| Sign in | Register |
AD: Find a job in Prague.. |
Higher Tax for US ExpatsHow 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. Housing Exclusion/Deduction 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. Conclusion 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 |
|
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 |
|
Exclusive Interview with Peter Knoll by PragueConnect.cz PragueConnect.cz interview with Peter Knoll, General Manager Kempinski Hotel Hybernská Prague |
|
And This Too Shall Pass By Pepper de Callier by Pepper de Callier The importance of keeping one's feet on the ground |
|
Prague Business Leaders Networking - Event review by Trevor Smith - www.visiontraining.cz Trevor Smith's review of the PragueConnect.cz leadership series event |
|
Economics of Good and Evil by Tomáš Sedláček |
|
Sources of growth? Ourselves by Tomáš Sedláček |
|
Europe's and the World's Magic Formula for Bankruptcy by Tomáš Sedláček |
|
Faster and bolder: Managers, entrepreneurs - don’t give up! | Richard Patton by Cristina Muntean Part five in a series by the Katz Graduate School of Business |
| READ ALL BUSINESS ARTICLES |
Visit the Business main page
Find listings, help forums, tips and more
Locus Workspace
Work Better.
Marcus Evans
Join our sales team today!
Česka spořitelna: Expat Center
Grabmüller Translation Agency
Because words matter
MORE ARTICLES
Prague TV Home | Contact | About | FAQ | Site Map | Search | Advertise | Privacy | Terms of Service
Prague TV is a Real Time Production. ©2013 All rights reserved.
