10,000 threshold figure (though that would include any balances in joint accounts held with your husband), you won't need to bother with the Treasury form.

I'm going to disagree with Punktlich2 here and say that you should forget about US social security altogether. Should you decide to move to the US later in life, there are ways (involving the social security treaty) to have your time worked in the UK count toward the qualifying time you need in the US if you come up short. But if you're not planning on taking up US residence, it's a moot point anyhow.
Cheers,
Bev


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## Fatbrit (May 8, 2008)

Bevdeforges said:


> I'm going to disagree with Punktlich2 here and say that you should forget about US social security altogether. Should you decide to move to the US later in life, there are ways (involving the social security treaty) to have your time worked in the UK count toward the qualifying time you need in the US if you come up short. But if you're not planning on taking up US residence, it's a moot point anyhow.


Could very well be wrong here as it's distant memory but....

I don't believe your social security credits transferred under the treaty count towards the 40 required for Medicare. Of course, you can always buy into the free portions....but they're around $500/month IIRC. And if you've already got 40 US-generated quarters in your bank, it's moot anyway.


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## Bevdeforges (Nov 16, 2007)

Fatbrit said:


> Could very well be wrong here as it's distant memory but....
> 
> I don't believe your social security credits transferred under the treaty count towards the 40 required for Medicare. Of course, you can always buy into the free portions....but they're around $500/month IIRC. And if you've already got 40 US-generated quarters in your bank, it's moot anyway.


I went back to the OP's original post, and her reasoning for asking about taxes is that she is one of those "lucky" US citizens who has never lived in the US and just found out about the filing requirement.

Unless she has plans to relocate to the US at some point in the foreseeable future, all this talk of Social Security and Medicare is kind of pointless, don't you think? When and if she gets interested in living in the US, she can evaluate what her options are based on her likelihood of meeting the qualification requirements at that time.
Cheers,
Bev


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## Fatbrit (May 8, 2008)

Bevdeforges said:


> I went back to the OP's original post, and her reasoning for asking about taxes is that she is one of those "lucky" US citizens who has never lived in the US and just found out about the filing requirement.
> 
> Unless she has plans to relocate to the US at some point in the foreseeable future, all this talk of Social Security and Medicare is kind of pointless, don't you think? When and if she gets interested in living in the US, she can evaluate what her options are based on her likelihood of meeting the qualification requirements at that time.
> Cheers,
> Bev


I always refer to them as undocumented citizens! 

But, yes, I agree -- we are adding extra issues at the moment. Hopefully the OP can read round them and use them as she wishes.


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## Punktlich2 (Apr 30, 2009)

Bevdeforges said:


> Given that you're filing simply to fulfill the requirement as a US citizen, and to avoid any hassle on renewal of your passport, you should be fine with the 2555 (-EZ or not) and the 1040. You should also file a Schedule A/B but unless you have substantial interest income in your own name, you only need to fill out the little part at the bottom of the B side of the form to declare your foreign bank account. It's just a yes/no question, and you give them the name of the country where your account is located. If you don't meet the $10,000 threshold figure (though that would include any balances in joint accounts held with your husband), you won't need to bother with the Treasury form.
> 
> I'm going to disagree with Punktlich2 here and say that you should forget about US social security altogether. Should you decide to move to the US later in life, there are ways (involving the social security treaty) to have your time worked in the UK count toward the qualifying time you need in the US if you come up short. But if you're not planning on taking up US residence, it's a moot point anyhow.
> Cheers,
> Bev


The OP should do as he/she sees fit. My posting is based on years of experience. TotalizTion does NOT apply to MEDICARE. Every Amcit should try to acquire 40 quarters of US SS credits by age 65. Credits acquired in 2 countries in the same calendar year are never totalizer. But the fact that you get a small pension (reduced by WEP, which you can Google) is not the point. Medicare entitlement us precious. Even if you are absolutely, positively sure now you will never, ever visit the USA again.


