6.05.2006
Uncle Sam Takes a Bite Out of Expatriate Incomes (IHT.com)
By Sharon Reier International Herald Tribune
WEDNESDAY, MAY 31, 2006
It may have been sold as a tax cut package, but the document that President George W. Bush signed into law on May 17 will mean an extra tax bite for many Americans who live abroad.
Those expected to feel the most pain are expatriate workers who earn comfortable, but not lavish, livings and semi- retired workers earning some foreign income while drawing U.S. Social Security, pensions and other income from U.S. sources. Many of these expatriates will be pushed into higher U.S. brackets, as will employees and independent professionals in no-tax and low-tax areas like much of the Middle East, some Caribbean nations and Hong Kong.
As Steven Horton, a certified public accountant practicing in Paris, put it: "The middle class will get hammered."
Senior employees who collect generous expat benefits, like housing allowances and reimbursement for their children's school fees, also are expected to have bigger U.S. tax liabilities - but their companies probably will pick up the costs as part of their benefit packages, tax experts said.
The new law, however, does contain some good news. The foreign earned- income exclusion, which was under threat of extinction just three years ago, was maintained and will be indexed to U.S. inflation as of the 2006 tax year. That means U.S. taxpayers will owe no tax on their first $82,400 of income earned abroad this year, up from $80,000 in 2005. Indexing had been scheduled to start in the 2008 tax year.
On the negative side, the new law caps the exclusion for housing allowances - rent, utilities other than telephone, property insurance, occupancy taxes, maintenance and furniture rental - that U.S. corporations often provide to executives sent overseas. The cap is calculated as 30 percent of the foreign earned-income exclusion, minus the 16 percent that it is assumed would be paid in the United States. For 2006, it is set at $11,586; under the old law, the exclusion was virtually unlimited.
(More ... Uncle Sam takes a bite out of expatriate incomes - At Home Abroad - International Herald Tribune) ¶ 11:44
WEDNESDAY, MAY 31, 2006
It may have been sold as a tax cut package, but the document that President George W. Bush signed into law on May 17 will mean an extra tax bite for many Americans who live abroad.
Those expected to feel the most pain are expatriate workers who earn comfortable, but not lavish, livings and semi- retired workers earning some foreign income while drawing U.S. Social Security, pensions and other income from U.S. sources. Many of these expatriates will be pushed into higher U.S. brackets, as will employees and independent professionals in no-tax and low-tax areas like much of the Middle East, some Caribbean nations and Hong Kong.
As Steven Horton, a certified public accountant practicing in Paris, put it: "The middle class will get hammered."
Senior employees who collect generous expat benefits, like housing allowances and reimbursement for their children's school fees, also are expected to have bigger U.S. tax liabilities - but their companies probably will pick up the costs as part of their benefit packages, tax experts said.
The new law, however, does contain some good news. The foreign earned- income exclusion, which was under threat of extinction just three years ago, was maintained and will be indexed to U.S. inflation as of the 2006 tax year. That means U.S. taxpayers will owe no tax on their first $82,400 of income earned abroad this year, up from $80,000 in 2005. Indexing had been scheduled to start in the 2008 tax year.
On the negative side, the new law caps the exclusion for housing allowances - rent, utilities other than telephone, property insurance, occupancy taxes, maintenance and furniture rental - that U.S. corporations often provide to executives sent overseas. The cap is calculated as 30 percent of the foreign earned-income exclusion, minus the 16 percent that it is assumed would be paid in the United States. For 2006, it is set at $11,586; under the old law, the exclusion was virtually unlimited.
(More ... Uncle Sam takes a bite out of expatriate incomes - At Home Abroad - International Herald Tribune) ¶ 11:44
