The Thailand expat forum for Travel, Lifestyle and Fun.

William · 29-05-2006, 09:30 AM

If you are a US citizen working overseas, you may want to give this a read:

Quote:

Another good reason not to be an American

By Lara Wozniak, | 29 May 2006

Read this article online at:
http://www.financeasia.com/article.aspx?CIID=38279

Get your pens and papers out, write a letter to the US Congress and fax it - complaining about the reduction in housing exclusions on US citizens living abroad.If you routinely count your lucky stars that you’re not an American citizen – here’s another reason. If you are an American citizen – you might want to pay attention to the urgings of the American Chamber of Commerce in Hong Kong to write your senator and complain about the new tax hikes.

On May 15, the House of Representatives and Senate passed what AmCham refers to as “the inappropriately named” Tax Increase Prevention and Reconciliation Act of 2005. President Bush signed the bill.

Section 911 of the act – a politically charged number to start with - significantly increases the United States taxation of most Americans who live in Hong Kong – and it is retroactively effective as of January 1, 2006. The US is the only developed country in the world that enforces taxation on non-resident citizens.

Under the act, Americans working abroad can exclude up to $82,400 from their foreign earned income, up from $80,000. However, the tax exclusion on foreign housing expenses is reduced while income taxes are now higher. Plus, the exclusion for housing will be $11,536 per year and a new “stacking” rule means that Americans will pay taxes at the higher marginal rates since tax is computed by adding back the amounts excluded.

Here’s an example of how accountants have determined it will impact Americans who are working abroad and earning about $300,000 per year (including all benefits). If your monthly rent and utilities are about HK$80,000, then your annual housing costs, in US dollars, would be about $125,000. In the past, the foreign earned income exclusion reduced the US tax liability by about $40,000.

Now, you will pay another $20,000 in taxes because of the limitation in the housing exclusion and you will pay another $10,000 because of the stacking rule. The legislation has therefore reduced the tax impact of the exclusion by 75% - or put another way, you can expect to pay an additional $30,000 in taxes this year.

This interpretation, and complaints from AmCham and other American organisations, have sparked a written response from the US Senate Committee on Finance. The document sent to AmCham states: “It (the act) subjects individuals who receive section 911 benefits to the same marginal tax rates applicable to those living and working in the United States who have the same amount of economic income. No one should be in a better position with respect to non-excluded income just because the individual lives and works outside the United States.”

The document also states: “Many employers offer their overseas employees ‘tax equalization’ packages under which the employer guarantees that the employees will not pay more taxes working overseas than they would pay if they were working in the US. This is where section 911 reduces the cost to employers. The amounts excluded under section 911 for compensation and housing would be fully taxable to the employee in the US. Thus, the section 911 exclusion relieves the employer from reimbursing the employee for US tax on those amounts. In this respect, section 911 is a tax subsidy for the cost of sending an employee overseas.

“It should also be noted that US employees working overseas may receive other taxable benefits. These could include private school education for their children, car allowances, and other amenities.”

Jack Maisano, president of AmCham, points out, though, that many Americans living abroad have increased expenses – and the so-called benefits artificially increase Americans’ taxable income without offering them additional actual income.

For example, Maisano says: “Americans abroad can't just send their kids to the school down the block - or even get bussed to one across town. They need English schools, and those often cost money. Sometimes lots of money. That's a real cost of education that Americans at home don't have. Waving it away as a privilege and ‘private schooling’ doesn't address the issue.”

The US Senate Committee on Finance also argues in its document that in the past “There was no upper limit on deductible or excludable housing costs; the only requirement was that they be ‘reasonable’, a term that was subject to aggressive interpretation by taxpayers and allowed highly compensated individuals to exclude large amounts of housing benefits.”

Maisano counters: “Americans overseas are taxed in other ways that don't look like taxes. In Hong Kong, our high property costs, resulting in high rents, are a result of the government taking up to 40% of its revenue through land sales. That's in essence a tax that filters down through the property market. By not viewing it as a tax, Americans are in effect losing some of the benefit they would otherwise get from foreign tax credits.

