U.S.A. Topic -- Unjust financial complications for expats highlighted in letter to Janet Yellin

[Jingthing]

Here is the letter by a Bloomberg columnist --

 

A Letter on Tax From 9 Million U.S. Expats to Janet Yellen - Bloomberg

 

Quote

 

A Letter From 9 Million U.S. Expats to Janet Yellen.

 

The next Treasury secretary could make the lives of millions of Americans easier at no cost at all.

 

 

Wouldn't it be nice if this was listened to?

 

Of course I have zero expectations that it will. Not because I think Yellen is a bad person but rather because we are such a low priority back home (even more so than usual considering the great depression levels of economic suffering) and also that there is no political gain to be had by doing something that will be painted by some as a way to make it easier for offshore tax cheats. 

 

Note that I didn't only use the word taxation in my headline. That's because I think these onerous U.S. policies go beyond taxation in their impact on expats. Such as special difficulties for Americans in opening foreign bank accounts in much of the world, anti-expat policies common with U.S. financial institutions, etc. 

Edited December 13, 2020 by Jingthing

[bkk6060]

Go for it then when they are told no SS or Medicare which from my estimate is approx. $4,000 a month benefits, they will cry like babies.

Edited December 13, 2020 by bkk6060

[Jingthing]

24 minutes ago, bkk6060 said:

Go for it then when they are told no SS or Medicare which from my estimate is approx. $4,000 a month benefits, they will cry like babies.

Expats have never been eligible to use Medicare while living abroad. 

Thats another topic entirely. 

Even more hopeless. 

[cmarshall]

9 hours ago, andy said:

Far too logical and beneficial for us serfs to ever get congress to act on this.  They are far too busy maintaining a corporate welfare agenda, and tax cuts & bailouts for the rich.

 

LOL at the above reply about SS and Medicare ????.  Working US expats can't even pay into SS in most circumstances, which means a lot of us will never reach 40 credits to even qualify - and yet we STILL have to file taxes.  And yeah, medicare is going to be super useful when I'm retired in SE Asia 8000 miles away...????

 

I sympathize somewhat for your plight, but not completely.  After all, we decided to expatriate giving up living with rights of citizenship and putting ourselves beyond the reach of some social benefits.  No one made us do it.  And it's hardly surprising that those social systems are designed for the vast majority of the US who are resident, not the small number who leave.  So, for instance, how would you be able to qualify for SS benefits if you are working for a foreign company outside the US?  Your employer is not going to be willing to pay his half of your SS and Medicare contributions.  If you had an option to pay in as a self-employed person, i.e. by paying both the employee's and employer's part of the payroll tax, would you be willing to do that?  You would then pay 15.3% of your salary up to the cutoff instead of 7.65% on top of your local income tax.  My guess is that few expats would be willing to pay that.  If not, then how could your SS and Medicare participation be funded?  

 

As American expats we are treated better than the British expats who do receive their NI payments, but without COLAs which means they will slowly be made poor.  The Australians apparently reduce the pension they pay to their expats.  Yes, it's a shame that we American expats will have to pay income tax forever when the European expats don't, but we knew that from the beginning and still decided that it was worth it to us to make the move.  

[Salerno]

26 minutes ago, cmarshall said:

The Australians apparently reduce the pension they pay to their expats.

 

It's not as bad as some you may hear whinging about it (certainly a bit tightfisted but not disastrous). The pension per se isn't cut, you just don't get a couple of supplement which are for utilities, medicine,  phone, internet etc. (AU$38-70 per fortnight I think it amounts to). As you mentioned, the Brits on the other hand getting it frozen ...

[kokesaat]

I get my military pension and Social Security with COLA increases factored in.  I do my taxes and US banking online.  I vote by mail.  Granted, if you're paying into medicare and you're not military retired, then you take a hit on healthcare.  I invest in the US stock market (mutual funds) and have several US accounts.  Likewise, I have several Thai accounts and could, if I wanted to, invest in the Thai stock market.  But over the 24 years we lived in Thailand, I more often think how good it is to be an American expat.  I could easily see the day when some yahoo gets into office and declares expats in a different light.  

Some expats make life more difficult for themselves by coming from states that have their own taxes.....easy to fix, before you become an expat.  Likewise with US banking.  Every expats plan b should include establishing accounts with sound US financial firms before they move.  Maintaining a US address is another thing that makes like easier as an expat.  