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## Punktlich2 (Apr 30, 2009)

Punktlich2 said:


> The OP should do as he/she sees fit. My posting is based on years of experience. TotalizTion does NOT apply to MEDICARE. Every Amcit should try to acquire 40 quarters of US SS credits by age 65. Credits acquired in 2 countries in the same calendar year are never totalized. But the fact that you get a small pension (reduced by WEP, which you can Google) is not the point. Medicare entitlement us precious. Even if you are absolutely, positively sure now you will never, ever visit the USA again.



In general, totalization is less advantageous than qualifying for separate, partial pensions from two countries, especially because it's not possible to totalize a year in which you worked in both countries, so contributions may easily be lost. And I repeat: Social Security totalization does not at all apply to MEDICARE. If (as not infrequently happens) a retired Amcit returns unexpectedly to live in the USA after age 65, it would take years of contrived work to accumulate 40 quarters of coverage. Medicare Part A is priceless. One can "game" various state pension schemes to benefit from those (like the US and UK, but the WEP will limit chances for this in the US) systems which skew benefits in favour of the low-paid. What you cannot do is game Medicare. But to qualify means paying a 'volutary' SET of between $500-$600 a year for ten years (assuming zero quarters of coverage have been accumulated in the past).

I find it hard to tell people in their 20s and 30s how important this is. But people in their 60s who have benefited are grateful. The information is free; use it now, later or never. But don't forget it.

Note that travel insurance and US private health insurance plans are designed to take into account, for example, entitlement of EU/EEA/Swiss citizens to emergency health care in other EU/EEA/Swiss countries, and that US-based health insurers presume eligibility for Medicare Part A at age 65. As citizenship may be relevant to qualifying for such benefits, always read the fine print when buying a policy.


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## Bevdeforges (Nov 16, 2007)

OK, once again, I beg to differ. Medicare is often completely useless to a US citizen living permanently outside the US. I would not advise anyone in their 20's or 30's to make "voluntary" social security payments to the US, even if they believed they might want to return there later in life.

The US social security system is unique in that it only requires 40 quarters (i.e. 10 years) of participation in order to "vest" in the system. Most European systems require at least 40 years of participation in order to qualify for a full pension. For someone to relocate to the US at the age of 40 or even 50, there is still plenty of time to accumulate sufficient quarters to qualify for both a pension and Medicare. 

But Medicare benefits are worthless outside the US, except for a few specific instances in the border areas of Canada and Mexico. Travel insurance gets a good bit more expensive once you hit the magic age of 65, but it does factor in the medical benefits you are entitled to from your country of residence. It seems a real false economy to pay thousands of dollars into the system on the off chance you might move back to the US in your old age.
Cheers,
Bev


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## Punktlich2 (Apr 30, 2009)

Bevdeforges said:


> OK, once again, I beg to differ. Medicare is often completely useless to a US citizen living permanently outside the US. I would not advise anyone in their 20's or 30's to make "voluntary" social security payments to the US, even if they believed they might want to return there later in life.
> 
> The US social security system is unique in that it only requires 40 quarters (i.e. 10 years) of participation in order to "vest" in the system. Most European systems require at least 40 years of participation in order to qualify for a full pension. For someone to relocate to the US at the age of 40 or even 50, there is still plenty of time to accumulate sufficient quarters to qualify for both a pension and Medicare.
> 
> ...


This is your forum, and you're entitled to make policy and state whatever advice is official or "better" regardless of the experience of others. I can only say that one can easily fall ill while in the USA as a tourist and encounter huge, unpayable hospital bills that would have been at least partially covered by Medicare; that even if you don't subscribe to Medicare Part B you may get the benefit of the limits on what a doctor can charge (assuming s/he has not opted out of Medicare). 

Finally, if (and only if, because if you pay into NI you fall under the Windfall Elimination Provision) you are a nonworking spouse, Social Security is the biggest bargain around: paying in SET at minimum level for ten years gets you at least 3 times the pension value you have actually paid for. And you get that anywhere in the world.