“They also can't get 1,800 square feet of house with a yard for $230,000 (the average size and cost in America), or visit their parents or relatives at Christmas without flying half way around the world (which, by the way, costs more than flying domestically), or enjoy any number of other activities that local communities in America offer, often for free. And yes, the schooling, housing, and travel - if paid by the company - are all taxed. Even the taxes the company pays are taxed! How can that be fair?

“The real issue, though is the competitive one. In the real world, we compete. And America's tax laws - however the finance committee may want to justify them - do not allow Americans and American companies to compete fairly around the world.”

Aggrieved Americans can thank Charles Grassley, Republican of Iowa and chairman of the Senate finance committee for this bill. American expatriates may remember him because in 2003 he tried to totally eliminate the then $80,000 exclusion on income earned by Americans abroad. Iowa, literally located in the heart of middle America, is not a state that many would predict produces a huge number of expatriates. Corporates, who often offer their expatriates overseas packages that include covering taxes, put on a lobbying offensive that killed that bill.

But this more recent act slipped through. Maisano says that in the last few years AmCham has been very active in opposing any suggestions of a tax increase on overseas American. Indeed, in March, several Hong Kong AmCham representatives met in Manila with representatives from the US Chamber of Commerce and were told that the taxing of expats issue had been settled, for this year at least.

And so when the House and Senate first saw the current bill, there were in fact no provisions affecting overseas Americans. In the tradition of Depression-era Louisiana Senator Huey Pierce Long, the conference committee inserted the provision late one evening in early May, and both houses of Congress passed it within hours. The result: there was no realistic opportunity to react.

According to IRS statistics, 306,393 tax returns claimed the section 911 foreign earned income exclusion in 2003. Of those returns, 41%, or 125,894 had a US tax liability after the exclusion.

The new measure is going to cost about $200 million a year in taxes for the 4.1 million Americans working abroad – that’s excluding military personnel and foreign service officers, according to an estimate by the Joint Committee on Taxation in the US Congress.

“The point is not just the unfairness of the high tax increase, applied retroactively,” says Maisano. “It's that Americans abroad means US exports - which means US jobs and US domestic taxes. It also means the introduction of American values overseas - which is something one would think the Congress would want to promote.

“Fewer Americans abroad means lost US exports and lost international influence. In a global economy, we at AmCham think its better to have more exports and more influence - therefore we need more Americans abroad.”

The near elimination of the housing allowance will cost the US at least $2.5 billion in exports, which equals 25,000 jobs in the US, according to a study by PriceWaterhouseCoopers. This study was commissioned by the American Chambers in Asia and the Chambers in the Gulf States last year. That’s clearly worth more than the estimated $200 million in tax dollars the Congress expects to gain on this bill.

“Evidently, we're not getting that message through to the people in Washington,” says Maisano.

But AmCham isn’t giving up. “Our most powerful weapon is a mass response from outraged Americans,” says Maisano. He urges Americans living abroad to fax their congressmen and complain – lobbying them to either undo this act in future legislation, or at the very least, not continue to more heavily tax Americans living abroad.

The best way to fire that weapon - is through your fax. (A few years ago expatriates backlogged the faxes on Capital Hill by using this lobbying tactic). As Maisano says: E-mails can easily be deleted and regular mail can be thrown away. But fax machines “get jammed by complaints”.

buadhai · 29-05-2006, 11:07 AM

Quote:

Originally Posted by William

If you are a US citizen working overseas, you may want to give this a read:

Thanks. Another good reason to stay unemployed....

Fabian · 03-06-2006, 03:36 AM

Glad not being a US citizen.

William · 03-06-2006, 07:35 AM

^we've missed you Fabian. Please don't be a stranger

Milkman · 03-06-2006, 02:06 PM

Thanks William.

I've been reading about this. The housing part is hitting people.

Out of all the money the U.S. government wastes they do this.

I'm not surprised.

Fabian · 03-06-2006, 04:49 PM

Nah, William, I will never be, but I am pretty busy at the moment.

hillbilly · 04-06-2006, 02:59 PM

I have not filed since 1998. But then I have not made US70,000 per year.

Yes, i know that I am supposed to file but...

William · 09-06-2006, 09:29 AM

SPECIAL
Taxing time for US expats

KI Woo looks at the effect on US expatriates of recent changes to US income tax laws.

