> Of that, $95,100 in 2012 is tax free, so I only pay taxes on what I make over that. Which I did one year, so that was fun trying to figure out how to pay the IRS from an overseas bank account.
Are you telling me that the Swedish taxes you deducted from your tax bill were lower than the corresponding American taxes? I find this very hard to believe. Yes, you have to pay taxes after $95k, but you can deduct what you pay to the government in the country you are working in, which usually comes out to zero overall.
> From what I can tell, if I had moved to New Zealand then I would be paying social security to both countries.
You do not have to pay payroll taxes if you are employed abroad. I haven't contributed to SSI or Medicare in a long time.
> Have you filed your FBAR statement?
Every year! This is annoying, but at least we can file online now.
> Swedish banks really don't want customers who are US citizens, because the US requires a lot of extra paperwork from the bank. FACTA makes this worse.
Thankfully, I live in China where they could careless about American laws (up until this point).
> It ends up being this odious choice - how much are you willing to pay and how much hassle will you put up with in order to keep your citizenship?
It really isn't that big of a deal. There is at least a million of us working abroad, probably more, and only 640 a year decide to renounce. And what are the other choices? Should I become a PRC citizen, even if that was possible?
> You do not have to pay payroll taxes if you are employed abroad
Correct. But as I started off, I'm self-employed.
Quoting from elsewhere: "If you are self-employed and you live overseas, you may still be required to pay self-employment taxes in the US, including Social Security. This would need to be paid before the Foreign Earned Income Exclusion so it is an actual out-of-pocket expense, not something that would be offset on your expat tax return."
The exceptions are those countries which have a totalization agreement with the US. "This covers Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Korea (South), Luxembourg, Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland and the United Kingdom."
> It really isn't that big of a deal
If you focus just on that number then I agree. As that's what this linked-to page discusses, then yes you're right.
I think there's a more interesting numbers lurking. From the article, "I.R.S. data for 2012 shows just over two million tax returns filed in 2012 by overseas Americans, compared with an estimated six million Americans living or working abroad."
Now, a tax return can cover multiple people and some of the Americans living abroad are children. I'll be generous and say that some one million people aren't following the law, compared to a few hundred people who are doing what the law says in order to avoid the extra hassle.
Has that reporting rate gone up or down? How much revenue has the US gotten from its ex-pats because of the heightened reporting requirements? How much has it cost those Americans? I pay about $600/year for my CPA, for me and my wife, so assuming $100/return gives an unfunded mandate, as it were, of $200 million.
Before I moved here, I visited often for work. I would rent a business apartment for a month or two. Most work on P.O.s and the giro/SWIFT system, not by credit card or cash. I also had difficulty purchasing some things online because sites wanted a Nordic bank card. I figured that opening a local account would make things easier for me. Had I been any nationality other than US, I could have done so. But US banking laws prohibited me from doing so.
Again, not a big deal. But little deals * 6 million become large.
> what are the other choices?
You could not file your income tax. It seems that over 1 million people don't do so. It would help if you never wanted to return to the US. (A friend of mine lives in Shanghai, and has for almost 10 years. I'm pretty sure she's not paid US taxes during that time.)
Ok, that makes sense. I do pay SSI in China, but I'm sure I'll never see anything good from that. Would have been nice to at least get a 401K or something. Retirement funding is also another huge pain in the ass for expats.
> Now, a tax return can cover multiple people and some of the Americans living abroad are children. I'll be generous and say that some one million people aren't following the law, compared to a few hundred people who are doing what the law says in order to avoid the extra hassle.
Everyone who has an accountant doing their taxes is following the law, and that is much of the high end (sans those who are explicitly dodging taxes, of course). I do see my friends who have accountants paying more than me, but I think this is because the accountants are very conservative in how they deal with double taxation.
Most of us are mostly following the law.
> Has that reporting rate gone up or down? How much revenue has the US gotten from its ex-pats because of the heightened reporting requirements?
Many of us are just normal worker bees who already pay enough taxes in the country we are working in. It makes no sense for us to renounce our citizenship to not pay taxes we don't need to pay anyways.
> Before I moved here, I visited often for work. I would rent a business apartment for a month or two. Most work on P.O.s and the giro/SWIFT system, not by credit card or cash. I also had difficulty purchasing some things online because sites wanted a Nordic bank card.
I have the opposite problem: I don't have a US credit card and get lots of pain because of that. The Chinese system is quite limited.
> You could not file your income tax. It seems that over 1 million people don't do so. It would help if you never wanted to return to the US. (A friend of mine lives in Shanghai, and has for almost 10 years. I'm pretty sure she's not paid US taxes during that time.)
She probably doesn't have to pay US taxes if she's paying higher Chinese taxes. Anyways, she should file tax forms just to put $0 on that line.
> She probably doesn't have to pay US taxes if she's paying higher Chinese taxes. Anyways, she should file tax forms just to put $0 on that line.
I completely agree, but given the circumstances around her leaving, I'm rather certain that she's never coming back to the US. At this point, given US law, is it reasonable for her to start filing again? A quick check now suggests that it isn't - she should wait until she knows she wants to return to the US. I don't think the fines or other penalties gets any worse by waiting longer.
First, be aware that only the US and Eritrea taxes its citizens on their world-wide income, no matter where they live. If I were a South African citizen living in Sweden then I wouldn't have to pay taxes back to South Africa. But I am a US citizen, so I have to file taxes for both countries.
Of that, $95,100 in 2012 is tax free, so I only pay taxes on what I make over that. Which I did one year, so that was fun trying to figure out how to pay the IRS from an overseas bank account.
The US has a bunch of bilateral agreements on income taxes so that I don't have double taxation. However, there's only a handful of countries with bilateral social security agreements with the US. Luckily, Sweden is one of them; I needed to get a form to prove that as a self-employed person I was covered. Being self-employed overseas makes things more complicated.
From what I can tell, if I had moved to New Zealand then I would be paying social security to both countries.
I also need to report the maximum value of each of my accounts, because of the FBAR requirements. Some people have gotten in trouble with it. See http://www.thelocal.se/39522/20120306/ for some examples. ("the penalty for non-compliance of FBAR is $10,000 per bank account per year, with the IRS looking back six years").
Have you filed your FBAR statement?
Then there's problems with the banks. Swedish banks really don't want customers who are US citizens, because the US requires a lot of extra paperwork from the bank. FACTA makes this worse. I am a permanent residence here, with an account which was opened before the new requirements went into place, but last month I spent an anxious 30 minutes at the bank while they figured things out.
There are more complications for a US citizen who wants to invest in a company. I think there's more reporting obligations for the company in that case.
And of course I pay for a CPA to handle things, since there's no way I would keep track of the relevant laws myself.
It ends up being this odious choice - how much are you willing to pay and how much hassle will you put up with in order to keep your citizenship?
The even worse case is for someone who is an American citizen by birthright, but was born, raised, and lives outside of the US, with no intention of going to the US. I think these people are still supposed to file taxes and deal with all of this mess - and are potentially subject to huge fines for not having done so already, should the IRS decide to go after them.
Also, it makes sense for a few corner-case reasons. The Wikipedia page on "Renunciation of citizenship" mentions that Vincent Cate 'renounce[d] his US citizenship to avoid the possibility of violating US laws that may prohibit US citizens from "exporting" encryption software.'