Posted by
Stillers
18 yrs ago
Hi,
I would like to apologize if this is a question that has been answered on the forum in the past.
I am currently decided on whether to relocate to Hong Kong within my firm. I am wondering if someone could give me some feedback regarding the tax policy for US citizens living abroad. If I take the job I would start in HK on July 1. Would I be subject US taxes for all of 2008, or would I be able to qualify for the Foreign Earned Income Exclusion for the second half of the year. I am a little unclear after reading through some IRS documents.
Thanks in advance.
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US citizens are subject to World-Wide income Tax. That means you have to pay tax on the income your earned from any corner of the world. However, under IRC section 911(a), certain foreign earned income and housing cost (up to certain limitation) are EXEMPTED from your world wide income. This exempted portion are not Taxed by Uncle Sam.
Give you a simple example, If you make $100K world wide, 90K is earned from China. Among those 90K, 80K will be exempted from tax. You only need to pay tax on the remaining 20K.
Look Section 911(b)(2)(D) for actual exempt limitation.
Remember:
1. For every cents of foreign income tax you paid in foreign country, you will get a credit on your US tax return.
2. Besides section 911, make sure you check whether there are any tax treaty benefits between US and China that you can enjoy. It may provide extra bi-lateral income exemption and saves you extra hundreds of bucks.
Hope this will help.
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There is a HUGE deduction as well for HK housing costs.
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Goloh
18 yrs ago
Be aware that some firms, maybe fewer now than before, push expat employees onto a "tax equalization program" designed to ensure that overseas employees neither gain nor lose as a result of a foreign posting. That's the theory, anyway. If you work for a large firm, they should have an in-house tax specialist or contract firm that can answer your questions completely.
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namaste, so let's say I earn 100K and qualify for both the earned income and housing deduction. are you saying that I would owe no taxes if my housing costs are more than 20K (assuming the foreign earned income exclusion is now at 80K)? Do I actually need to have a housing allowance to claim the housing deduction? cheers
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Oski
18 yrs ago
You will qualify for foreign earned income (and housing) deduction only after 11 month of physical presence outside of US. If you start in July, you would not qualify by Apr filing. You will need to first file for an extension to get you to Aug 09. Remember that during this period, you cannot visit the US for more than 30 days cumulative. After the 11 month test is satisfied, you will be able to claim the exclusion on pro rata basis. ('08 days in HK/365)
As for the housing deduction, the first USD 1000 or so per month is not deductable. So to get 20k worth of deduction, you will need to incurr housing expense of more than 32k. (the maximum set for HK is very high, 114k for 08)
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