I find most people think the way you do. And that goes too for Brits working abroad whom I advise to pay voluntary Class 3 contributions. And over 40 years have found many who are sorry ... too late to do anything about it. Bear in mind also that quarters of coverage become more costly over time. Quarters of coverage I "bought" for my daughter in the 1970s cost pennies. Today a quarter of coverage "costs" about $150.

People in their 20s, 30s, 40s just don't think they will ever need that stuff. They should reflect on this: most pension schemes are today insolvent. The kind of defined-benefit inflation-proof pension I have scarcely exists. Not even for those who today have my old job. And I today get state pensions from four countries in addition: legitimately (each knows about the other), although my US SS is reduced by 2/3 under the WEP it is still a bargain.

A friend of mine and his wife, both recently deceased, had a better old age because when I first met them in Africa in the late 70s I told them to pay voluntary NICs. And to buy a house.


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## Joppa (Sep 7, 2009)

Punktlich2 said:


> A friend of mine and his wife, both recently deceased, had a better old age because when I first met them in Africa in the late 70s I told them to pay voluntary NICs. And to buy a house.


There has been a recent change in the number of qualifying years needed to get maximum UK state pension. For those retiring from April this year (i.e. reaching state retirement age), the number of qualifying years has been reduced from 44 years for men and 39 years for women to 30 years for both. So check with pension forecast service for DWP before paying voluntary Class 3 contributions - you may already have qualified for full pension from contributions made while still in UK. If you overpay, you can't normally claim the excess back. Also more people are eligible for Home Responsibility Protection, reducung the minimum NIC still further (but not below 20 years). It isn't usually available for those living outside UK. Check State Pension : Directgov - Pensions and retirement planning


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## Bevdeforges (Nov 16, 2007)

Punktlich2, it's not "my" forum - I only work here. And it's not a matter of "policy" when I express a contrary opinion to what you or any other member here chooses to post. I'm as entitled to my opinions as you are to yours.

There are, no doubt, those who will find it a great idea to buy quarters in the US social security system - probably not a bad idea at all if they are simply lacking a few quarters in order to qualify. But there are those of us who are already qualified, but probably will never make use of the Medicare benefit. I figure the $5000 or so I paid into Medicare went to my father's care in his last few years, so I've got no regrets for having paid in. At age 65 I will enroll in Medicare, but only the "free" part - and if I should happen to fall ill while visiting the US sometime maybe I'll actually get some use out of it. But I'll still take out medical travel insurance based on my French residency so that I can be evacuated back to France for treatment, should the need arise.

But, paying in now against a potential benefit some 40 or 50 years hence is something of a risk, given that there are changes being proposed to both the US social security system and the Medicare system every year that could well affect a person's eligibility and benefits, particularly for those of us permanently resident outside the US. You pays your money and you takes your chances.
Cheers,
Bev


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## Punktlich2 (Apr 30, 2009)

Bevdeforges said:


> Punktlich2, it's not "my" forum - I only work here. And it's not a matter of "policy" when I express a contrary opinion to what you or any other member here chooses to post. I'm as entitled to my opinions as you are to yours.
> 
> There are, no doubt, those who will find it a great idea to buy quarters in the US social security system - probably not a bad idea at all if they are simply lacking a few quarters in order to qualify. But there are those of us who are already qualified, but probably will never make use of the Medicare benefit. I figure the $5000 or so I paid into Medicare went to my father's care in his last few years, so I've got no regrets for having paid in. At age 65 I will enroll in Medicare, but only the "free" part - and if I should happen to fall ill while visiting the US sometime maybe I'll actually get some use out of it. But I'll still take out medical travel insurance based on my French residency so that I can be evacuated back to France for treatment, should the need arise.
> 
> ...


