Travel & Expat Lifestyle Magazine

Expats in America struggle with income tax laws, just as residents do

Las Vegas WelcomeIt’s interesting to compare the various standards and procedures in your new home country with your old home country, and it can be just as interesting to hear the impressions of expats who have now settled in your old home. Such is the case of a Brit who wrote an interesting essay about how she struggled to understand the income tax laws and procedures in the United States where she now studies and live.

In many of these cases (like people who were brought up on cricket not understanding the rules of baseball and vice-versa), it’s just a matter of getting used to it by growing up there. However, when it comes to the American income tax code, it’s just as baffling for residents as it is for newcomers. So it’s interesting to see the craziness described by a newcomer, partly because we feel the same way.

The US is aggressive in its tax reach

The writer of this piece felt it odd that she had to pay income tax to a country where she isn’t a resident and has no representation (making the obvious American Independence comparison, which is apt). I am currently living in Turkey, and I find it a bit odd that I also have to pay US income taxes even though it’s hard to sort out exactly what benefits I’m getting from them.

I haven’t researched this completely, but what I’ve heard from my (American who now lives permanently with his family in Germany) brother is that the US is the only country that insists on its citizens paying income taxes no matter where they live. Only in cases, like his (and in many other countries), where there is a tax treaty AND the local income tax rates are higher do you not owe US income taxes. There’s even a movement of Americans who have renounced their US citizenship for the sole purpose of not being liable for income taxes while living permanently somewhere else.

One thing the US has going for it, however, is that marginal income tax rates are very low compared to most of Europe, Canada, Australia and the like. In spite of the constant cries for “tax fairness” just under 50% of US residents don’t even pay any federal income tax. The problem left over is that filing and sorting out the laws is extremely confusing.

Filing is almost always a nightmare

Even though as someone living outside the US I automatically qualify for a 60-day extension on filing, I decided I’d file my income taxes yesterday along with everyone else waiting until the last legal day. I figured that my situation would be very simple since I’m self employed and have very few expenses to claim, but it turned out that filing (for free) online it was a stressful hour full of answering bizarre questions as well as vague questions where I could get a bit creative and maybe save a bit of money.

Having done this many times while in the United States over the past few decades, it doesn’t seem to be getting any easier. You have the choice of hiring a professional, usually for at least a few hundred dollars even for a simple return, and hoping that they can find you enough deductions to justify their expense.

Or you can buy a commerical tax software package that asks you hundreds of questions and then tries to maximize your situation, but with these you can never be too confident that you are claiming all the legal things you can without claiming much that is questionable.

These days you can file for free online through a variety of government-approved websites, and I assumed it would be like filling out the old 1040-EZ form that only has about 15 blank spaces on it, but it turned out to be a minefield similar to the commercial tax packages.

So there you have it, the US wants to tax your income whether you are an American living abroad or a foreigner living in the US, and it’s stressful and confusing for pretty much all of us. You could easily make a case that it would be worth paying at least a bit more if at least you were confident that you were doing it right and not cheating or throwing away money in the process.

I think it would be hard to find a person from any country who says they love their own system, unless they are paying in almost nothing and receiving all the benefits, so this is likely an annoyance for almost everyone around the world.


2 thoughts on “Expats in America struggle with income tax laws, just as residents do

  1. The motivation is pretty straight forward. Unlike rich europeans, rich americans cannot simply go abroad in order to escape from taxes.

    France is considering to implement the same system but it requires to renegociate each tax agreements with other countries. It also requires some power to back up these claims. That France simply doesn’t have…

  2. It is certainly a bureaucratic nightmare. The article fails to point out, however, that you’re only taxed on foreign-earned income over approximately US $91K, which means that most of us do not end up paying any taxes whatsoever. The online tax preparation software is actually fairly easy and accommodating; once you reach a certain age and have a few stocks and such, you will be past the point of using the 1040-EZ anyway. But there is no denying that the system as a whole is confusing and archaic, and just as bewildering to citizens as it is to expats in the US.

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