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Old 06.11.2015, 17:19
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US income tax on salary earned while living in Switzerland

I have an uncommon tax situation and I can't seem to find the answer to it.

When my wife and I moved here a few years ago, she was still being paid by her US employer as if she stayed in the US, with federal and state income tax being withheld (probably a mistake on our side).

But since she officially moved here and got a B permit, the cantonal authorities asked about her employment situation and we had to file and pay swiss taxes at the end of the year on the income she earned over the months she was living here.

However the same income was also taxed in the US, with as I said fed and state taxes withheld, and the W2 at the end of the year stating her annual income as earned in the US. Since we didn't know what the swiss income tax would be we didn't do anything then.

Now that we got the bill for the swiss income tax, I would like to know how to file and amended return showing that during the part of the year when she was not on US soil she was being taxed by the swiss and that she should get her US tax money back. Anyone has a clue on what that would look like?

Thanks!
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Old 06.11.2015, 17:36
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Re: US income tax on salary earned while living in Switzerland

Plan A: Consider excluding her income using IRS Form 2555. Then file it and other corrected 1040 related forms with a 1040X as the top sheet.
- Depending on income, it might be better to file for US purposes with Swiss taxes as a credit against US taxes, instead of excluding income on Form 2555.

Plan B: Consult with a US CPA in Switzerland. It costs some money but the filings will be done right.

I would go for Plan B.

Also, have you been filing FBARs (FinCEN 114) for your "foreign" bank accounts in Switzerland? These are filed separately with the US Financial Crimes Enforcement agency. To the extent that your non-US bank accounts have a combined balance exceeding $10,000 at any one time, this form needs to be filed. Fines start at $10,000 per undeclared non-US account per year.

It's great to be a US citizen abroad.
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Old 06.11.2015, 18:17
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Re: US income tax on salary earned while living in Switzerland

You can't exclude salary paid by a US employer on the 2555.

Tom
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Old 06.11.2015, 18:34
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Re: US income tax on salary earned while living in Switzerland

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You can't exclude salary paid by a US employer on the 2555.

Tom
I'm not aware of that. Publication 54 seems to suggest that it is possible:

"U.S. employers generally must withhold U.S. income tax from the pay of U.S. citizens working abroad unless the employer is required by foreign law to withhold foreign income tax.
Foreign earned income exclusion.
Your employer does not have to withhold U.S. income taxes from wages you earn abroad if it is reasonable to believe that you will exclude them from income under the foreign earned income exclusion or the foreign housing exclusion. Your employer should withhold taxes from any wages you earn for working in the United States

Statement.
You can give a statement to your employer indicating that you expect to qualify for the foreign earned income exclusion under either the bona fide residence test or the physical presence test and indicating your estimated housing cost exclusion.
Form 673 is an acceptable statement. You can use Form 673 only if you are a U.S. citizen. You do not have to use the form. You can prepare your own statement. See a copy of Form 673, later. Generally, your employer can stop the withholding once you submit the statement that in-
cludes a declaration that the statement is made under penalties of perjury. However, if your employer has reason to believe that you will not qualify for either the foreign earned income or the foreign housing exclusion, your employer must continue to withhold.
In determining whether your foreign earned income is more than the limit on either the foreign earned income exclusion or the foreign housing exclusion, if your employer has any information about pay you received from any other source outside the United States, your employer must take that information into account."

https://www.irs.gov/pub/irs-pdf/p54.pdf
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Old 06.11.2015, 18:42
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Re: US income tax on salary earned while living in Switzerland

Thank God i'm not American !
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Old 06.11.2015, 18:54
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Re: US income tax on salary earned while living in Switzerland

I'm sorry I can't help with which form to file but I am not sure filing with the U.S. to get taxes back there is the correct approach. After all it's an American employer and an American citizen, so it makes sense (to the U.S. government) that the tax was withheld.

Instead, I believe you have lines on your Swiss tax forms that reflect the amount of tax you've paid to the U.S. - and that amount is supposed to offset your tax obligation here.

Unfortunately that means you'll likely end up paying the highest tax If the Swiss think you should have paid more than what you paid to the U.S. then they will bill you for the difference. But it should not be full double-taxation.

Last edited by 3Wishes; 06.11.2015 at 18:55. Reason: clarity? I hope?
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Old 06.11.2015, 19:15
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Re: US income tax on salary earned while living in Switzerland

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Plan A: Consider excluding her income using IRS Form 2555. Then file it and other corrected 1040 related forms with a 1040X as the top sheet.
- Depending on income, it might be better to file for US purposes with Swiss taxes as a credit against US taxes, instead of excluding income on Form 2555.

Plan B: Consult with a US CPA in Switzerland. It costs some money but the filings will be done right.

I would go for Plan B.
Thanks a lot Mulhollander! I was also gravitating towards plan B, but I would like to at least have an idea first to make sure we won't be paying more in CPA than getting back in taxes. Both of your plan A approaches sound good to me though, it which case it might make sense to get a CPA. Any recommendations on a reasonably priced german-speaking one?

I'm aware of the FBAR too, although for now she didn't have a bank account, since being paid "in the US"... but that will likely change.