Put it this way: $50,000 at age 65 will buy you a lifetime annuity of about $205 a month. (I'm using TSP figures, which are low-cost; one might not do as well with a private company.)

$6,000 or less of Self Employment Tax payments (in today's money) will get you an inflation-proofed annuity from age 67 (more or less) of between $150 and $500, depending whether you fall within the ambit of the WEP (and whether NARFE and other lobbies get the WEP and GPO laws changed). (The acronyms can be Googled.)

As it happens, British State pensions, while paltry (indeed one of the lowest in the developed world) are also cheap for the low-paid, who often get their pension credits gratis. 

I write about this stuff and have degrees and qualifications; but I certainly have nothing to gain by others agreeing or disagreeing: I'm retired.

Nor am I a regular on this forum. I do remember people coming to see me at the US Embassy in London years and years ago with problems that might have been eliminated or diminished if they had thought ahead.


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## Shipresa (Dec 9, 2008)

*Bev - doesn't this assume less than 30 days in USA?*



Bevdeforges said:


> Not so much paying taxes as filing a return. There are tax treaties between the US and UK that deal with the risk of double taxation.
> 
> If you check with the consulate in London (there is an IRS office there), they'll generally tell you to file the last 3 years' tax returns and that should absolve you from any difficulties.
> 
> ...


Bev - doesn't all this information assume that the OP has not been in the USA more than 30 calendar days in any given tax year? OP doesn't say, and Foreign Income Exclusion isn't automatic. Am I correct?

Correct me if I'm wrong... This tax year I've been a total of 45 days in USA and thus cannot claim the Foreign Income Exclusion. (Limit is 30 days in USA.)


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## Bevdeforges (Nov 16, 2007)

Shipresa said:


> Bev - doesn't all this information assume that the OP has not been in the USA more than 30 calendar days in any given tax year? OP doesn't say, and Foreign Income Exclusion isn't automatic. Am I correct?
> 
> Correct me if I'm wrong... This tax year I've been a total of 45 days in USA and thus cannot claim the Foreign Income Exclusion. (Limit is 30 days in USA.)


There are two tests for your eligibility for the Foreign Income Exclusion - the physical presence test, which is the one where you can't have spent more than 30 days back in the US, and the bona fide residence test which involves you being a bona fide resident of another country during at least a full calender year. If you use the bona fide resident test, you still have to indicate how much time you spent during the year in the US, but the 30 day rule doesn't apply.

The OP seems to be a US citizen who has not resided in the US for some time (in fact may never have lived in the US, though I'm not sure from her first post) and is married to a British national, residing in the UK. 

You do have to elect to take the Overseas Earned Income Exclusion, but for those who have never filed, the IRS has been pretty consistent in asking for 3 years back taxes (where you can elect the exclusion as long as you qualify for it in each of the years). 

If you've been in the US for 45 days, you should check to see if perhaps you can qualify for the Exclusion under the bona fide resident test. If you can, you'll have to apportion your "overseas income" for any days spent in the US "on business" - but you won't lose the exclusion altogether. (The year my mother died, I spent something over 30 days in the US, acknowledged it on the 2555, but still got to take the exclusion in full with no questions asked. I have been qualifying under the bona fide resident test for years.)
Cheers,
Bev


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## RSA_expat_usa (Feb 13, 2008)

I am a US citizen too and am considering moving to Europe. I read somewhere that as a US citizen aborad, we pay only the taxes of the country that has a higher tax. For example, if living in the UK, the UK has a higher income tax vs. the US, we only pay the UK taxes. 

Double check this with an IRS officer just to make sure.


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## Fatbrit (May 8, 2008)

RSA_expat_usa said:


> I am a US citizen too and am considering moving to Europe. I read somewhere that as a US citizen aborad, we pay only the taxes of the country that has a higher tax. For example, if living in the UK, the UK has a higher income tax vs. the US, we only pay the UK taxes.
> 
> Double check this with an IRS officer just to make sure.


Quick reply: No!
Long reply: You are mistaken.


