If you were employed by a foreign company that has no presence in the US how exactly would the IRS know whether you've earning more than $125k?
this post was submitted on 07 Nov 2024
290 points (92.9% liked)
You Should Know
33035 readers
275 users here now
YSK - for all the things that can make your life easier!
The rules for posting and commenting, besides the rules defined here for lemmy.world, are as follows:
Rules (interactive)
Rule 1- All posts must begin with YSK.
All posts must begin with YSK. If you're a Mastodon user, then include YSK after @youshouldknow. This is a community to share tips and tricks that will help you improve your life.
Rule 2- Your post body text must include the reason "Why" YSK:
**In your post's text body, you must include the reason "Why" YSK: It’s helpful for readability, and informs readers about the importance of the content. **
Rule 3- Do not seek mental, medical and professional help here.
Do not seek mental, medical and professional help here. Breaking this rule will not get you or your post removed, but it will put you at risk, and possibly in danger.
Rule 4- No self promotion or upvote-farming of any kind.
That's it.
Rule 5- No baiting or sealioning or promoting an agenda.
Posts and comments which, instead of being of an innocuous nature, are specifically intended (based on reports and in the opinion of our crack moderation team) to bait users into ideological wars on charged political topics will be removed and the authors warned - or banned - depending on severity.
Rule 6- Regarding non-YSK posts.
Provided it is about the community itself, you may post non-YSK posts using the [META] tag on your post title.
Rule 7- You can't harass or disturb other members.
If you harass or discriminate against any individual member, you will be removed.
If you are a member, sympathizer or a resemblant of a movement that is known to largely hate, mock, discriminate against, and/or want to take lives of a group of people and you were provably vocal about your hate, then you will be banned on sight.
For further explanation, clarification and feedback about this rule, you may follow this link.
Rule 8- All comments should try to stay relevant to their parent content.
Rule 9- Reposts from other platforms are not allowed.
Let everyone have their own content.
Rule 10- The majority of bots aren't allowed to participate here.
Unless included in our Whitelist for Bots, your bot will not be allowed to participate in this community. To have your bot whitelisted, please contact the moderators for a short review.
Partnered Communities:
You can view our partnered communities list by following this link. To partner with our community and be included, you are free to message the moderators or comment on a pinned post.
Community Moderation
For inquiry on becoming a moderator of this community, you may comment on the pinned post of the time, or simply shoot a message to the current moderators.
Credits
Our icon(masterpiece) was made by @clen15!
founded 1 year ago
MODERATORS
they wouldn't know initially.
you report your income, and then if the IRS suspects foul play, they would check later.
If you're making over 125k, then you'll likely have some kind of connected web/media presence that would allow them to at least circumstances confirm your position and standing within the field.
they could also check your bank balance and international holdings against the amount you said you've been making and see if it matches up.
Because money keeps getting deposited in your bank account every two weeks and you're not reporting any income.
Banks hand all of that information over.
Maybe I'm not understanding what you mean, but if someone works and lives abroad for 330 days of the year they'll likely have a bank account established within that country so that they don't have to deal with all of their daily financial activities being international transactions.
Honor system
But if you earn over the threshold, you're expected to pay taxes to the US government, no matter where you're actually living or working, no matter if you're also paying taxes wherever you currently are. The US is the only country in the world to assert that it has the right to tax its citizens remotely in this manner. It's not normal.
Add that to the list
Double taxation treaties are very common. What I've been told by US coworkers makes the US stand out is that you still need to file your taxes with the IRS, even when living abroad. No idea if that's actually the case.
I have lived outside my native country for a while and only had to file taxes in my country of residence (neither of which is the US), because there's a DTAA in place between the two.
It’s not the only country. I’ve lived in another country that was just like that. I bet other countries have the same rule to avoid some tax loophole. Or just because they can.
The US has double taxation treaties with over 60 countries. When you pay taxes somewhere else, you deduct all of that tax from your US taxes above the $125k.
Though I definitely agree the IRS shouldn't need these treaties, because if you're not living there, why should you even need to file?
Because US law says so lol
Y'all just now learning that laws are written for the benefit of the ruling regime, not the peasants.
There were only “two parties in all States,” Randolph concluded. “The ins and the outs.” The ins construed governmental power broadly for the gain of their own “patronage and wealth,” while the outs tried to limit such power. “But let the outs get in . . . and you will find their Constitutional scruples and arguments vanish like dew before the morning sun.”
load more comments
(1 replies)
They also charge you a crazy exit tax if you want to give up citizenship in order to save on taxes. They always get their pound of flesh.
Which is absolutely wild to me, considering that all natively born citizens received their citizenship involuntarily at birth.
load more comments
(8 replies)
"over the threshold, you're expected to pay taxes"
sort of, that's the "up to 125k" limit part of the FEIE(readjusted for inflation every year).
you still don't pay taxes on the first 125k.
earning more than 125k is not a problem most people have.
