Taxed In Two Places

Disclaimer: I am not a tax expert, and make no claim that the information listed below is accurate.  Readers are strongly encouraged to consult with a certified tax accountant, or the revenue collection agency in their country of residence, and in the country where they hold citizenship, before making any tax decisions, or filing any documents.

Apologies for taking so long to get this out.  But let me just say that a fair amount of patience (and much of April) were required to ferret out the truth of our taxes this first year abroad.

Not only are we required to pay taxes in Ireland on money earned here, and file a report on that income in the U.S., but, thanks to a delightful provision in the U.S. tax code, we do in fact have to pay double tax on that income (in Ireland and the U.S.).  “Displeased” doesn’t begin to cover it.

In an effort to cut down on corporations sending employees abroad (to save on taxes), in 2006 the U.S. Internal Revenue Service enacted a provision that only affects you if you have income earned in both the U.S. and abroad.  It requires you to declare the amount of your foreign earned income, add it to one calculation on the tax form, and then deduct it a few lines later.  But, and here’s the crazy part, when you calculate your tax due, you are required to use the figure that includes the foreign income.  Effectively you are paying tax both abroad and in the U.S. Fortunately, for most folks, this is only a problem the first year you live overseas.

Once you live overseas for a minimum of 330 days in a given tax year, the income you earn is considered to be entirely foreign earned income (even if you are working for a U.S. company), and you need only declare it, and then take whatever deductions and credits you qualify for.  It is no longer “stacked” and double taxed in the same way.

The fact that it took four drafts of our return to come to that understanding had me spitting mad, and, of course, got me thinking about why we are taxed, and how.

Living abroad and using services outside your home country, you expect to contribute to the local tax pool.  That’s where you are consuming and availing yourself of public services. But if you are an American, there is no running way.  You still have to pay US taxes. Is that the American ego assuming that, “surely you’ll come back some day” and we’ll have to support you, or is the American passport so valuable that you should contribute in full just for the privilege of membership?

For anyone living abroad, is there still a value received back at home that warrants collection of taxes on income earned in your new home?

Taxes in Ireland, at times, seem fairly arbitrary.  Rather than actually working out a fair and balanced tax schedule, the powers that be will simply levy a one size fits all flat fee, regardless of income.  That’s the case with the current “household charge”.  It’s a €100 fee placed on every household as a precursor to a soon-to-be instituted property tax.

When Ireland received its financial bailout a while back, the funders of said largess were stunned to learn that Ireland had no property tax.  “This cannot stand”, wailed they.  The aforementioned household charge is Ireland’s way of putting together a registry of households and homeowners so that they can eventually start charging said property tax.  To date there is no registry of any sort.  It’s a fairly convoluted way of instituting taxes.  And the money collected (at least in this round) is not pinned to any particular expense.  Suffice it to say that the general fund is in a sorry state, so that’s probably okay (this time).

Yet stories abound of Irish federal taxes being collected to satisfy local needs.  And nobody really understands how that money gets distributed from the larger federal pot, to the local funds.

The part that drives me nuts is not the handing over of money (in Ireland or the U.S.), but the fact that it’s not tied to concrete need. I expect to have to pay my fair share for running water, roads that are drivable, police and fire service, and schools that drag kids kicking and screaming to base literacy levels and beyond. But when I’m not there, actually using the services, can you cut me some slack?

For immigrants wading through this madness from abroad, here are a few handy tips on accountants and accounting practices:

  1. Try to locate an accountant you trust back at home before you emigrate. It’s relatively easy to go online, or check the phone book (or stop in at the office with an “accountant” sign out front) in the new place where you live.  You’ll likely have no trouble finding local tax help that way.  But when you need an expert on tax matters back at “home”, good luck finding and feeling a sense of trust meeting an account when you are 5,000 miles and 6 hours distant.
  2. When your tax season rolls around, give yourself plenty of time (several months is not too long) to do multiple drafts, and look at your tax situation from all angles.  Even if your accountant back at home is an “expert” on foreign tax issues, your case will be unique (or should be treated as such).
  3. Remember that you are not their only client, and they are likely to be swamped during tax season.  It may take them a few weeks to get to your file.  Then they begin the research.
  4. Just because you’ve filed a certain way at home in the past doesn’t mean that is the best way to proceed now that you’ve moved overseas.
    Example: If you’ve always filed jointly, that may not make sense if one of you has income both in the U.S. and in your new country.  One way to shelter income from the “stacking rule” may be to file separately.
  5. Be prepared to deal with the time issue.  You may have to do the schedule hokey pokey a few times to catch your accountant at a time when you are both coherent enough to talk “tax”. Example: I kept trying to reach our accountant at the end of my day, and found him eternally “at lunch”.  And when he had time (between tax season client meetings) to call rather than email, it was 5p.m. his time, and I was brushing my teeth, locking doors, and checking email one last time.