A Swiss neighbor of mine tells me he pays Swiss tax on his residence in Thailand each year.  Brits don't get COLA to their pensions.  I've known several Americans who are able to begin drawing their social security benefits by working through the US Embassy in Manila.  

In the end, living overseas is at one's risk.......and the longer I have lived overseas, the more risk I see.  While there may be XX million of expats living overseas, the numbers that matter to an individual political leader are small.  Why would they pander to the needs to those who have decided to live outside their own country?

Life is good for those expats who plan ahead and have a plan b.

[cmarshall]

2 hours ago, kokesaat said:

Life is good for those expats who plan ahead and have a plan b.

 

So far.

[Olmate]

3 hours ago, Salerno said:

 

It's not as bad as some you may hear whinging about it (certainly a bit tightfisted but not disastrous). The pension per se isn't cut, you just don't get a couple of supplement which are for utilities, medicine,  phone, internet etc. (AU$38-70 per fortnight I think it amounts to). As you mentioned, the Brits on the other hand getting it frozen ...

And rent assistance,$ 300 per month roughly

[cmarshall]

46 minutes ago, andy said:

 

Yep, I am aware that this is technically possible, but if you look at the numbers it is a losing proposition financially in most cases.  That is why no working USA expats (that I have ever known) take this option.  That 15.3% would be money that would normally go straight into my investments and over several years it would be a killer financially.  The only way it would make sense is if someone was 2 or 3 credits short of qualifying and only had to do it for a year.

But it's not technically possible at all.  You cannot ring up the SSA as an employee of a foreign company living abroad and offer to pay both the employer and employee parts of the payroll tax.  My question was a hypothetical.  If, however, as an American citizen you live abroad and are self-employed, then you must pay the SE tax, i.e. the full 15.3% and will receive the full retirement benefits to which your contributions entitle you.  And that is not offset by any local taxes paid.  It's right off the top.

 

Like most naive investors you overestimate your investment ability which is very unlikely to provide you with the equivalent of SS benefits for the same cost.  

Edited December 15, 2020 by cmarshall

[taxout]

You don't have to set up a limited liability company. You can try to establish an arrangement in which you work not as an employee but as an independent contractor. There are hoops to go through to qualify as an independent contractor, though, so look into this carefully first to see whether it might work in your particular situation. Not easy, but could be possible in some cases.

 

[cmarshall]

5 hours ago, taxout said:

You don't have to set up a limited liability company. You can try to establish an arrangement in which you work not as an employee but as an independent contractor. There are hoops to go through to qualify as an independent contractor, though, so look into this carefully first to see whether it might work in your particular situation. Not easy, but could be possible in some cases.

 

 

But the OP has already said that he isn't willing to pay US Self-Employment tax which would be 15.3% of income off the top not subject to any adjustment for paying Thai taxes.  Unless he is planning to defraud the IRS, there is no way for a self-employed US citizen to avoid paying SE tax even if living abroad.

[Jingthing]

6 hours ago, cmarshall said:

 

But the OP has already said that he isn't willing to pay US Self-Employment tax which would be 15.3% of income off the top not subject to any adjustment for paying Thai taxes.  Unless he is planning to defraud the IRS, there is no way for a self-employed US citizen to avoid paying SE tax even if living abroad.

I'm the O.P. and made no comment on self employment tax whatsoever and not really interested as I've never worked abroad. 

[cmarshall]

2 hours ago, Jingthing said:

I'm the O.P. and made no comment on self employment tax whatsoever and not really interested as I've never worked abroad. 

I was confusing you with the other postter.

[JimGant]

Quote

The U.S. is the only country in the world that practices citizenship-based taxation. All other nations tax individuals based on their residence.

Oh, BS. Most nations tax their expats on their government pensions, withholding at source in most cases. And most tax treaties give the paying country first right of taxation on government pensions.

 

Now, the US has something called the savings clause in its tax treaties, that means if the expat's resident country doesn't tax certain income that it has first rights to, then the US will tax this income. Citizenship-based taxation? Not really. Just, Joe Blow the expat is going to pay someone taxes -- and if the resident country doesn't rightfully avail itself of its taxation authority, then Uncle Sam will collect. Aw, no free lunch for the expat. Life's not fair. And ludicrous that Thailand will not tax Joe Blow, when it's completely in its rights, per tax treaty, to do so. Don't blame the US for picking up the slack.

