new tax obligations for americans living abroad
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US Individual Taxation ForUS Citizens and Green CardHolders
Middle East Tax Services
Dennis AllenMiddle East TaxPartner
13 February 2012
Agenda/Contents
1. Tax Updates and Developments
2. US Taxation of Expatriates
3. State Taxation
4. FBAR and FATCA
5. How PwC can help
PwC13 February 2012
6. MyTaxes
US Individual Taxation For US Citizens and Green Card Holders
1. Tax Updates andDevelopmentsDevelopments
1. Tax Updates and Developments
Individual Income Tax Rates 2011 and 2012 tax rates will remain the same: ranging from 10% to 35%.
Capital Gains Tax Rates Will remain the same with a maximum 15% rate applied to long-term gains andCapital Gains Tax Rates Will remain the same with a maximum 15% rate applied to long-term gains andqualifying dividends.
Social Security tax rates The Social Security rate was reduced by 2% for 2011. This reduction has so far beenextended through February 2012. The employer portion remains unchanged at 6.2%.
Alternative Minimum Tax Exemptions were temporarily increased for 2010 and 2011. If no extension to this lawis made, many individuals will find themselves subject to AMT in 2012. Currently, noincrease in exemptions for 2012 is anticipated.
American Opportunity Credit This refundable credit of $2,500 has been extended through 2012 based on expensesfor the first four-years of undergraduate education.
Child Tax Credit This refundable credit providing up to a $1,000 credit for children under 17 has also
PwC13 February 2012
Child Tax Credit This refundable credit providing up to a $1,000 credit for children under 17 has alsobeen extended to 2012.
Foreign Earned Income Exclusion The foreign earned income exclusion was increased to $95,100 for 2012 based oninflation.
Retirement Contributions The 401(k) and 403(b) contribution limit was increased to $17,000 for 2012.
US Individual Taxation For US Citizens and Green Card Holders
Itemised Deductions & PersonalExemptions
For 2011 and 2012 the phase out for itemised deductions and exemptions for high-income earners has been temporarily extended.
Dependent & Child Care Tax Credit Has been extended and increased from $2,400 for one child to $3,000 and from
1. Tax Updates and Developments
Dependent & Child Care Tax Credit Has been extended and increased from $2,400 for one child to $3,000 and from$4,800 up to $6,000 for two or more children.
Form 8938 In addition to the Foreign Bank Account Reporting form, a new Form 8938 will needto be included with the 2011 tax return to disclose foreign assets with a valueexceeding various thresholds.
Sales Tax Deduction The optional deduction in-lieu of the deduction for state income taxes expired in 2011.
Student Loan Interest Deduction Is extended for two more years. After 2012, this deduction will go back to wherestudent loan interest is only deductible for the first 60-months of repayment.
Due Date of Return The due date to file Form 1040 is Tuesday 17 April 2012 instead of 15 April due to the15th being a Sunday and a holiday in the District of Columbia.
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15th being a Sunday and a holiday in the District of Columbia.
Roth IRAs If a taxpayer converted or rolled over an amount to a Roth IRA in 2010 and did notelect to report the taxable amount on their 2010 return, then they generally mustreport half of it on their 2011 return and the rest on their 2012 return.
Expired tax benefits • The Making Work Pay credit• Extra itemised deduction for real estate taxes
US Individual Taxation For US Citizens and Green Card Holders
1 I don’t need to file because I don’t work for a US company
2
True or False?
2 I don’t need to file because I earn less than the exclusion
3 I don’t need to file because I am a green card holder
4 I don’t need to file because I am over age 65
5 I don’t need to report my income from foreign investment accounts
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5
6 I don’t need to file because I live and work overseas and my wages are not reported on FormW-2
US Individual Taxation For US Citizens and Green Card Holders
True or False?
False!You always have to file.
PwC13 February 2012US Individual Taxation For US Citizens and Green Card Holders
2. US Taxation of Expatriates
Base pay (worldwide)
2. US Taxation of expatriatesTable of Compensation
The followinglist is an
example butnot an
exhaustive listof taxable
compensation
Housing allowance or provided housing
Home leave airfare
Auto or telephone allowance
Education assistance/reimbursement
Overseas incentive allowance (foreign premium,COLA, etc.)
