Uncle Sam’s Worldwide Tax Reach
The United States is one of the only countries that continues to impose tax on the worldwide income of its citizens and residents (e.g. green card holders) who live and work in another country. If you are resident in the Netherlands, you are normally also subject to Dutch tax on your income. This presents a problem since both countries want to get your tax dollars (or euros) based on the same income
It wouldn’t be fair to actually pay tax on the same income in both countries, so there is a system of exemptions and tax credits available to US citizens and residents who are living abroad. These exemptions and credits are designed to avoid taxpayers paying tax on the same income in both countries. For example, the United States will allow you to exclude up to $82,400 for 2006 (plus certain housing costs) if you qualify for the Foreign Earned Income Exclusion. If your income is higher than this amount, there is a system of Foreign Tax Credits that allows you to take a credit for your Dutch taxes against the US taxes on the same income. For non-earned income such as interest, dividends and capital gains, the treaty decides who gets the “first” right to tax this income.
There is a common misconception among expats that you do not need to file a tax return in the US if you earn less than $82,400. This is not true! If your “gross” income (before taking into account the Foreign Earned Income Exclusion) is as low as $3,300 (Married Filing Separately) you may have to file a US tax return and report your worldwide income.
If you are interested in finding out more about the taxation of US citizens and residents living abroad, you can find a lot of information on the IRS web site: www.irs.gov . Some of the key forms and publications are:
Publication 54: Tax Guide for US Citizens and Resident Aliens Abroad Form 2555: Foreign Earned Income Exclusion Form 1116: Foreign Tax Credits Form TDF 90-22.1: Report of Foreign Bank and Financial Accounts
David Colvin, CPA Partner - TaXpat BV www.TaXpat.com
David Colvin is a US Citizen and has been a resident of the Netherlands since January 1998.
This article has been submitted by David Colvin - TaXpat BV
 Blinklist |
 Bloglines |
 Del.icio.us |
 Digg |
 Diigo |
 Facebook |
 Furl |
 Google |
 Ma.gnolia |
 Mr.Wong |
 Netvouz |
 Simply |
 Spurl |
 StumbleUpon |
 Technorati |
 Yahoo |