 

Norway is an interesting example, and probably the wave of the future. Per the Thai-Norwegian tax treaty, country of residence has first taxation rights on ALL pensions, to include government.

https://www.skatteetaten.no/en/person/taxes/get-the-taxes-right/employment-benefits-and-pensions/pension-and-disability-benefit/resident-abroad/countries/thailand/

But, the Norwegian resident of Thailand has to show he's declared, and paid taxes on, all Norwegian pensions to the government of Thailand. Without such proof, there's a 15% withholding at source in Norway. Pretty clever, considering Thailand exempts taxation on pensions brought into country in a later year than when paid. No tax receipt from Thailand, no tax exemption from Norway. Almost works the same as with the US -- can't show Thai taxes paid, then no tax credit against the US taxes owed. Thus, somebody -- resident country or home country -- is going to be paid taxes. Welcome to the 21st century. And, Americans, quit whining -- our marginal and effective tax rates are lower than most of the civilized (socialist) world.

 

 

[cmarshall]

On 12/31/2020 at 7:06 PM, JimGant said:

Oh, BS. Most nations tax their expats on their government pensions, withholding at source in most cases. And most tax treaties give the paying country first right of taxation on government pensions.

 

Now, the US has something called the savings clause in its tax treaties, that means if the expat's resident country doesn't tax certain income that it has first rights to, then the US will tax this income. Citizenship-based taxation? Not really. Just, Joe Blow the expat is going to pay someone taxes -- and if the resident country doesn't rightfully avail itself of its taxation authority, then Uncle Sam will collect. Aw, no free lunch for the expat. Life's not fair. And ludicrous that Thailand will not tax Joe Blow, when it's completely in its rights, per tax treaty, to do so. Don't blame the US for picking up the slack.

 

Norway is an interesting example, and probably the wave of the future. Per the Thai-Norwegian tax treaty, country of residence has first taxation rights on ALL pensions, to include government.

https://www.skatteetaten.no/en/person/taxes/get-the-taxes-right/employment-benefits-and-pensions/pension-and-disability-benefit/resident-abroad/countries/thailand/

But, the Norwegian resident of Thailand has to show he's declared, and paid taxes on, all Norwegian pensions to the government of Thailand. Without such proof, there's a 15% withholding at source in Norway. Pretty clever, considering Thailand exempts taxation on pensions brought into country in a later year than when paid. No tax receipt from Thailand, no tax exemption from Norway. Almost works the same as with the US -- can't show Thai taxes paid, then no tax credit against the US taxes owed. Thus, somebody -- resident country or home country -- is going to be paid taxes. Welcome to the 21st century. And, Americans, quit whining -- our marginal and effective tax rates are lower than most of the civilized (socialist) world.

 

I don't think that is correct.  The US taxes its citizens on world-wide income, which is exceptional.  Thailand, for example, does not tax either citizens or residents on world-wide income.

 

It's my understanding that Europeans resident in Thailand, other than Norwegians perhaps, pay income tax neither to their home countries nor to Thailand.  I remember some German posting to that effect on TV at one point.  

 

The problem with US taxes is not that they are so high, but that we get so little for them.  No free or even low-cost university education, no healthcare except for over-65s and poor people, less public transportation in most areas, the worst public education system among the OECD countries, and fewer of the other social safety net benefits that are more common in Europe, for example.  Instead the military sucks up an inordinate share of the national budget and the rich and corporations are undertaxed.

Edited January 3, 2021 by cmarshall

[JimGant]

5 hours ago, cmarshall said:

Thailand, for example, does not tax either citizens or residents on world-wide income.

Unless it's brought into the country in the year earned -- or unless it's exempt from Thai taxes per treaty, like US Government pensions.This rule certainly costs Thailand a pile of tax revenue that, per tax treaty, would othetwise give Thailand "first dibs" in taxing this income.

 

5 hours ago, cmarshall said:

It's my understanding that Europeans resident in Thailand, other than Norwegians perhaps, pay income tax neither to their home countries nor to Thailand.  I remember some German posting to that effect on TV at one point.  