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## Bevdeforges (Nov 16, 2007)

RSA_expat_usa said:


> I am a US citizen too and am considering moving to Europe. I read somewhere that as a US citizen aborad, we pay only the taxes of the country that has a higher tax. For example, if living in the UK, the UK has a higher income tax vs. the US, we only pay the UK taxes.
> 
> Double check this with an IRS officer just to make sure.


What Fatbrit said, but with one little clarification. Every few years they threaten to take away the section 911 exclusion (i.e. the overseas earned income exclusion). One of the arguments they use is that what we'd be left with is the foreign income tax credit, which sort of kind of would work out that way - but only indirectly.

For information on how you are taxed by the US when living abroad, see IRS Publication 54.
Cheers,
Bev


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## homeagain5 (Feb 23, 2010)

Hi, Sehnsucht, Punk, and Bev,

Not really sure if this is the right place for this as I am useless at these forums, but I have the same problem, so thought I'd stick my oar in, as it were...

I am a US citizen living in the UK for years now, with a UK spouse of years, and we have 2 children between us. I came over as a dependent of the US military and divorced my US spouse here years ago. Until we divorced, even from here, we filed taxes married/joint. Since divorcing, I haven't filed. I have been in business with my spouse, but never took wages or dividends over the Foreign Income Exclusion. Now looking to move back to the US as a result of family tragedy and wish to do so as soon as possible.

Got brief expensive advice that I would have to file 5471s for each company I had shareholding in, FBARs for each bank account I had signing authority on, and tax returns for every year... at a HUGE uk cost. This killed me.

How would anyone find out about the shareholdings or the signing authority on bank accounts? The companies are all liquidated and I couldn't track down the bank account information if I wanted. The company accounts for some of them weren't ever filed up to date before liquidation. Or is it best to ignore them?

I know I have to address the matter of tax returns for my spouse's immigrant visa application in my Affidavit of Support. I was going to go with I haven't filed returns because I haven't had income in excess of the Exclusion threshhold. Can I leave it at that or is it likely I'll have to go through the other paperwork as well? If so, would I be better off dealing with it here or there?

I'll have to sort the tax thing if I'm going to, before I fill in the Affidavit of Support, because you can't have outstanding tax return issues as a sponsor. We either file the visa app here and then wait through the process, or go over to the US and then apply for adjustment of status for my spouse after 60 days. At either point I will be asked about the tax returns. If I just declare I didn't earn enough to file, that may be okay. But if I 'go straight' over the 5471s and FBARs how long will it make the process? How much will it cost? How far do I have to go back, etc?? Really need to get home.


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## Bevdeforges (Nov 16, 2007)

homeagain5 said:


> I have been in business with my spouse, but never took wages or dividends over the Foreign Income Exclusion. Now looking to move back to the US as a result of family tragedy and wish to do so as soon as possible.
> 
> Got brief expensive advice that I would have to file 5471s for each company I had shareholding in, FBARs for each bank account I had signing authority on, and tax returns for every year... at a HUGE uk cost. This killed me.


OK, you're in a tricky situation. But I kind of question some of the expensive advice you've gotten. Without knowing more about your situation (more than I want to know, frankly) it's hard to say precisely.

But, technically you may be able to get away with filing the last three years' of returns - assuming that you would show little, if any, tax liability over that time. If you can do that, then you're more or less home free. Be sure you take the Foreign Earned Income exclusion, following all the instructions that go with the form. (Dividends may not count as "earned income" - that's the one caveat here.) You do NOT have to declare any income in your husband's name, as long as he isn't a US citizen - file your returns strictly declaring YOUR income during those year, and don't try to take your husband as a dependent or anything. (You'll have to file "married, filing separately" and you probably shouldn't bother trying to take anything for the kids - not as dependents, not as exemptions.)

