Trying to calculate net salary for some schools we're interested in, and I'm confused about tax treaties between the US and other countries. I tried to search the forums, but I ended up more confused than when I started.
If I understand correctly, American teachers in certain nations are exempt from taxes in both countries for two or three years. So when people on here talk about the high taxes in a place like Germany, are they talking long-term, past the two year exemption? Or are they just ignoring the treaties because US tax rules don't apply to everyone?
I know that some countries require you to pay back the exemption if you stay past the two year limit, but Germany is apparently not one of those countries. What gives? (Germany is just a handy example. Feel free to use other countries.)
In case anyone else is wondering the same thing, here's a summary of treaties. This page is for foreign nationals living in the US, but the agreements are reciprocal. http://www.admin.mtu.edu/acct/dept/tax/ ... hwages.htm
U.S. Tax Treaties
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BookshelfAmy
- Posts: 120
- Joined: Sat Jan 21, 2012 4:21 pm
And... while we're on the subject...
Does anyone have experience contributing to a 403(b) while overseas? Our retirement guy says that more and more overseas schools are able to do a payroll deduction and contribute on your behalf (no self-employed status needed).
I didn't realize until I read all those old forum threads that some retirement accounts won't work with tax-free income. Since a 403(b) is tax-deferred, there shouldn't be a problem, right?
PS - Anyone know of a good (easy to understand) book on personal finance for expats? *whimper*
Does anyone have experience contributing to a 403(b) while overseas? Our retirement guy says that more and more overseas schools are able to do a payroll deduction and contribute on your behalf (no self-employed status needed).
I didn't realize until I read all those old forum threads that some retirement accounts won't work with tax-free income. Since a 403(b) is tax-deferred, there shouldn't be a problem, right?
PS - Anyone know of a good (easy to understand) book on personal finance for expats? *whimper*
First things first, stop looking at that table. That's for non-US citizens living in the US. Doesn't apply to US citizens living abroad.
Each country is different, and even schools can be different within a country.
For example, a country might have granted an exemption to teachers at a particular international school, but not to other schools. So you need to check each country and school as you apply.
In many cases, you will not need to pay, or even file, taxes in the country where you live. Sometimes this privilege expires after a certain number of years.
In many cases, it's the other way. You will need to pay taxes in the country where you live.
In Germany, it used to be the case that your German taxes would be taken out from day one, but if you left at or before the end of two years, you'd get the whole whack back in a lump sum. I'm not sure if this continues, or if it applies to all schools.
No matter what, you need to keep filing taxes in the US. Every year. This shouldn't be a problem. You'll get an exemption up to some large amount of overseas income, like $85,000, so you won't be paying taxes, just filing. You may have investment income or such that you'd still have to pay taxes on.
You might be able to invest in an IRA, but not a 401k. Some schools will help you with a retirement contribution to an official account, but this is very individual. Other schools give you a lump sum yearly to do with as you will. Up to you whether you invest or spend. Others still will give you an end of service bonus, which would be again your choice what to do with. Others just give you your salary and planning retirement is up to you.
Whatever you do, you'll need to take more responsibility for planning retirement than you would usually need to do back home. And with the better packages, you could do quite well if you plan and save.
Each country is different, and even schools can be different within a country.
For example, a country might have granted an exemption to teachers at a particular international school, but not to other schools. So you need to check each country and school as you apply.
In many cases, you will not need to pay, or even file, taxes in the country where you live. Sometimes this privilege expires after a certain number of years.
In many cases, it's the other way. You will need to pay taxes in the country where you live.
In Germany, it used to be the case that your German taxes would be taken out from day one, but if you left at or before the end of two years, you'd get the whole whack back in a lump sum. I'm not sure if this continues, or if it applies to all schools.
No matter what, you need to keep filing taxes in the US. Every year. This shouldn't be a problem. You'll get an exemption up to some large amount of overseas income, like $85,000, so you won't be paying taxes, just filing. You may have investment income or such that you'd still have to pay taxes on.
You might be able to invest in an IRA, but not a 401k. Some schools will help you with a retirement contribution to an official account, but this is very individual. Other schools give you a lump sum yearly to do with as you will. Up to you whether you invest or spend. Others still will give you an end of service bonus, which would be again your choice what to do with. Others just give you your salary and planning retirement is up to you.
Whatever you do, you'll need to take more responsibility for planning retirement than you would usually need to do back home. And with the better packages, you could do quite well if you plan and save.
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BookshelfAmy
- Posts: 120
- Joined: Sat Jan 21, 2012 4:21 pm
Geez. I'm definitely going to have to hire someone to think about this stuff for me.
I realize the table is for expats in the US, but the agreements are supposed to be reciprocal. I guess it's more complicated than that. So, when evaluating a package, I should count on paying tax unless otherwise stated?
Thanks for your help.