Lucky those German expats. Domestic tax laws, both Thai and German, give these folks a pass on paying anyone taxes. Norway corrected this situation with its tax laws, demanding you show your Thai tax receipt before they'll give you a pass on Norwegian taxes. And the US, with its saving clause in every tax treaty, demands you declare all income, even income exempt on tax treaties, on your US tax return. Should you have a tax receipt from Thailand (or whomever), take a tax credit to avoid double taxation. By the way, not all worldwide income is taxed by the US -- Thai social security tax paid to a US citizen, for example, is exempt from the saving clause and thus doesn't need to be declared on your US tax return -- even if Thailand didn't tax it.

 

6 hours ago, cmarshall said:

The problem with US taxes is not that they are so high, but that we get so little for them.  No free or even low-cost university education, no healthcare except for over-65s and poor people,

Yeah, I hear you. Let's stop paying all this foreign aid to Burma, Pakistan, Cambodia, the world. And, yeah, let's bring the troops home from Europe, put them in the reserves, and quit paying for NATO and picking up the tab for all the European malingerers. If we quit doing all the world's heavy lifting, we could have  fantastic free education and free medical systems for our citizens.

Or we could elect a Bernie Sanders, double our taxes, and have a European style socialist system. I think our recent election indicated many voters don't think Biden will be a Bernie Sanders. But the number who voted for Trump, the weirdo that he is, indicated his policies, namely that more US tax dollars should go to America, is where we want to be.

 

Anyway, I'd gladly have Thailand fix its domestic tax policies -- and tax my income per the treaty, leaving a credit to my US taxes. Rather pot holes here, not Iowa, get paid with my taxes.

[cmarshall]

1 hour ago, JimGant said:

[The problem with US taxes is not that they are so high, but that we get so little for them.  No free or even low-cost university education, no healthcare except for over-65s and poor people,]

 

Yeah, I hear you. Let's stop paying all this foreign aid to Burma, Pakistan, Cambodia, the world. And, yeah, let's bring the troops home from Europe, put them in the reserves, and quit paying for NATO and picking up the tab for all the European malingerers. If we quit doing all the world's heavy lifting, we could have  fantastic free education and free medical systems for our citizens.

Or we could elect a Bernie Sanders, double our taxes, and have a European style socialist system. I think our recent election indicated many voters don't think Biden will be a Bernie Sanders. But the number who voted for Trump, the weirdo that he is, indicated his policies, namely that more US tax dollars should go to America, is where we want to be.

 

Anyway, I'd gladly have Thailand fix its domestic tax policies -- and tax my income per the treaty, leaving a credit to my US taxes. Rather pot holes here, not Iowa, get paid with my taxes.

 

I notice how math skills forsake you right-wingers when it comes to admitting the hard realities of the federal budget.  Here is a graph to help you out.  Can you spot the big sinkhole of waste in the 2019 budget?  How would you say that compares with say "International Affairs," which is what troubles you so much?

 

Note this is not the "Unified Federal Budget," which dilutes the gargantuan military share of the budget by including Social Security and Medicare, which have separate funding and are not part of the US Government.

 

https://www.nationalpriorities.org/analysis/2020/militarized-budget-2020/

 

[Jeffr2]

this is a better way to look at the budget.  The total budget.

 

https://en.wikipedia.org/wiki/United_States_federal_budget

[Bender Rodriguez]

On 12/13/2020 at 6:55 PM, bkk6060 said:

Go for it then when they are told no SS or Medicare which from my estimate is approx. $4,000 a month benefits, they will cry like babies.

4000$ a month, no wonder USA is bankrupt

 

[paulbrow]

On 12/14/2020 at 7:59 PM, andy said:

Far too logical and beneficial for us serfs to ever get congress to act on this.  They are far too busy maintaining a corporate welfare agenda, and tax cuts & bailouts for the rich.

 

LOL at the above reply about SS and Medicare ????.  Working US expats can't even pay into SS in most circumstances, which means a lot of us will never reach 40 credits to even qualify - and yet we STILL have to file taxes.  And yeah, medicare is going to be super useful when I'm retired in SE Asia 8000 miles away...????

You got me confused! I've been working overseas for some 24 years, self employed, and I've been paying both sides of SS the whole time. No problem getting full credits!

[taxout]

Yes, if you are self-employed you owe Self-Employment and Medicare taxes on your earnings from self-employment, whether you're working in the U.S. or out.