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July 21, 2017 - Phil Hodgen

The Section 6013(h) Election for Nonresidents to File a Joint Tax Return

How to Become a U.S. Resident Taxpayer

People who are not citizens of the United States and are not residents of the United States are called “nonresident aliens”. The U.S. will impose income tax on them only if they earn income from U.S. sources.

Noncitizens of the United States who are residents of the United States (for income tax purposes, not necessarily for immigration law purposes) must pay U.S. income tax on all of their income, earned anywhere in the world.

There are three ways that a noncitizen of the United States becomes a “resident alien” taxpayer:

  • Have a permanent resident visa (aka green card);1
  • Spend too much time in the United States (this is called the substantial presence test);2 or
  • Choose to be treated as a resident alien by filing the right kind of paperwork–a special tax election.
... continue reading
Friday Edition
July 18, 2017 - Phil Hodgen

Pension Valuation for the Net Worth Test

The net worth test rates you as a covered expatriate if your net worth is $2,000,000 or more.1 Pensions and retirement plans are assets that you include in calculating your net worth.2

How do you figure out how much your pension is worth?

Government Guidance: Embarrassing

There is scant (and by “scant” I mean nothing at all) guidance on how to compute the value of your pension benefits. The Instructions to Form 8854, for instance, say absolutely nothing at all.3

Notice 2009-85 merely points you to Notice 97-14 for guidance on how to calculate your net worth.... continue reading

Expatriation
July 7, 2017 - Phil Hodgen

Who Can File a Joint Tax Return

U.S. Citizen Wants to File a Joint Tax Return

U.S. citizens living abroad will often (gasp) marry someone who is not a citizen of the United States. The married couple lives happily outside the United States, so the noncitizen spouse is not a resident of the United States in the eyes of the IRS.

Everything is fine until tax return season. The U.S. citizen looks at the “filing status” part of Form 1040, and silently wishes for that “Married Filing Jointly” status. (Filing a joint tax return with your spouse usually means that you pay less tax).

Who Can File Joint Tax Returns

A U.S.... continue reading

Friday Edition
June 23, 2017 - Phil Hodgen

How to Not Pay U.S. Social Security Tax While Working Abroad

Americans who move abroad to work face a particularly difficult job in preparing tax returns. Let’s cheerfully ignore income tax problems today, and instead look at Social Security taxes.

Technically, I am talking about FICA1 taxes: the taxes you pay to fund your old-age pension, survivor’s pension, disability insurance, and Medicare benefits. But for simplicity’s sake–and to match the way normal people talk about these taxes–I will refer to these taxes as “Social Security” taxes.

Let’s look at the semi-established digital nomad. You are a U.S. citizen who owns an operating U.S. business, formed as a corporation. You plan to move abroad and travel for a few years.... continue reading

Friday Edition
June 20, 2017 - Phil Hodgen

Taxation of MSAs and HSAs after Expatriation

This is another piece of the rewrite project for The Exit Tax Book.


Specified Tax-Deferred Accounts After Expatriation: Generally

Distributions from specified tax-deferred accounts after expatriation are unremarkable: an expatriate (covered or not) is treated like any nonresident alien, and taxed accordingly. The only difference will be for covered expatriates: since they are taxed when they expatriate, they are not taxed a second time when they receive distributions of money that was previously taxed.

This chapter discusses distributions from every type of specified tax-deferred account except IRAs:

  • Health Savings Accounts (HSAs);
  • Archer Medical Savings Accounts (MSAs);
  • Section 529 education savings plans; and
  • Coverdell education savings plan.
... continue reading
Expatriation