Ultimately, I just want to know how long expats should expect/be obligated to contribute to the tax pool back at “home”? Until we ditch the passport for a new one?  What about dual citizenship?

I welcome your thoughts.

Disclaimer: I am not a tax expert, and make no claim that the information listed above is accurate.  Readers are strongly encouraged to consult with a certified tax account, or the revenue collection agency in their country of residence and in the country where they hold citizenship before making any tax decisions, or filing any documents.

Things to look forward to in upcoming posts:
Looking Back On the First Year

About Glenn Kaufmann

I'm an American freelance writer, photographer, and web publisher. I specialize in writing about travel, food, arts, and culture. I also write dramatic scripts for stage and screen. I'm based in Ireland.
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16 Responses to Taxed In Two Places

  1. Starfish says:

    HA! I lived in Ireland for 3 years and didnt file a tax return in the USA. So far I have gotten away with it. (Touch wood / Knock on wood). I was 4 years behind in taxes by the time I got back to the US, last year which meant that I got 3 years worth of refunds..I owed about 2500 but paid it immediately.. awesome stuff. When you remain an American abroad, you do still receive the protection of the Unites states in the form of the embassy and the right to return. If you pay US taxes they will be counted towards your social security/retirement in the US. The Irish tax system may be convoluted, but they certainly take care of their people… and anyone who lives on their land. I cannot say the same for the US. I had my first child in Ireland and the maternity care was excellent. I was able to have 6 months paid maternity.. not from my employment, but because I had paid taxes into the irish system for a couple of years prior. As a self employed person, I definately prefer Ireland workwise because public healthcare exists. In the USA, there is no public healthcare which mean that I have to pay astronomical fees for the priviledge. I’d be happy to pay a few percent more in taxes so that I didnt have to worry about it. Anyways.. happy taxes.. good luck getting away from Uncle Sam 🙂

  2. James says:

    Yikes. We are considering a move to Ireland with my company and will definitely look into this.

    • James, Dublin is a great place to live. Run the numbers with a good accountant. It may still be worth it. It also depends when you move. If you move in January then you’ll likely satisfy the 330 day restriction and be eligible to claim all of your income as foreign ( thereby avoiding the stacking rule).

      Good luck.

    • Jamie says:

      One thing that Glenn doesn’t mention is the Foreign Tax Credit, which a US citizen can claim whether s/he’s been out of the US for 330 days or not. (The 330 day requirement only applies to the Foreign Earned Income Exclusion, which makes the first $95,000 or so of foreign earned income tax exempt in the US.) The Foreign Tax Credit is designed so that US citizens living abroad are not technically double taxed – they are only obligated to pay the difference between the foreign host country’s income tax and US income tax, if the US tax obligations are greater. Since Irish income taxes are almost certain to be higher than those levied in the US, in many cases the US citizen abroad can end up owing no US income tax. (Your mileage may vary, depending on your circumstances.) Also, if a family makes more than the $95,000 limit on the Foreign Earned Income Exclusion, it can always take the Foreign Tax Credit instead of the FEIE and may come out ahead that way.

      Also, those not living in the US have an additional 90 days to file their taxes, so they’re not technically due until June. (However, if you owe, your interest clock starts running on April 15, so that’s something to consider.) If you don’t expect to owe, this additional time may help a US-based accountant look into your special case when not deluged with his/her other clients’ queries.

      I’m not an accountant but we’ve been living abroad for several years, with a short stint in the US recently, so I’m fairly familiar with the lingo. Of course Glenn’s disclaimer should be considered to apply to this comment as well!

  3. Mario says:

    Can anyone recommend a good US-based CPA who can help figure out the best strategy for taxes for an American about to move to Dublin for two years due to his job?

    Thank you!

    • Mario,

      We had good service with Maria Pizzino in Silver Spring; she has worked a lot with expats (and we went to her on the recommendation of one as well). Prices were good too.

      Here’s her website:
      http://accounting2000inc.com/

      Be warned, the first year doing taxes with the US from Ireland can be a bit rough. There’s a thing called the “stacking rule” that hits hard that first year. Ask Maria about it, she’ll know the details.

      Hope that helps.

