Does anyone have any experience with what the US tax implications are for a couple who, one is on a local swiss contract and the other who is on a US expat package? I'm sure both incomes need to be declared in the US, but are there any exceptions? What are the tax bracket amounts?

Appreciate anyone who can help

If you are a US citizen or a permanent resident you must file US tax returns each year. You can delay the filing until June 15 of 2009 for 2008 taxes but must pay any taxes owed by April 15 2009. If you have been out of the country for a full year both you and your wife can claim an exemption on the first $87,000 you each earn and a dollar for dollar credit for all the taxes paid in Switzerland. If you have been out for a lesser amount of time, the $87K is prorated.

So if you have "normal" Swiss salaries, it is unlikely you will owe the US Federal government anything. The State government might be a different story. if your state has a tax, then you need to be very careful that you have established you have left otherwise they can and will tax you and there is no credit for foreign taxes paid (only for Federal taxes which likely you do not owe).. The rules on residency are complicated but in my State (California), they will deem you to be resident if you show an intention to come back (e.g. maintain a house in the State or a car etc.). It needs careful planning and probably a tax advisor to sort out the rules and avoid a nasty surprise.

Good luck.

Thanks renmaris. We too, are residents of CA and still own a house there. I am trying to figure out whether my spouse should work or not in CH because I am not sure how we will be taxed in the US. I am on an expat contract and am getting paid in the US. My salary is above the allowed $80000 tax exemption. Should we file jointly in the US, with her CH salary and my US salary combined? Do the same tax bracket amounts apply?

I think it will be worth your while paying a tax accountant to look at your specific situation. Are you also taxed as well as paid in the USA? As far as I know, if you work here and have a work permit you will need to pay tax in Switzerland. Maybe the company will make you whole to avoid any disadvantage (I understand this is quite common in multinationals). If your wife gets a job here and pays Swiss tax, she could file separately and then claim the $85K exemption. On a normal salary, the brackets do not come into play because in addition to the $85K exemption the US allows you a dollar for dollar credit against the tax paid in Switzerland (the 2 countries have a tax agreement)

You can file a tax return extension which will allow you to extend the June
15, 2008 deadline until October 15.

Thanks for the information renmaris and HollidayG, I've made an appointment with a tax consultant since my situation is a little unique.