U.S. Expatriate

US Expats or Expatriates

(US citizens and US green card holders living and working outside the US)

US citizen and US green card (US Resident Aliens) holders have unique filing obligations, unlike citizens of other tax jurisdictions. The US imposes income taxation based upon citizenship, not based on tax residency and US Resident Aliens are taxable on worldwide income for their lifetime unless they expatriate- surrender their US citizenship or Legal Permanent Residence or green card- Please see article- Choosing to Renounce US Citizenship or Legal Permanent Residence (Green Card).

US citizen and US green card holder living and working outside the US are required to file annually a US tax return and report their worldwide income if they continue to meet the annually indexed US minimum filing threshold amounts, consisting of the standard deduction and exemption.

However residing and working outside the US may permit the application of special tax laws and regulations, when certain qualifications are met, permitting the offset of US tax obligations in whole or in part. These rights of offsets are the result of the integration between the Foreign Earned Income Exclusion (FEIE), Housing Exclusion (HE) and / or Housing Deduction (HD) available on Form 2555- Foreign Earned Income and Foreign tax credits (FTC) available on Form 1116- Foreign Tax Credit, which may be considered if the foreign country has a foreign income tax.

Our primary goal and objective is to use these interplay of mechanisms the Foreign Earned Income Exclusion (FEIE), Housing Exclusion (HE) and / or Housing Deduction (HD) in combination, to wipe out any US income tax. However this is not possible to the extent of US source income, on which no foreign tax credit or exclusions are available. Under the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) “stacking” must also be considered. Additionally, internationally agreed to income tax treaties may also serve to reduce and / or eliminate your US or foreign tax liabilities.

To qualify for the FEIE you must meet two tests:

1. the Tax Home Test (THT) and


2. either
   
   
   1. the Bona Fide Residence Test (BFR) (Qualitative - requiring a full calendar year of foreign residence) or
   2. the Physical Presence Test (PPT) (Quantitative - requiring 330 full days of foreign presence out of any 12 month or 365 day consecutive period.)

Form 2555 or Form 1040 may not be filed until meeting both of the above two tests. Typically the PPT is used in years of transition that is in both years of expatriation - abroad out of the US and in years of repatriation - back to the US.

In addition to the FEIE there is the HE for employed persons or the HD for self-employed persons. This is an opportunity to augment the basic FEIE by an overseas taxpayer's reasonable qualified foreign housing expenses. Qualified foreign housing expenses are typically much higher than a taxpayer's taxable employer paid housing income/ allowance, or quarters. Additionally it does not matter who pays for these qualified housing expenses!!! Regardless of whether you the employee pay directly for these costs or whether your employer directly pays or reimburses you for these costs, they are still includable as qualified foreign housing costs for determining the HE or HD. However, these costs may also need to be included in your employment income, that is if paid directly or reimbursed by your employer as they are considered taxable compensation.

The HE or HD is subject to an annually indexed base (or deductible) representing the amount that needs to be exceeded before any qualified housing costs are excluded or deducted, and TIPRA has placed an overall effective cap on the total qualified housing costs eligible for consideration for either the HE or HD.

Protax’s services include consultations on and / or explanations of your various US Expat or Expatriate compensation packages, including that as pertains to individual tax equalization or tax protection arrangements.

We are dedicated to educating our professional and intelligent clients, who desire to be kept aware as to US tax laws affecting the amount of US income tax they will pay as well as developing and constantly changing new US tax law.

We invest the time and resources to meet with our clients as often as required to ensure optimum tax savings mechanisms are in place.

These are highly complex filings involving complex terminology and only competent international tax CPA's (Certified Public Accountants) should attempt these filings. We have excellent articles on this website that will help explain the above in more detail your US expatriate filing positions. Please see article- Are You A US Person Thinking Of Accepting A Foreign Assignment?

We can advise clients as to the applicable tax laws and regulations and we will consult with them on the preparation of their US tax return Form 1040, Form 2555 - Foreign Earned Income and Form 1116 - Foreign Tax Credit and any required State tax filings all via electronic communication and the telephone and / or facsimile, where the situation precludes a one-on-one meeting.

Please contact us for a free consultation and for further details.