Whoo-Hoo!!
Disclaimer
First, do not confuse me with a financial adviser, accountant or tax authority in any way. For that expert, I can only suggest CFO2GO for expats in Europe.
Now that I threw out that disclaimer, let me get you excited about this idea: tax free income.
Besides other obvious benefits to living overseas, there is a huge financial perk. For US citizens earning income outside the United States, their income (up to a certain amount) is tax free.
So, you’re skeptical on the phrase “up to a certain amount”? Are you sitting? For 2009, my salary is tax free up to $91,400. I think that’s a fairly high amount by most people’s living standards (including ours).
And the even better news? For whatever reason, the US government continues to raise this tax exclusion amount higher and higher every year, regardless whoever is in office. (That’s good evidence the IRS doesn’t mind having this policy in place.) In fact, every year, on average, the amount goes up a couple thousand dollars.
For this site, I made a quick chart showing the last 11 years:
Another Disclaimer
This does not mean we avoid filing paperwork every year. Yes, US citizens are obligated to file the paperwork, regardless where we live. For this, you want to file the special form to declare your income is excluded from taxes: form 2555.
Some good news is, as expats, we do get an additional 2-month time extension, pushing the deadline from 15 April to 15 June. Thankfully, instructions for the form 2555 are relatively simple (certainly doesn’t require 2 months!).
So, to summarize the Good and the Bad:
Good:
- Our first $91,000 is tax free
- We get 2 months more time to file
Bad:
- We must file as we always have
- One more form to fill out, the 2555
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{ 8 comments… read them below or add one }
I need help!!!!
How do I become an expat with an 11 year old son?
Hi Issa!
First, thank your for your comment.
About your question “How do I become an expat with an 11 year old son?,” my immediate thought is “Yes! With your son, too!”
Really, in some ways it’s easier with, say an infant or toddler. A 2-year old would have no say in the matter; a baby is “just along for the ride,” right?
But it’s not so with a much older child, and I’m sure at 11 years old, your son is basically a young man with a lot of his own ideas and activities on his own plate.
That’s why it’s crucial to involve him from the start. From the idea stage. He may, after some time to think about it, have some very definite input on where he’d like to go.
Get a globe. Note how far some of your recent vacations have been…and see how that same distance translates when starting from cities within Europe or Asia. Naming off a few surrounding countries can get the mind reeling with excitement.
Together you must make your mind up, whether to become expats together or not. If you do, once decided, then you’ll instantly find new courage and strength to tackle the logistical questions of a new home, school, what new sports to play, etc…
Finally, let me say this. Decisions are extra difficult as we’re facing them. And we may not truly appreciate the real value until much later. In the case of older kids moving around the world, this is especially true. When your son is 30, he will look back at his early life and know his experiences abroad are what set him apart from the crowd.
I hope this helps.
Issa — is there any particular question(s) I can help with? Maybe I should keep writing to this one? How are you in deciding?
-Jeff
Hi, this is great info – I would propose that the reason the limit goes up every year is to (try to) keep up with inflation.
Cool. You may be right, my friend, you may be right!
-jeff
I hope this question makes sense.
My family and I are British but my husband has been offered a job in Indianapolis which would obviously mean relocating. It is a good job with a very good salary but what im concerned about is that our credit rating in England hasnt always been the best and I dont want to get to America and find that we cant rent a nice home or lease a decent car even though we could afford it.
Any advice on how the system works over there?
Sarah,
Take any concerns about your UK credit rating and throw them out the window. US creditors won’t research it unless you’re going for a major purchase, e.g. a mortgage.
However, not having any US credit history will prove more troublesome.
In Indy (Indianapolis), you will be perfectly able to rent a home. You’ll have to give some assurance that you are willing (and able) to pay. For the immediate need, I’d recommend using a copy of your husband’s job offer with noted salary. A leaser may also request to see a copy of his first pay slip.
To build a credit history, get a local bank account. Apply for a charge/credit card. There are plenty without annual fees – ask your bank rep.
I am certain that even leasing a car will be hassle-free once you can demonstrate your steady income.
Indy has a decent public transportation system of buses. However, like in most of the US, use of public transport carries a low-income connotation.
Congrats on the offer. Indy’s a real nice city, in most areas. Grown quite a bit in the last decade. (I know Indy since I grew up in Indiana.)
-Jeff
Hi Jeff,
Quick question – Does an expat still pay taxes in the country they are living in? Say I was living in Germany as a U.S. citizen, and I was making 80,000 euro a year. I would not pay income tax back to the U.S. on that salary, but I would be paying into German taxes even if I’m a U.S. citizen – Is that assumption correct?
hey Justin,
Yes, your assumption is correct. You will pay income taxes in the country in which you earned the income. That’s the fact nearly 100% of the time.
So, yes, if you lived in Germany and earned (only) 80,000 euros, you would pay only German income tax. The threshold for 2011 tax year is $92,900 (tax excluded up to $92,900).
But it’s important to still file a U.S. tax return (essentially for zero taxable income). And, given you had a German bank account, you would file the relatively simple FBAR form to report a foreign bank account. It’s daunting to read, I know, but it sure beats any alternative.
Hope that clear and good.
-Jeff
p.s. I recommend the small city Bonn.
I worked there for 2 months.