The problem most people have is not knowing that the feie exists in the first place and there are legal, straightforward ways to avoid paying income tax while saving money traveling.
"no matter if you're also paying taxes wherever you currently are..."
this is very iffy and depends on a lot of factors.
again, for most regular people, foreign income tax credits will erase most financial duties to the US.
"The US is the only country in the world..."
nearly.
"It's not normal."
nope, it's definitely weird and it sucks.
but at least there's the FEIE.
load more comments
(7 replies)
Yeah, it goes up faster than inflating each year, it seems. 126,400 per person or 253k for married I believe this year, which is a pretty fair bit especially considering you deduct the taxes you locally pay off the top first, afaik
"considering you deduct the taxes you locally pay off the top first"
i understood local taxation to be inclusive to the FEIE, can i see your source?
https://www.investopedia.com/terms/f/foreign-tax-credit.asp
https://www.irs.gov/pub/irs-pdf/f1116.pdf
I thought it was a Form 1116 thing, but I could be wrong for sure. IANAL and haven't yet done foreign taxes so who knows yet
oh i see. thanks.
yea, the 1116 is for people paying formal taxes to the foreign government directly, usually because you're living there as a permanent resident or operating a business full-time and significantly, have established your permanent tax home in that other country.
using the 1116, you don't pay all of the taxes twice, although you still pay some of them twice because the US wants that cash.
the FEIE, form 2555, means that your tax is still in the US and only requires that you're not in the US for 330 days out of the year to exempt income tax on up to 125k of income earned while outside of the country.
the feie does have a residency test as well, but the physical presence qualification of 330 days each year is simpler and requires much less trouble to set up initially (permanent residency, switching tax homes, work permits and all that) to qualify for, so I only deal with the physical presence test.
I always find it mad as hell that Americans have to pay tax in the US even if they are living and earning elsewhere
Especially given generally Americans are pretty allergic to reasonable taxation
yeah it is totally banana stacks, and nobody tells anybody else how to get around that, of course.
since nobody knows the sacred knowledge anyway.
some tax guy, not my tax guy, just a random guy who worked in taxes, offhandedly mentioned it to me like it was no big deal one day and I was like whaaaat?
most of the expats I know just don't pay taxes because they're dumb, or they're paying taxes that they don't need to because nobody told them about the FEIE.
You still need to file every year. An advisor at least here in Germany can do both countries, but you pay a premium for that.
load more comments
(13 replies)
load more comments
(2 replies)
However, since you don't pay taxes on that money, it can impact which kinds of retirement accounts you can use based in the US, if any. Also, trying to invest as a US citizen outside the US can suck because of all the agreements with US banks. Many Japanese platforms, for instance, won't touch me because of US reporting requirements. I also can't functionally use the tax-advantaged retirement accounts here because many amount to what are called PFICs by the IRS which requires paperwork and are taxed punitively more than wiping out any advantage the retirement accounts would have.
You're also going to have a rough time getting a US investment account if you don't have one already. Then you have to figure out how to have a US phone number because two-factor auth basically requires it for any bank or anything that will touch you.
There are other "fun" things about being a US citizen living abroad.
Do you live abroad? I'm expatting in a few weeks (long planned, not in a pure panic due to Trump) and would love ask a few questions if so!
I can try to answer. I've lived in Japan for almost a decade (this is my 10th year).
"However, since you don't pay taxes on that money, it can impact which kinds of retirement accounts you can use, if any"
The math works out in your favor.
wouldn't you rather have that money earning interest now rather than receiving a few hundred later on when you probably don't need it as much?
"Also, trying to invest as a US citizen outside the US can suck because of all the agreements with US banks."
it can suck, and it can also be awesome.
I see you're speaking specifically to Japanese banking standards, which I would agree are one of the more difficult countries for a US citizen to interface with.
but that's a great thing about there being about 200 countries.
Bank somewhere else if you want to.
try Hong Kong or China or Thailand or Portugal or Sweden or you know, a lot of countries.
you don't have to live in the country you bank in.
Yeah, some is specific to Japan, though there will be similar hurdles anywhere the US has an agreement (and that the target country's institutions actually follow it, I suppose).
I have a couple of retirement accounts in the US that I contributed to before (I moved overseas in my early 30s) that I basically can't touch for a number of reasons right now. Just wanted to throw it out there.
It might be interesting to crosspost this to !politicaldiscussion@lemmy.world
Also, I know you mean good, but this isn't relevant to probably a high number of Lemmy users who are not US citizens
load more comments
(9 replies)
Unless you renounce US citizenship of course. I understand it's a bit extreme, but it is a solution
do you mean "another option to avoid paying taxes is renouncing your citizenship?"
in which case, yeah, extreme and still an option.
but the FEIE is way simpler and you can keep the few perks US citizenship still affords its rabble.
load more comments
(2 replies)
view more: next ›