Hello,

Following from the US Citizens having problems with bank accounts in Switzerland thread, can I give an Example and ask a Question to US Friends?

Take this case:

• US Citizen not married
• Swiss Resident
• No property in USA
• Earns 100000 CHF per annum
• Pays all normal Swiss Taxes

Does this person have to pay MORE taxes to US Government?

I could understand some taxes if the person is renting out their House in the USA, but if they have NO connections with USA, then why should they be double-taxed??

Because the US taxes its citizens on worldwide income, regardless of whether they reside in the US or not.

Odds are that you won't pay much if any US taxes because you are credited for those you already paid in Switzerland. It does seem like a royal pain to have to file a return every year, but if you want to avoid any chance of an audit after moving back...

If an American (or green card [permanent residency] holder) has income over about $86k USD, then they will be taxed on the amount above that threshold at the rate that their entire income would have been taxed at. So if you make $200k, you'll be paying tax on roughly $114k at the same rate as the full $200k (instead of whatever the rate is for $114). That makes a huge difference for someone who is over the threshold by a mere $10k.

Also, there are no real deductions that you can use from overseas to reduce your tax burden aside from the standard overseas ones. Residents can deduct a lot of things from their taxes (mortgage interest, etc. etc. etc.).

In addition to all of this, Americans must also file a FBAR form each year (which I always read as FUBAR, appropriately so) if at any moment during the year the aggregate of their bank accounts overseas is over $10k USD. Even if only for a moment. This form has you detail all of your bank accounts and the highest balance in each of them.

Ladies and Gentlemen,

Thank you very much, I can now fully understand why feelings about Tax run so extremely high in the USA.

To digress:

Perhaps I should now declare: I am 25% American as my Grandfather was an American who had an affair with an Irish nurse who was working in Pennsylvania in the early 1930s.

Perhaps this is why I have made 24 trips to the USA and despite a succession of wives and girlfriends trying their hardest, we haven't made any significant progress on your balance of trade deficit.

Just be glad you didn't inherit citizenship from him Then you'd be filing all this junk, too!

One woman I used to work with told me proudly her daughter was born in the States and was a citizen. I didn't have the heart to tell her that she's just cursed the kid to a lifetime of the IRS (Internal Revenue Service).

So if I understand this correctly, the citizen would have to pay tax at 33% (the rate for $200k) on $114k, meaning he had a theoretical US tax liability of $37,620.

Suppose our US taxpayer lives in Basel (and in the interest of simplicity, $1 = CHF 1). His Swiss tax liabiilty would be CHF 47,260 in cantonal taxes plus CHF 14,288 in federal taxes, or a total liability of CHF 61,548.

If I understand the system correctly, since he paid over $37,620 in Swiss taxes, he would have no US tax liability.

If, on the other hand, our man chose to live in Walchwil, where he would pay only CHF 36458 in Swiss taxes, he would owe the remainder of $1162 to the IRS.

Have I got it right?

Not quite. There's a flat amount of earnings for overseas taxpayers - for 2008 it was $87,600. You're taxed on earnings above that amount - but at the same rate that it would be if all of your earnings were taxed (basically it is just a deduction on your taxes as a credit for taxes paid, regardless of where you live outside the states).

They don't care how much you pay in Swiss/foreign taxes, if anything. You still get the exclusion.

Oh, and I should add - the tax forms are a true PITA to deal with.

To add to evilshell's comment:

There are limits to how much credit for foreign taxes paid one can take - you can't always take one for one. Extra credits can be carried forward for max 5 years, IIRC.

And, time spent in the US on business can reduce your ability to claim the entire deduction.

You may also find yourself caught by alternative minimum tax, because of the expat deduction/ credit for foreign taxes paid. And there are differences as to what is or isn't deductible between the two systems, which can make tax planning a difficult exercise.

Bottom line, as an overseas resident you generally pay something around what you would have paid - to one government or the other - if you had stayed on US soil. Sometimes more.


-MC, who enjoys those nice SZ tax rates... until she has to write Uncle Sam a check for the difference.




Yep... a hundred page return is nothing...

This is partially correct. Instead of taking the Foreign Income Exclusion,
he could elect to take credits for taxes paid in Switzerland against
the US tax burden.

Depending on the Canton in which you live, this option may or may
not make sense. I live in Zug, for example, where the taxes are
very low. It is better for me to take the Foreign Income Exclusion.

When I lived in Bern, it was better to take the tax credits because
I had a higher tax rate in Canton Bern.

Are you telling me that you only have to born in the States to become a citizen, regardless of parent nationality?.

For example a woman (say from the UK) who gives birth while on holiday in the states has effectively cursed the baby to being chased by the IRS for the rest of his/her life?

Yes, unless the citizenship is renounced.

A lot of pregnant migrants (mostly Mexican) try to get to the states to give birth so their kids can be American.

We pay a lot of taxes for these hospital visits as well.

The US constitution (14th Amendment) gives citizenship based on "Jus Soli" (latin for "law of ground") which entitles anyone born in the US to be a US citizen regardless of the citizenship of their parents. The key word is "entitles" which is very different than "forces".

If British citizens have a child in the US they are not required to apply for US citizenship for the child. If they choose to do so, then the child is required to pay US taxes for as long as the child maintains his or her citizenship and for many years after even if he/she renounces that citizenship.

Of course, the example of a woman giving birth in the US on holiday is far fetched as they generally don't let women more than 6 months pregnant fly commercial airlines.

The "foreign earned income exclusion" and the foreign (income) tax credit cannot be claimed against the same income, i.e. if you exclude the first $87k of income form US tax, you cannot claim a credit on the CH tax paid on that same $87K. However, you can claim a tax credit for CH tax paid on your income above $87k, i.e. the same tax return can claim an "earned income" exclusion and claim tax credits.

Which deductions do you believe are available to US residents and not to US expats? (Please cite the applicable IRC section or IRS publication.)
The eligibility of mortgage interest is not dependent on the location of the house; see IRS publication here.

Thanks for all the information that I am learning from this thread. I just looked up the FBAR requirements and am assuming that I still need to fill out the form even though my husband is Swiss and has no US citizenship, greencard,etc. and is the sole income earner. Is this correct?

One more question: We have a joint bank account and I do not work (I am American). Do we have to pay US taxes on my husbands Swiss income even though I do not have any income myself?

Thanks in advance for your help! Sorry if I skipped a thread already covering this topic.

AggieCoco

Yes, if you had any "authority" (e.g. signature authority) over an account and the total value of all such accounts was over $10k at any time. The best thing to do is read the form TDF instructions for the definitions.

No, since you are a "US person" with no income, and he is not a "US person". (To avoid aggravation be sure that you file your US tax return separately, i.e. do not file a joint return!).