I realize the table is for expats in the US, but the agreements are supposed to be reciprocal. I guess it's more complicated than that. So, when evaluating a package, I should count on paying tax unless otherwise stated?
Thanks for your help.
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justlooking
- Posts: 118
- Joined: Sat Feb 14, 2009 1:02 am
The exemption for foreign income is 96,000 dollars. I don't know about you, but I don't make that much. And even if you do, you only pay tax on the money earned over that amount. That applies in all countries for U.S. citizens for U.S. taxes.
You just need to check about local taxes in the school/country where you take a job. So far I haven't paid a dime (Egypt, UAE).
You just need to check about local taxes in the school/country where you take a job. So far I haven't paid a dime (Egypt, UAE).
If your housing is provided directly by the school for 'your employer's convenience', you don't have to count the value in your income. But if you take a cash allowance, you have to count that. Check with a tax specialist to see if your housing meets the 'convenience' standard. It can save you a bundle.
I have always completed my taxes on my own but going to my first international assignment I have secured the services of a tax expert....while I might feel comfortable completing my domestic taxes, I am a fish out of water when it comes to all the international rules and regulations...having help to navigate these waters is one less thing I will have to worry about.
The cost is minimal, the peace of mind priceless.
The cost is minimal, the peace of mind priceless.
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teacher4429
- Posts: 8
- Joined: Wed Jun 06, 2012 11:37 am
To claim the exemption, you need to either meet the physical presence test or the bona fide residence test. Google these for a start.
If you are going to pay someone to prepare your taxes, make sure you do your research and choose wisely to pick someone who really understands the rules for US expats. I have friends overseas who are using Stateside tax preparers unfamiliar with the expat rules and I know they are being told the wrong information.
However, make sure to file every year, no matter where in the world you are.
If you are going to pay someone to prepare your taxes, make sure you do your research and choose wisely to pick someone who really understands the rules for US expats. I have friends overseas who are using Stateside tax preparers unfamiliar with the expat rules and I know they are being told the wrong information.
However, make sure to file every year, no matter where in the world you are.
Reply
You can find the tax treaties here, and they are mostly bilateral (they work both ways).
http://www.irs.gov/Businesses/Internati ... s---A-to-Z
The limit for 2012 is $95,100, you either need to be in the foreign country for a full year (in which case you only get to pro rate the days your actually out of the country) or be a resident of the foreign country for 330 days in a calendar year. Even then if you dont qualify you can just say your salary is whatever you want it to be to essentially have no tax liability based on your exemptions and deductions. I dont teach at ISB (Beijing) I teach at Acme Language School and make 10K RMB a month.
In reality people just dont pay their taxes simply because your taxes are whatever you say they are. There is no W-2, or 1099 data sent to the IRS (with a few exceptions). So You can say you left the country on X day to make the residency test if you want. Basically, if you file your return through one of the consulates and embassies and its got a foreign stamp on it or you file online and your return has an overseas IP attached to it, your not going to get audited. The IRS doesnt have the resources to investigate expats, and doesnt have the legal resources to collect them.
Ive written about this before, but Tax treaties dont really apply to ITs. Usually the language hinges on a couple key points. Either you have to be "invited" by the host nation. Which is different then accepting a job at an international school. The school is in the host nation but the school isnt an entity of that nations government.
In the other case the business entity has to be a public entity, and most ISs are private independent institutions.
What these tax treaties are really designed for is for tertiary professors of universities to be visiting professors and researchers at other universities in the host country. They dont really apply to us.
This has been a BIG issue in China this last year with the new tax on foreign teachers despite there being a tax treaty giving a three year exemption form taxes.
There are almost always clauses in the tax treaties that allow for exigent circumstances, and the Greece/EU issue has been used by a number of countries to collect taxes. Basically treaties are nothing more then mutual agreements. You cant go to court and sue a government for violating a tax treaty (the US government can, but you dont have standing). They basically say you dont charge our citizens taxes and we wont charge your, but circumstances change.
You basically cant invest in a 401 or IRA you need US taxed income for that. You could self employ, and do a Roth IRA (and pay Social Security). I dont know who your tax guy is, but the answer to that question would depend a lot on the school and country. I only know a couple schools that could do a deduction AND get it into a 403b plan managers firm. A lot of schools either auto deposit into a local bank using that countries banking network or they pay in cash. Doing a deduction from the school and getting it to a plan manager firms account in the USA would require some expensive wire transfers and or very rare access to the ACH (Automated Clearing House).