I'm a little bit wary of that form 5471 - it's a new one on me, and I've been a part-owner of a "foreign company" with my husband for the last 15 years. It seems to depend on just what sort of company you've got, how big it is, how it's incorporated, etc. etc. I'd just file the personal income tax returns and the treasury forms for now and let them come back and ask for the 5471's. 

Last year they really changed (and complicated) the treasury reporting form for overseas financial accounts. I'd try just filing the last couple of years and see what they say. (It's the 2008 forms that got complicated all of a sudden. The 2009 forms are even worse.)

What you want to shoot for is a "good faith" effort to clear your tax record by producing the past 3 years' worth of forms (hopefully showing that you don't owe anything or much of anything). If there is something they have questions about, believe me, they'll be in touch and then you do what you have to to clear their questions. But as long as you don't owe them any substantial amounts, they'll probably be happy with what they get.
Cheers,
Bev


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## homeagain5 (Feb 23, 2010)

Bevdeforges said:


> OK, you're in a tricky situation. But I kind of question some of the expensive advice you've gotten. Without knowing more about your situation (more than I want to know, frankly) it's hard to say precisely.
> 
> But, technically you may be able to get away with filing the last three years' of returns - assuming that you would show little, if any, tax liability over that time. If you can do that, then you're more or less home free. Be sure you take the Foreign Earned Income exclusion, following all the instructions that go with the form. (Dividends may not count as "earned income" - that's the one caveat here.) You do NOT have to declare any income in your husband's name, as long as he isn't a US citizen - file your returns strictly declaring YOUR income during those year, and don't try to take your husband as a dependent or anything. (You'll have to file "married, filing separately" and you probably shouldn't bother trying to take anything for the kids - not as dependents, not as exemptions.)
> 
> ...


Hi Bev, and Thanks. 
Apologies if I offered TMI... 
By Treasury forms I assume you mean the FBAR forms? I'm not even on my spouse's bank account, and we have had no dividends, so I'll start with finding someone who can help me with the filing for the last three years and go with that.
For your reference this is what I was told re the 5471s - 
"In addition to your individual US Tax Returns you also have obligations to file Forms 5471 for each of these entities for any year(s) that each existed. (IRS penalties for failure to file the Forms 5471 are $10,000 per year per entity.)"
Thanks for your thoughts!
H


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## Bevdeforges (Nov 16, 2007)

homeagain5 said:


> Hi Bev, and Thanks.
> Apologies if I offered TMI...
> By Treasury forms I assume you mean the FBAR forms? I'm not even on my spouse's bank account, and we have had no dividends, so I'll start with finding someone who can help me with the filing for the last three years and go with that.
> For your reference this is what I was told re the 5471s -
> ...


Not familiar with the term FBAR. I'm referring to the TD F 90-22.1 forms you send to the Treasury Dept rather than to the IRS. You only need to file those if the total of all foreign accounts you have signature authority on hits at least $10,000 during the year in question. If you have signature authority on the company accounts and they exceed the limits, then you have to declare them, but read the instructions - the definition of "financial interest" in an account is a bit weird. 

Focus on the income tax forms for the last three years. The IRS office in London is actually quite helpful when it comes to filing requirements in cases like this. Ask them about the form 5471. It seems to be related to the taking of tax credits (for foreign taxes paid) and if you don't fall into the situation where you are taking foreign tax credits on your personal return, it may not be necessary to file the form. 
Cheers,
Bev


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## homeagain5 (Feb 23, 2010)

Bevdeforges said:


> Not familiar with the term FBAR. I'm referring to the TD F 90-22.1 forms you send to the Treasury Dept rather than to the IRS. You only need to file those if the total of all foreign accounts you have signature authority on hits at least $10,000 during the year in question. If you have signature authority on the company accounts and they exceed the limits, then you have to declare them, but read the instructions - the definition of "financial interest" in an account is a bit weird.
> 
> Focus on the income tax forms for the last three years. The IRS office in London is actually quite helpful when it comes to filing requirements in cases like this. Ask them about the form 5471. It seems to be related to the taking of tax credits (for foreign taxes paid) and if you don't fall into the situation where you are taking foreign tax credits on your personal return, it may not be necessary to file the form.
> Cheers,
> Bev


