|Browse categories||List your business|
|Accommodation||Art and Culture|
|Financial Services||Government and Utilities|
|Health & Wellness||Jobs|
|Shopping||Sightseeing & Attractions|
|Sports & Recreation||Technology|
Higher Tax for US Expats
How the recently passed Tax Increase and Reconciliation Act of 2005 affects Americans working abroad
This is a sponsored article provided by CFO2GO Europe.
Congress recently passed the curiously-named Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), retroactively increasing taxes for some Americans working abroad
The widely-hyped change which gave the law its name now indexes the foreign earned income exclusion to inflation several years earlier than originally planned. Under the old rules the exclusion would have remained at $80,000 until being indexed to inflation beginning in 2008. Under the new rules, the 2006 exclusion amount is $82,400 (and $85,700 for 2007).
Despite the name of the tax act, there are other changes that may increase taxes for highly compensated taxpayers in excess of the savings to be gained from accelerating the indexing of the exclusion.
Higher Marginal Tax Rates
Long-term expats know that that the US allows its globetrotters to exclude earned income and/or some housing costs from US taxation up to certain thresholds. These thresholds and the way they are calculated have been modified by TIPRA. Expats earning just above the old thresholds used to pay tax at the lowest income bracket on the non-excluded income. No more! Expats that have taxable earned income above the maximum exclusion amounts (earned income, housing or both) will now pay “ordinary income tax rates”. Under the new law, expatriates must use the tax bracket that would apply had they not claimed the exclusion. For many people, that means they will start with the 25% or 28% tax brackets, instead of the more favorable 10% bracket.
The foreign tax credit (Form 1116) continues to be available and will reduce some of the impact of this change for expats living in countries with high relative individual tax rates.
The second change is in the way that the foreign housing exclusion is calculated. The result of the calculation change is an increase in the “base amount” (the part you can’t exclude). The new law subjects more income to tax. The formula is somewhat complex but the maximum amount that can be excluded for 2006 is $11,536 for someone who qualifies for the whole year. There are additional regulations that adjust this exclusion depending on what country you are living in.
This article is intended to be an overview. The issues are complex and you should read the information available at www.irs.gov or seek the advice of a tax professional. For further information, we recommend you consult:
• Rev Proc 2006-51 for the foreign earned income exclusion amount
• Notice 2006-87 for foreign housing exclusion
• When it becomes available refer also to the 2006 edition of Publication 54
CFO2GO is an independent consultancy focused on assisting SMEs and their owners and executives to achieve their operating and objectives when internal or alternative means of doing so are inadequate to the task. We work closely with executives to help them comply with their personal Czech and US tax obligations.
The comments in this article are not intended to constitute an opinion regarding any specific tax issues because additional tax issues may exist that could affect the tax treatment of the tax issues addressed in this memo. This memorandum does not consider or reach a conclusion with respect to those additional issues and was not written and cannot be used for the purpose of avoiding penalties under code section 6662(d).
For further information, please contact CFO2GO Europe.
Share this page
|COMMENT ON THIS ARTICLE|
|READ ALL BUSINESS ARTICLES MORE BUSINESS ARTICLES|
OpenCall launches sexy new tariff just in time for Valentine’s Day by Opencall Mobile|
Calls anywhere in Czech Republic and to Slovakia for 1,80 Kc / min
Opencall Continues Its Rapid Expansion With The Launch Of Its New ‘e-shop’, Just One Week After The Launch Of Opencall Africa by JWA Prague|
OpenCall announces the launch of its new e-shop alongside a number of special offers
Opencall Continues Its Rapid Expansion With a New Cooperation With Citi-Tabak by JWA Prague|
Citi-Tabak will become the latest major retail outlet to offer the OpenCall service
PragueConnect.cz interview with Vincent Charollais, CEO at DH Telecom a.s. by PracueConnect.cz|
Vincent Charollais gives us some insides on how it is to launch a new telco product
DH Telecom announces launch and price structure of OpenCall by Prague Daily Monitor|
Preparations for the launch on the Czech market are ahead of schedule
Preventive healthcare pays off by MARIA ZALAMANS|
People who feel good – both physically and mentally – do a better job
Healthy Leadership by SHEILA ZEINALI CEO , EXCELLENT CONSULTING LTD|
Healthy leadership will increase company's opportunities for a more successful business
Rodriguez: Diversity is here to stay. Embrace it! by PragueConnect.cz|
How managers can make sure that teams get along despite the large amount of differences
Inheritance by rutland ježek|
What to do if you're a foreigner and own property in the Czech Republic
Myths in the time of cholera by Tomáš Sedláček|
The economist Tomáš Sedláček discusses the public's view of the European Union
Changes in list of countries whose citizens are entitled to apply for Czech green cards by rutland ježek|
The number of countries whose citizens are entitled to apply for the green card has increased
Q&A Custody of children and abduction under Czech law by rutland ježek|
Lawyer answers questions regarding custody of children after parent's divorce
Czech Taxes 2013 by rutland ježek|
Rutland ježek, a Czech law firm in Prague on the changes in taxes from 2013
Apostille and verification of foreign documents by rutland ježek|
Learn all about apostille, when do you need it and where can you get it
Robert Schönfeld to be awarded the prize of Social Entrepreneur Of The Year 2012 by PragueConnect.cz|
A love of music and the desire to continue in the tradition of Dvořák and Smetana led Robert Schönfeld to be awarded the prize of Social Entrepreneur Of The Year 2012
|READ ALL BUSINESS ARTICLES|
Visit the Business main page
Find listings, help forums, tips and more
Grabmüller Translation Agency
Because words matter
Law Office of Mgr.Michal Doležal and...
The office specializes in providing legal counseling to both native...
Chamr & Partners
We offer - company formation, shelf companies, starting new branche...
Join our sales team today!
Locus Workspace - Slezská