Really youd be better off forgetting the USA for your retirement planing. Its much easier to use a UK investment firm, though germany is attractive right now in Europe and Hong Kong and Singapore have very stable investment sectors. they have a variety of products for retirement and wealth management from simple time point investment plans (which resemble an IRA) to national pension schemes offered by those countries social system (like Social Security). The attraction of all those USA retirement plans are based on some kind of contribution from your employer, and either a school offers it, in which case HR will give you the plan information, or your on your own.
http://www.irs.gov/Businesses/Internati ... s---A-to-Z
The limit for 2012 is $95,100, you either need to be in the foreign country for a full year (in which case you only get to pro rate the days your actually out of the country) or be a resident of the foreign country for 330 days in a calendar year. Even then if you dont qualify you can just say your salary is whatever you want it to be to essentially have no tax liability based on your exemptions and deductions. I dont teach at ISB (Beijing) I teach at Acme Language School and make 10K RMB a month.
In reality people just dont pay their taxes simply because your taxes are whatever you say they are. There is no W-2, or 1099 data sent to the IRS (with a few exceptions). So You can say you left the country on X day to make the residency test if you want. Basically, if you file your return through one of the consulates and embassies and its got a foreign stamp on it or you file online and your return has an overseas IP attached to it, your not going to get audited. The IRS doesnt have the resources to investigate expats, and doesnt have the legal resources to collect them.
Ive written about this before, but Tax treaties dont really apply to ITs. Usually the language hinges on a couple key points. Either you have to be "invited" by the host nation. Which is different then accepting a job at an international school. The school is in the host nation but the school isnt an entity of that nations government.
In the other case the business entity has to be a public entity, and most ISs are private independent institutions.
What these tax treaties are really designed for is for tertiary professors of universities to be visiting professors and researchers at other universities in the host country. They dont really apply to us.
This has been a BIG issue in China this last year with the new tax on foreign teachers despite there being a tax treaty giving a three year exemption form taxes.
There are almost always clauses in the tax treaties that allow for exigent circumstances, and the Greece/EU issue has been used by a number of countries to collect taxes. Basically treaties are nothing more then mutual agreements. You cant go to court and sue a government for violating a tax treaty (the US government can, but you dont have standing). They basically say you dont charge our citizens taxes and we wont charge your, but circumstances change.
You basically cant invest in a 401 or IRA you need US taxed income for that. You could self employ, and do a Roth IRA (and pay Social Security). I dont know who your tax guy is, but the answer to that question would depend a lot on the school and country. I only know a couple schools that could do a deduction AND get it into a 403b plan managers firm. A lot of schools either auto deposit into a local bank using that countries banking network or they pay in cash. Doing a deduction from the school and getting it to a plan manager firms account in the USA would require some expensive wire transfers and or very rare access to the ACH (Automated Clearing House).
Really youd be better off forgetting the USA for your retirement planing. Its much easier to use a UK investment firm, though germany is attractive right now in Europe and Hong Kong and Singapore have very stable investment sectors. they have a variety of products for retirement and wealth management from simple time point investment plans (which resemble an IRA) to national pension schemes offered by those countries social system (like Social Security). The attraction of all those USA retirement plans are based on some kind of contribution from your employer, and either a school offers it, in which case HR will give you the plan information, or your on your own.
To clarify...
The first year out of the US, you'll need to use the physical presence thing, which means staying out of the US for 330 out of 365 days. Those days can start anytime, doesn't have to be January 1. So if you move to Argentina on August 10, your 365 days start then. Be careful how much vacation you'll plan for home.
After that, you can use the resident thing, and spend as much time in the US as you want.
And always, the amount of your exemption is based on how many days you're out of the US each tax year. If you're out all year, you get the full exemption. If you go to the US for 5 days in 2013, your exemption will be 360/365 of the maximum exemption. Etc.
And I can't recommend fibbing. I personally know two people who have been caught out, and it cost them 10s of thousands to get right with the government again. Since you won't be paying anyway, or paying pretty little, what's the benefit of lying?
The first year out of the US, you'll need to use the physical presence thing, which means staying out of the US for 330 out of 365 days. Those days can start anytime, doesn't have to be January 1. So if you move to Argentina on August 10, your 365 days start then. Be careful how much vacation you'll plan for home.
After that, you can use the resident thing, and spend as much time in the US as you want.
And always, the amount of your exemption is based on how many days you're out of the US each tax year. If you're out all year, you get the full exemption. If you go to the US for 5 days in 2013, your exemption will be 360/365 of the maximum exemption. Etc.
And I can't recommend fibbing. I personally know two people who have been caught out, and it cost them 10s of thousands to get right with the government again. Since you won't be paying anyway, or paying pretty little, what's the benefit of lying?
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wrldtrvlr123
- Posts: 1173
- Joined: Sat Feb 06, 2010 10:59 am
- Location: Japan
We use TurboTax. They ask all of the questions and then put your information into the appropriate forms.
For your first year out you can file for an extension and that additional time will often give the days needed to qualify for the full exemption (although very few of us will need to exclude 90K + during our first year (i.e. Aug.-Dec foreign earnings).
For your first year out you can file for an extension and that additional time will often give the days needed to qualify for the full exemption (although very few of us will need to exclude 90K + during our first year (i.e. Aug.-Dec foreign earnings).