Settling-in/Relocation allowance
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compensationitems
All other cash or benefits received in-kind
Settling-in/Relocation allowance
Tax reimbursement
US Individual Taxation For US Citizens and Green Card Holders
2. US Taxation of expatriatesNon Taxable Compensation
The following list arethe main non taxableforms ofcompensation
Transportation of household goods
Travel and temporary lodging expenses
Actual storage costs paid
PwC13 February 2012US Individual Taxation For US Citizens and Green Card Holders
Purpose: To provide tax relief for US companies and/or US workers in order to be competitive
in the global market place. The US is the only major industrial country that does not completely exempt
2. US Taxation of expatriatesForeign earned income exclusion
in the global market place. The US is the only major industrial country that does not completely exemptthe foreign earned income of their citizens working abroad.
$92,900 Foreign Earned Income Exclusion for 2011
Both spouses are entitled to their own exclusion
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Prorated in the year of arrival/departure
Indexed for inflation on an annual basis ($95,100 in 2012)
US Individual Taxation For US Citizens and Green Card Holders
The following income Foreign source wages (sourcing is based on where
2. US Taxation of expatriatesForeign earned income exclusion
The following incomeis eligible for theexclusion
The following are
Foreign source wages (sourcing is based on wherework is performed - workdays)
Foreign allowances/benefits
Interest
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The following areexamples of incomethat do not qualify forthe exclusion
Interest
Dividends
Pensions
Other unearned income
US Individual Taxation For US Citizens and Green Card Holders
2. US Taxation of expatriatesHow to claim the foreign exclusions
The exclusions must be claimedby making an election
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The election has to be made annually andmust be made on a timely filed return
US Individual Taxation For US Citizens and Green Card Holders
How do I qualify for the exclusions?
Must have established a foreign tax home1
2. US Taxation of expatriatesQualifying for the exclusions
Must have established a foreign tax home- assignment expected to last longer than one year
Physical Presence Test (PPT)Must be physically present in a foreigncountry or countries for 330 full daysduring any consecutive 12-month period
Mustmeet one
OR
1
2
+
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Bona Fide Residence Test (BFR)Must maintain a foreign residence for afull calendar year (e.g. for a 2011 arrival- a tax home abroad beginning before1 January 2012 and ending after31 December 2012)
meet onetest
OR2
US Individual Taxation For US Citizens and Green Card Holders
Bona Fide Residence (BFR) example:
Arrival Date
2. US Taxation of expatriatesQualifying for the exclusions
Arrival Date
1 Sept 2011 31 Dec 2011 1 Sept 2012 31 Dec 2012
Full year resident overseas
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Qualifying period begins: 1 September 2011
2011 exclusion: 122/365 x $92,900 = $31,029
US Individual Taxation For US Citizens and Green Card Holders
Physical Presence Test (PPT) example:
Arrival Date
2. US Taxation of expatriatesQualifying for the exclusions
Arrival Date
27 July 2011 1 Sept 2011 31 Dec 2011 26 July 2012 31 Dec 2012
330 Full days outside US
One Year
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Qualifying period begins: 27 July 2011
2011 exclusion: 158/365 x $92,900 = $40,226
Additional exclusion: 36/365 x $92,900 = $9,197
One Year
US Individual Taxation For US Citizens and Green Card Holders
2. US Taxation of expatriatesQualifying for the exclusions
Benefits of PhysicalPresence Test (PPT)
Possible additional exclusion in year of arrival anddeparture
For arrival year, tax return can be filed earlier thanunder BFR (receive refund sooner!)
In case PPT is not met then you can fall back on BFR
PwC13 February 2012US Individual Taxation For US Citizens and Green Card Holders
$34,823 Foreign Housing Exclusion for Abu Dhabi
2. US Taxation of expatriatesForeign housing exclusion (2011 maximum)
$34,823 Foreign Housing Exclusion for Abu Dhabi$42,310 Foreign Housing Exclusion for Dubai
There are different housing limits depending on your location
Worldwide housing survey to be conducted annually should increase (but maydecrease) the housing exclusion
Housing expenses include – rent, utilities (excluding phone), insurance, household
PwC13 February 2012
Housing expenses include – rent, utilities (excluding phone), insurance, householdrepairs & parking
US Individual Taxation For US Citizens and Green Card Holders
3. Tax Return FilingRequirementsRequirements
PwC13 February 2012US Individual Taxation For US Citizens and Green Card Holders •