Thanks, think that is probably the best option... the FBAR is the Foreign Bank Account Reporting form - I think I have seen it referred to as Treasury Form as well as the number/letter combination you used. Unless there is is more than one to consider! agh! Would asking about the form 5471 lead me down the garden path for them to dig? And should I go down the route of simply starting with the returns, and they ask about/find more information, am I likely to be okay pleading ignorance since we're talking such small sums of money and inconsequential companies? I've read about the IRS being much more lenient should you find them as opposed to being found...


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## Bevdeforges (Nov 16, 2007)

homeagain5 said:


> Thanks, think that is probably the best option... the FBAR is the Foreign Bank Account Reporting form - I think I have seen it referred to as Treasury Form as well as the number/letter combination you used. Unless there is is more than one to consider! agh! Would asking about the form 5471 lead me down the garden path for them to dig? And should I go down the route of simply starting with the returns, and they ask about/find more information, am I likely to be okay pleading ignorance since we're talking such small sums of money and inconsequential companies? I've read about the IRS being much more lenient should you find them as opposed to being found...


The foreign offices of the IRS are generally far more helpful and less into "finding stuff" than the domestic offices, so take full advantage of the situation. Actually, at first blush, I wouldn't mention the 5471 at all (unless, of course, your company is/was operating internationally, with business interests in the US - in which case you'd probably best 'fess up). 

It's a common confusion that you don't have to file if your income falls below the exclusion amount. That's why that 3-year back filing rule came about in the first place. I'm not sure how concerned they are about back-filing the Treasury forms - so I'd let them bring them up, too. 
Cheers,
Bev


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## Punktlich2 (Apr 30, 2009)

homeagain5 said:


> Hi, Sehnsucht, Punk, and Bev,
> 
> Not really sure if this is the right place for this as I am useless at these forums, but I have the same problem, so thought I'd stick my oar in, as it were...
> 
> ...


To sort out your situation fully and legitimately can easily bankrupt you. Congress never bothered to consider that poor people, "accidental Americans" with little or no present connection with the USA, control foreign bank accounts, trusts and corporations.

By and large, the IRS goes back only six years. By and large they do not investigate further if you file a FBAR, a 5471 or a 3520 for the first time and ignore the past. That is especially true if you have no US assets that they can seize. 

FBARs aren't needed if total value of all accounts is under $10,000; just a check in the box of Sched B. If you haven't filed, there is a risk of enforcement action but I cannot say how much. Probably not great, but who knows. See this:
Tax Administration: Nonfiling Among U.S. Citizens Abroad (Summary only) (May 11, 1998, GGD-98-106)

As to "finding out": if the IRS ask HMRC for assistance, they can find out. But they reserve such requests for important cases -- it involves a great deal of diplomacy.

I understand (from my daughter, who just had to deal with the issue) that at the green-card confirmation point you need to supply IRS transcripts.

So: file back tax returns for six years. Since there's no tax due there's no penalty. Check "yes" in the box on Sched B.

I can't tell you what to do about the rest of the forms. A $10,000 penalty for not informing the IRS of a firm whose capital is, say, £1,000?

Good luck. (I keep tax software for back years just for this sort of problem. You should be able to find an Enrolled Agent in the USA who will charge you a reasonable fee for preparing your returns. Or you can use the forms you find online. Since your earnings are below Exclusion level, nobody is going to audit you.

Be sure to pay in voluntary Class 3 NIC contributions. It's a cheap pension, worth the money. (If you have a UK company that continues to trade in your absence and hires you for minimal wages you can, in theory, get NIC credits even more cheaply.)