3Wishes, I don't think the Swiss will care much. Working and living in their country, I assume it's a good enough reason for them to tax you. And the employer actually had a CPA take care of the swiss taxes, but not of the US ones for some reasons.
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Old 06.11.2015, 19:30
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Re: US income tax on salary earned while living in Switzerland

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TAny recommendations on a reasonably priced german-speaking one?
http://www.acareturnpreparerdirectory.com

Not a recommendation but rather information. The above link is a list of tax preparers world wide complied by the ACA (American Citizens Abroad). Click on Switzerland.

Obviously you will need to do appropriate due diligence.

The ACA website is well worth browsing - they are a respected advocacy group, their site contains loads of information on US taxation, as well as other issues that affect Americans resident overseas.
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Old 06.11.2015, 19:36
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Re: US income tax on salary earned while living in Switzerland

The advice given above is correct. No need to pay a CPA.

One can safely say that salary is earned in the country where the work is performed, not where the employer is located or the worker domiciled or has nationality.

That means that the country where the work is performed gets to impose tax first. All its tax treaties reserve the right for the US to tax its citizens and (sometimes) ex-citizens afterwards (in such a case secondarily, and subject to foreign tax credit or foreign earned income exclusion or (in rare cases) foreign civil service or diplomatic salary exclusion (for some dual nationals)).

There is a risk, if a taxpayer is deemed domiciled in a state that imposes income tax based on domicile (VA, DC, MD among them, CA, NY, IL among those who don't) that even though you are paying foreign tax you may be taxed by your former state too. If you move back to that state when your overseas tour is over, the state wins: your domicile never changed.

Thus: I always recommend to my friends, before going abroad change your tax domicile to Florida, Texas, etc. or (better) NY, CA, IL, etc. Greedy state tax administrators don't go after people who move to those latter states.

Anybody who doubts how far the greed of a state can go should read Huckaby v. New York State Div. of Tax Appeals, 4 N.Y. 3d 427, 829 N.E.2d 276, 796 N.Y.S.2d 312, aff'g 6 A.D.3d 988, 776 N.Y.S.2d 125 (3d Dept. 2004) (telecommuter who spent up to 25% of his time in New York State but was taxed there anyway).
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Old 06.11.2015, 23:32
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Re: US income tax on salary earned while living in Switzerland

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...I don't think the Swiss will care much. Working and living in their country, I assume it's a good enough reason for them to tax you. And the employer actually had a CPA take care of the swiss taxes, but not of the US ones for some reasons.
The Swiss love their rules, that's for sure. However if I read your OP correctly, you have not yet paid tax here whereas you've already paid Uncle Sam. Is that correct?

If so, it seems a bit strange - and frankly quite a hassle - to ask the U.S. for a tax refund for prior years that they assumed were correct, so that you can then pay the same tax to Switzerland. It should be relatively easy for you to prove to the Swiss that you've already paid the U.S.

I might be completely wrong, but for those back years it should only be a matter of settling up the difference between the two countries and making a payment to one or the other for whatever that difference is.
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Old 13.11.2015, 00:33
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Re: US income tax on salary earned while living in Switzerland

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I have an uncommon tax situation and I can't seem to find the answer to it.

When my wife and I moved here a few years ago, she was still being paid by her US employer as if she stayed in the US, with federal and state income tax being withheld (probably a mistake on our side).

But since she officially moved here and got a B permit, the cantonal authorities asked about her employment situation and we had to file and pay swiss taxes at the end of the year on the income she earned over the months she was living here.

However the same income was also taxed in the US, with as I said fed and state taxes withheld, and the W2 at the end of the year stating her annual income as earned in the US. Since we didn't know what the swiss income tax would be we didn't do anything then.

Now that we got the bill for the swiss income tax, I would like to know how to file and amended return showing that during the part of the year when she was not on US soil she was being taxed by the swiss and that she should get her US tax money back. Anyone has a clue on what that would look like?

Thanks!
My wife and I are in the same exact situation. And I'm a US CPA, but not practicing in tax

So what we do is have as low as possible a withholding in the US, and then resolve each year through the respective Swiss/US filings, which all in all are very fair.

Your wife does owe Swiss tax, if she is permitted to live here and is in fact living here. If she is in the US, then she does not.

There are several very good firms (some of which advertise here) who will do your returns for a nominal fee assuming your situation is otherwise uncomplicated.
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Old 13.11.2015, 00:36
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Re: US income tax on salary earned while living in Switzerland

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There is a risk, if a taxpayer is deemed domiciled in a state that imposes income tax based on domicile (VA, DC, MD among them, CA, NY, IL among those who don't) that even though you are paying foreign tax you may be taxed by your former state too. If you move back to that state when your overseas tour is over, the state wins: your domicile never changed.

Thus: I always recommend to my friends, before going abroad change your tax domicile to Florida, Texas, etc. or (better) NY, CA, IL, etc. Greedy state tax administrators don't go after people who move to those latter states.
Excellent, excellent advice that I also give freely to other Americans coming here. We "domiciled" in TX, and will spend some time living in a third state before re-settling in our original domicile-rule state to avoid any risk of the state being able to prove domicile/intent to re-domicile by "breaking" our continuity of US residency.
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