Automatic two month extension to 15 June
3. What are the requirements for filing tax returns?
Automatic two month extension to 15 June
Additional, discretionary extensions can be requested to 15 December
Special extension to qualify for exclusions - applicable for new arrivals (BFR)
Foreign bank account reporting required when accounts > $10,000
PwC13 February 2012US Individual Taxation For US Citizens and Green Card Holders
4. State Taxation
Non-residentreturn may be
required forBasis for
4. State Taxation: The Facts
State taxation
required forrental or
business income
taxation:•Residency•Domicile
Spouse living inthe US may
present issues
Not all Statesallow foreign
exclusions
PwC13 February 2012
Attending aconference or
working in the USmay trigger a
state income taxliability
US Individual Taxation For US Citizens and Green Card Holders
5. FBAR and FATCA
All US citizens, residents and business travellers to the US mustreport their foreign bank or securities accounts to the US
Department of Treasury if the combined value of all accounts
5. Foreign Bank Account Reporting
Department of Treasury if the combined value of all accountsexceed $10,000 at any time during the year.
The report is due 30 June and there are no extensions.
Report requires
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The maximum value in each accountThe name and address of the bank/institutionThe account numberThe identity of joint holders (if any)
US Individual Taxation For US Citizens and Green Card Holders
• All US citizens, residents and resident aliens must report the value of theirspecified foreign financial assets if they exceed thresholds.
5. Foreign Account Tax Compliance Act
Living in the US
$100,000 MFJ
$50,000 other
Living outside the US
$400,000 MFJ
$200,000 other
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• The asset details and value are reported on Form 8938 which is attachedto the annual tax return, e.g. Form 1040.
• The penalties for not filing this form could be up to $50,000.
US Individual Taxation For US Citizens and Green Card Holders
• Bank account
• Custodial account
• Broker account
5. Types of Foreign Accounts
• Broker account
• Stocks
• Mutual Funds
• Deferred compensation Accounts
• Corporate Holdings
• Partnerships
• Trust
• Debt Instruments
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• Insurance contract
• Pensions, Annuities or Retirement Plans
• Puts, calls, straddles and others
US Individual Taxation For US Citizens and Green Card Holders
6. How PwC can help
Our value to you
6. How PwC can help
Over 20 years of US expatriate taxation experience
US tax professionals based throughout the Middle East
E-filing of returns means quicker refunds
We simplify tax return preparation
PwC13 February 2012US Individual Taxation For US Citizens and Green Card Holders
7. MyTaxes
https://MyTaxes.pwc.com (MyTaxes)
7. My Taxes
MyTaxes is a web basedtool provided by PwC
https://MyTaxes.pwc.com (MyTaxes)
Secure website – requires username and password to access it
Method of communication between PwC and the assignee
Tax questionnaire will be issued via MyTaxes
Tax returns can be uploaded onto MyTaxes
Access to a calendar tool – assists PwC in calculating PhysicalPresent Test
PwC13 February 2012
MyTaxes is used by PwC all over the world
US Individual Taxation For US Citizens and Green Card Holders
Questions?
PwC13 February 2012US Individual Taxation For US Citizens and Green Card Holders
Dennis Allen Stephen DrakePartner Director+974 4419 2830 +974 4419 2831dennis.allen@qa.pwc.com stephen.d.drake@qa.pwc.com
Contacts
dennis.allen@qa.pwc.com stephen.d.drake@qa.pwc.com
Leo Zimny Nabih DaaboulSenior Manager Manager+974 4419 2844 +974 4419 2833leo.zimny@qa.pwc.com nabih.daaboul@qa.pwc.com
This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.
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© 2011 PricewaterhouseCoopers. All rights reserved. "PricewaterhouseCoopers" and “PwC” refer to the network ofmember firms of PricewaterhouseCoopers International Limited (PwCIL). Each member firm is a separate legalentity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services toclients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it controlthe exercise of their professional judgment or bind them in any way. No member firm is responsible or liable forthe acts or omissions of any other member firm nor can it control the exercise of another member firm’sprofessional judgment or bind another member firm or PwCIL in any way.
US Individual Taxation For US Citizens and Green Card Holders
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