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## homeagain5 (Feb 23, 2010)

Punktlich2 said:


> To sort out your situation fully and legitimately can easily bankrupt you. Congress never bothered to consider that poor people, "accidental Americans" with little or no present connection with the USA, control foreign bank accounts, trusts and corporations.
> 
> By and large, the IRS goes back only six years. By and large they do not investigate further if you file a FBAR, a 5471 or a 3520 for the first time and ignore the past. That is especially true if you have no US assets that they can seize.
> 
> ...


Thanks, Punktlich! You weren't kidding about the bankrupting bit - and you would have thought I could find someone in the US who would charge me a reasonable fee, but it looks like not! Everyone I have asked has given me worst case scenario, at costs of thousands... It is no wonder folks mostly keep their heads below the parapet instead of putting things straight. I am still a bit confused as to why I have to file, if we take all the other things into account, if there has been no income over even the regular threshhold, not counting the foreign income exclusion form, but I guess I'll have to do a bit of digging. Is Schedule B on the normal form? And your recommendation would be 6 years as opposed to 3? Yeah, I discovered this when I was looking at the visa process for my spouse - I have to sign an Affidavit of Support, which includes submission of the most recent tax form. My question started with could I just explain that I hadn't had income and therefore hadn't filed...


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## Bevdeforges (Nov 16, 2007)

I wouldn't bother filing more than the past 3 years until and unless the IRS office at the London embassy advises you otherwise. 

The reason you have to file is simple - you have to elect the overseas earned income exclusion to benefit from it. It's not automatically assumed that you get it - especially if the IRS finds you before you come clean to them. If, going back 3 years, you show that you don't owe any taxes on your income (thanks to the exclusion, or whatever other things you file), then all is forgiven and you can start anew. Filing 6 years of back taxes is going to raise some flags and could cause more problems than it resolves.
Cheers,
Bev


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## Taxingtimes (Mar 2, 2010)

Sehnsucht said:


> I am US citizen by birth, and did not live in US.
> 
> I have been living in UK for two years (before that I have been living in some other country - not US),
> Anyway, in UK, I have dependent Visa because of my husband, and I have been working nearly a year.
> ...


I am not a US tax expert but I can tell you that US Citizens and Green card holders are obliged to file US Tax Returns regardless of where they live. However there are exemptions available for foreign earnings and double tax treaties determine which country has first taxing rights (which is usually the country in which you are working)

I would suggest that you get advice from a US tax adviser to help you deal with this.


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## Punktlich2 (Apr 30, 2009)

Taxingtimes said:


> I am not a US tax expert but I can tell you that US Citizens and Green card holders are obliged to file US Tax Returns regardless of where they live. However there are exemptions available for foreign earnings and double tax treaties determine which country has first taxing rights (which is usually the country in which you are working)
> 
> I would suggest that you get advice from a US tax adviser to help you deal with this.


With all due respect, the above doesn't tell us anything not included in the OP's questions. First taxing rights may have nothing to do with "the country in which you are working". "Source of income" as to earnings for work will often be the place where the work is performed, provided that you are a tax resident of that country or the work (such as performer or sportsperson) is brought into the rule by treaty or law. But royalty, rent and investment income each have its own rules. And AMT, enacted after many US treaties were ratified, effectively renounced conflicting provisions of those treaties and allows for double taxation.

"A US tax adviser" will probably know next to nothing about foreign tax law, and someone who does know will be expensive. That was one of this issues in this thread. An adviser who does know will be expensive: often more expensive than the income involved. 

When in the Carter era the foreign earned income exclusion was abolished, US teachers and other low-paid workers in, say, Nigeria or Japan found that because of high local costs, housing and perhaps car allowance and overvalued exchange rate, their US tax would exceed their cash income. I spoke to the Paris IRS rep at the time and he said all such people could hope for is that their situation never came to the attention of the IRS, and that the IRS was certainly not looking for such unfortunates (who had signed their contracts to go abroad before the Carter tax law "to close tax loopholes" was enacted.


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