      -Glenn

  4. Mary Ann ODonoghue says:

    Hoping your still around! Can you recommend an accountant in ireland, preferably Galway, west coast that can handle expat questions and advice? I’m here for years now and probably won’t go back to US, especially if election goes foul! I need financial advise on transferring savings from US to here, pensions etc and would like to find account /financial planner here with experience in USA laws. Thanks very much for any reply!
    Kind regards

    • JW says:

      Hi Mary, I can’t answer your question about taxes but I was hoping to ask a question of my own – I’m an American and would love to move to Galway but am wondering – provided I have a work permit – how tough or easy it is to get a decent paying job in that area as opposed to Dublin, where I went to school for a while (and where everything is more expensive). You said you’ve been there for years…how hard was it to set up residence and start working? Thanks!

    • Mary, I’ve got a good accountant (in the U.S.) who handles our taxes here in Ireland. She’s very experience in working with U.S. expats living all around the world.

      Let me know if you are happy having a non-Ireland based accountant.

      Best,
      GK

      • Mary Ann O'Donoghue says:

        Hi Glenn, Thanks for your reply on my query, late though my response is! Yes, I’d like to speak to the accountant you use, I’m looking for advice for now so an experienced expat accountant is whom I’m seeking. Thanks very much! Mary Ann

  5. As a recent immigrant to Switzerland, I stumbled across your thread while reviewing the 330-day rule and the first year abroad. My first comment … Do your taxes people! Meet your obligations and avoid trouble. Second, April 15 is (typically) the magic day for taxes due, and typically June 15 filing requirement when you are living abroad. BUT … there seems to be some confusion surrounding the 330-day rule … and some good reasons to request a Due Date Extension for Filing! (Complete Form 2350)

    https://www.irs.gov/individuals/international-taxpayers/extension-to-claim-foreign-earned-income-exclusion

    Take my situation, and let’s assume I stay in Europe for the entire duration. Emigrated from the US on July 26, 2016. US taxes are due April 18, 2017, and the filing requirement is June 15. Now, if I actually go ahead and file my taxes on June 15, I will only be present in Switzerland for 325 days, and fall short of the necessary 330 days in a 12-month period. BUMMER!

    But wait … if I had a good foreign tax accountant, they could advise you to request an extension as the IRS suggests. If I am granted a request up to 6 months and then file on say July 26, 2017, I now easily satisfy the 330-day rule! And life is good.

    • Matthew,

      Thanks for reading the blog, and for taking the time to comment on such an important issue for immigrants.

      I’m no tax expert, and always rely on my accountant. But I seem to recall that in the first year of living abroad there are different time limits, etc. to account for shortfalls in the 330-day rule. You may ask someone in Switzerland who regularly deals with thee IrS issues.

      Or consult our accountant (Maria) at Accounting 2000:

      http://www.accounting2000inc.com/

      Best,
      Glenn

  6. Paul says:

    I’m an American citizen but resident in Ireland. I have no Irish income just pensions from work in Us.

    I have done Irish tax returns for the last few years and payed tax on my us income here.

    This year I found out I should have being doing tax returns in Us and ended up paying thousands more there. They would not let me offset tax paid here.

    Can I offset tax paid in us against Irish tax.

    I would appreciate any advise.

    • Paul,

      I’m no tax expert, so tis is just my understanding, and in no way binding or “real” factual,,, but:

      As I understand it, the American/Irish tax treaty allows you to shelter the first $90,000 (or so) of income that you pay tax on in Ireland. That means that if you make 100K and pay tax on all of it in Ireland, you would only be liable for tax on 10K of it i the U.S.

      As Americans, we are citizens of one of the few countries where you can never be a “tax exile”, meaning that even if we won’t owe any tax in the U.S. we are still required to file every year. I suspect the reason that you are running into trouble may be that you didn’t file. Was the money you owed tax or penalty?

      Why did you feel the need to pay tax here on income from the U.S.? I’m not sure how the American income in Ireland side of the treaty orks, but I know that money made in Ireland (and taxed i Ireland) offsets what you owe in the U.S.

      As I understand it, the American/Irish tax treaty allows you to shelter the first $90,000 (or so) of income that you pay tax on in Ireland. That means that if you make 100K and pay tax on all of it in Ireland, you would only be liable for tax on 10K of it in the U.S. [10K is the difference between 100K and the 90K of income you’ve already paid tax on in Ireland]

      But I would engage an accountant in the US who regularly handles overseas filings.

      We use a woman named Maria at a company called Accounting 2000 (in Maryland). She does great wrk for us.

      I hope that helps.
      Best,
      GK

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