Over the past several weeks, many US citizens living in the region have been discussing US President George W Bush's signing last month of the Tax Increase Prevention and Reconciliation Act of 2005, which may increase their personal income taxes.

In Hong Kong and Singapore, there were reports last week that many Americans were considering sending letters to their congressman asking for the adverse provisions of the new Act to be repealed.

Judy Benn, executive director of the American Chamber of Commerce in Thailand, said many overseas Americans, through their American Chambers of Commerce, have selected this Monday as a "Fax Congress Day", to protest the tax increase. "In response to this legislation, our most powerful weapon is a mass response from outraged Americans," she said.

But the immediate effect of the legislation on most US citizens living and working in Thailand will be minimal.

"Most Americans employed by multinationals in Thailand are on [compensation] packages that feature income-tax equalisation schemes," said John Cifor, a tax and legal services partner at Deloitte Touche in Bangkok.

Many foreign corporations, particularly American ones, use income-tax equalisation schemes so that US citizens pay the same amount of income tax no matter where they are working around the world.

The companies "equalise" their income-tax payments and, ostensibly, US citizens working for multinationals overseas are not affected by different income-tax rates in different countries. The companies pay higher taxes if employees are working in higher tax-rate countries such as Thailand and benefit from lower payments in lower-taxed territories such as Hong Kong.

Prior to the new Act, which is retroactive to January 1, US citizens working overseas received an initial tax exemption on the first US$80,000 (Bt3.08 million) of income earned outside the US. They were also permitted to deduct from their taxable income a reasonable amount for foreign housing expenses.

Under the new rules, the initial $80,000 will be indexed for inflation annually, but taxpayers will not be able to reduce their gross overseas income by $80,000 and then begin applying the lowest tax rates to their remaining income.

Instead, they must now calculate their tax payments at the marginal rate as if the initial $80,000 had not been excluded. This new "stacking" provision forces income in excess of $80,000 to be taxed at much higher marginal rates.

The new rules also limit the foreign housing exemption to about $12,000 per year. In Hong Kong, where rents for many US families are often higher than $12,000 per month ($144,000 per year), many US expats who are not on tax-equalisation schemes were moaning and groaning last week in the expectation that their taxes will skyrocket.

In Thailand the new rules will not cause so much pain, even to individuals who pay their own taxes, because top marginal tax rates here are higher than effective US rates. In cases where the US citizen has no income source in the US, a foreign tax credit for the Thai income tax payments will continue to offset the US tax on such foreign income.

However, Cifor pointed out that one small group of Americans may suffer under the new rules.

"Employees who qualify for the 15-per-cent maximise tax rate, offered to those who work for regional headquarters, will be affected because their marginal income-tax rate is lower than those in the US," he said.

Opponents of the new measures claim that the extra costs, which in many cases are borne by US corporations through tax-equalisation schemes, will increase the overseas costs of US corporations and reduce their competitiveness.

A report published last month by the Asia Pacific Council of the American Chambers of Commerce argued further that the higher taxes may force US companies to send fewer American executives abroad.
"Americans residing and working overseas promote the export of US goods and services and spread American culture and tastes, and this increases the demand for American products and services, lays the foundation for future US export growth and spreads American values," it said.

The Nation 09/06/2006

Curious George · 20-06-2006, 11:21 PM

Quote:

Originally Posted by William

Under the act, Americans working abroad can exclude up to $82,400 from their foreign earned income, up from $80,000.

I guess I ain't gonna need worry about this either.

Thread Tools	Search this Thread
Show Printable Version Email this Page	Search this Thread: Advanced Search
Display Modes
Linear Mode Switch to Hybrid Mode Switch to Threaded Mode

03-06-2006, 03:36 AM	#3 (permalink)
Fabian Thailand Forum Last Online: Today 05:29 AM Join Date: Jul 2005 Location: Hamburg, cold dark Germany Posts: 4,965	Glad not being a US citizen.

03-06-2006, 07:35 AM	#4 (permalink)
William Thailand Travel Forum Last Online: 13-01-2010 03:09 PM Join Date: Jul 2005 Location: In jail Posts: 5,826	^we've missed you Fabian. Please don't be a stranger

03-06-2006, 02:06 PM	#5 (permalink)
Milkman Gone Off Join Date: Dec 2005 Location: shelf Posts: 17,158	Thanks William. I've been reading about this. The housing part is hitting people. Out of all the money the U.S. government wastes they do this. I'm not surprised.

