Expats Big Losers In New Us Tax Bill

[Thaiquila]

Washington Post today says expats are big losers in the new tax bill, some info below. I am most interested in that part about higer taxes on investment income. The article provides no details of what that means. For example, a US resident pays very little dividend tax, does this mean expats will be treated differently?

Like I said before, expats have no representation in the US government, and we can probably expect more of this targetting of a group that doesn't bark back.

http://www.washingtonpost.com/wp-dyn/conte...6051201900.html

And there are a complicated changes to tax rules for Americans who work and live abroad, the upshot of which is that expatriates will have to pay $2.1 billion more in taxes over the next decade. Expatriates will face tighter rules on how employer-provided housing will be treated and could face higher taxes on investment income.

[kdvsn]

Washington Post today says expats are big losers in the new tax bill, some info below. I am most interested in that part about higer taxes on investment income. The article provides no details of what that means. For example, a US resident pays very little dividend tax, does this mean expats will be treated differently?

Like I said before, expats have no representation in the US government, and we can probably expect more of this targetting of a group that doesn't bark back.

http://www.washingtonpost.com/wp-dyn/conte...6051201900.html

And there are a complicated changes to tax rules for Americans who work and live abroad, the upshot of which is that expatriates will have to pay $2.1 billion more in taxes over the next decade. Expatriates will face tighter rules on how employer-provided housing will be treated and could face higher taxes on investment income.

There might be other aspects of it, but this is an interesting part of the new "tax cuts for the rich" in the bill (cut & pasted from from http://fairmark.com):

"U.S. citizens working abroad who meet certain requirements can exclude foreign earned income from their U.S. tax return, up to a limit that had been set at $80,000 through 2007, with inflation adjustments for years after 2007. This law changes the rules so inflation adjustments will begin in 2006. This means the exclusion amount for 2006 is $82,400. This change will affect the amount allowed as an exclusion for housing costs as well.

At the same time, Congress changed the way income in excess of the exclusion is taxed. Previously, someone who used the $80,000 exclusion against $100,000 of income would pay tax at the same rates as someone who has $20,000 of income. Beginning in 2006, someone with $20,000 of income above the exclusion amount will be taxed at the same rates that apply to the last $20,000 of income for someone who has the same amount of total income before the exclusion. This change can produce a sharp increase in the amount of tax paid on this income, moving it from the 15% bracket to the 25% bracket for joint filers or the 28% bracket for singles.

Tax pros call this a stacking rule. For purposes of determining what tax rates apply, the excluded income was previously stacked on top of other income, and now the other income is stacked on top of the excluded income."

Edited May 13, 2006 by kdvsn

[taxout]

With Congress's usual sense of irony, the legislation is called the "Tax Increase Prevention and Reconciliation Act of 2005 [sic]."

The new legislation doesn't impose tax on just investment income at the higher rates, but on all income, so that any earned income above the exemption will also be taxed at higher rates.

Under the current rules, you take out your exemption and then calculate your tax on the remaining income, as if it were your only income. Thus your income above the exemption gets the benefit of the standard deduction, the personal exemption, and the rates applicable to lower incomes.

Under the new rules, you'll do three calculations.

First, calculate your theoretical tax liability INCLUDING the excluded income.

Then, calculate your theoretical tax liability as if the excluded income were your ONLY income.

Finally, subtract the second calculation from the first and that's your new tax bill.

The new legislation will produce significant tax increases for most expatriates with income beyond the 911 exemption, and the changes are effective beginning this year.

These changes are in Section 515 of the legislation. You can wade through the text here:

Tax Act Text

[richard10365]

I'm not a tax expert and not wealthy at all. I live off a little pension of about $18,000/year here in Thailand. I din't notice how this new bill would affect me at all. Did I miss something somewhere?

[kdvsn]

I'm not a tax expert and not wealthy at all. I live off a little pension of about $18,000/year here in Thailand. I din't notice how this new bill would affect me at all. Did I miss something somewhere?

I didn't see anything in it that would be likely to affect retirees except in the sense that it extends favorable tax treatment on dividends and capital gains until 2010.

[taxout]

If you don't have any earnings from working overseas, then the changes to the 911 provisions won't affect you.