03-06-2006, 04:49 PM	#6 (permalink)
Fabian Thailand Forum Last Online: Today 05:29 AM Join Date: Jul 2005 Location: Hamburg, cold dark Germany Posts: 4,965	Nah, William, I will never be, but I am pretty busy at the moment.

04-06-2006, 02:59 PM	#7 (permalink)
hillbilly Still trailer trash Last Online: Today 05:23 AM Join Date: Jun 2005 Location: BKK & 'D&G Resort' Posts: 6,608	I have not filed since 1998. But then I have not made US70,000 per year. Yes, i know that I am supposed to file but...

09-06-2006, 09:29 AM	#8 (permalink)
William Thailand Travel Forum Last Online: 13-01-2010 03:09 PM Join Date: Jul 2005 Location: In jail Posts: 5,826	SPECIAL Taxing time for US expats KI Woo looks at the effect on US expatriates of recent changes to US income tax laws. Over the past several weeks, many US citizens living in the region have been discussing US President George W Bush's signing last month of the Tax Increase Prevention and Reconciliation Act of 2005, which may increase their personal income taxes. In Hong Kong and Singapore, there were reports last week that many Americans were considering sending letters to their congressman asking for the adverse provisions of the new Act to be repealed. Judy Benn, executive director of the American Chamber of Commerce in Thailand, said many overseas Americans, through their American Chambers of Commerce, have selected this Monday as a "Fax Congress Day", to protest the tax increase. "In response to this legislation, our most powerful weapon is a mass response from outraged Americans," she said. But the immediate effect of the legislation on most US citizens living and working in Thailand will be minimal. "Most Americans employed by multinationals in Thailand are on [compensation] packages that feature income-tax equalisation schemes," said John Cifor, a tax and legal services partner at Deloitte Touche in Bangkok. Many foreign corporations, particularly American ones, use income-tax equalisation schemes so that US citizens pay the same amount of income tax no matter where they are working around the world. The companies "equalise" their income-tax payments and, ostensibly, US citizens working for multinationals overseas are not affected by different income-tax rates in different countries. The companies pay higher taxes if employees are working in higher tax-rate countries such as Thailand and benefit from lower payments in lower-taxed territories such as Hong Kong. Prior to the new Act, which is retroactive to January 1, US citizens working overseas received an initial tax exemption on the first US$80,000 (Bt3.08 million) of income earned outside the US. They were also permitted to deduct from their taxable income a reasonable amount for foreign housing expenses. Under the new rules, the initial $80,000 will be indexed for inflation annually, but taxpayers will not be able to reduce their gross overseas income by $80,000 and then begin applying the lowest tax rates to their remaining income. Instead, they must now calculate their tax payments at the marginal rate as if the initial $80,000 had not been excluded. This new "stacking" provision forces income in excess of $80,000 to be taxed at much higher marginal rates. The new rules also limit the foreign housing exemption to about $12,000 per year. In Hong Kong, where rents for many US families are often higher than $12,000 per month ($144,000 per year), many US expats who are not on tax-equalisation schemes were moaning and groaning last week in the expectation that their taxes will skyrocket. In Thailand the new rules will not cause so much pain, even to individuals who pay their own taxes, because top marginal tax rates here are higher than effective US rates. In cases where the US citizen has no income source in the US, a foreign tax credit for the Thai income tax payments will continue to offset the US tax on such foreign income. However, Cifor pointed out that one small group of Americans may suffer under the new rules. "Employees who qualify for the 15-per-cent maximise tax rate, offered to those who work for regional headquarters, will be affected because their marginal income-tax rate is lower than those in the US," he said. Opponents of the new measures claim that the extra costs, which in many cases are borne by US corporations through tax-equalisation schemes, will increase the overseas costs of US corporations and reduce their competitiveness. A report published last month by the Asia Pacific Council of the American Chambers of Commerce argued further that the higher taxes may force US companies to send fewer American executives abroad. "Americans residing and working overseas promote the export of US goods and services and spread American culture and tastes, and this increases the demand for American products and services, lays the foundation for future US export growth and spreads American values," it said. The Nation 09/06/2006

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)