As reported by Brian Knowlton in the NYTs and Badger pointed out here a Presidential Commission is being Sought on U.S. Expatriates. The Bill number HR 6263 with details can be found at here .
American Citizens Abroad (ACA) is encouraging members and supporters to contact their representatives and ask them to support this bill. This is a positive step forward for Americans living and working overseas. A Presidential Commission would be invaluable in our efforts.
ACA Press Release follows:
WASHINGTON, DC – Reps. Carolyn Maloney (D-NY), Mike Honda (D-CA), and Charles Rangel (D-NY) have introduced legislation to create a Federal commission to study the impact of government policies upon the millions of Americans living overseas.
“Americans living and working overseas constitute a kind of unsung constituency,” Maloney said. “They pay taxes and vote, but U.S. policies and laws can have unintended and sometimes irrational consequences on their lives– because no entity in Washington is paying attention. These hardworking citizens are our country’s informal ambassadors around the globe and help strengthen the U.S. economy and promote American influence. Their concerns about how their government interacts with them deserve to be heard– and paid attention to– here in Washington.”
“As a member of the Congressional Americans Abroad Caucus, I am proud to fully support the Commission on Americans Living Abroad Act, authored by my friend and Caucus Co-Chair Carolyn Maloney,’ Honda said. “Millions of U.S. citizens who are living and working abroad have voiced their concerns regarding the harmful impacts of federal policies– often unintentional– on their lives. These Americans abroad promote U.S. influence around the globe and help our economy thrive, yet our federal policies often disenfranchise them from becoming citizen ambassadors or even returning to the U.S. It is time we acquire a thorough, comprehensive understanding of the federal policy impacts on these Americans, which this bill would provide.”
“This commission would give Congress an opportunity to look under the hood of this issue and see what’s working, what isn’t, and what can work better,” Rep. Rangel said. “It’s our elected responsibility to ensure American citizens here and abroad are equally protected by their nation’s laws and Executive actions.”
Full text of the bill is viewable here:
BACKGROUND ON THE LEGISLATION
Rep. Maloney is co-founder and Chair of the Americans Abroad Caucus in the House. Find out more at hereThis legislation creates a 15-member bipartisan Executive Commission to study the impact of U.S. laws and Executive actions on the overseas Americans community. The study would then be used to make recommendations for actions Congress and the Executive Branch could take to improve collaboration and communication of policies impacting this community. The intent of the review is to ensure awareness, coordination, and integration of the activities of the federal government relating to Americans abroad. Specific areas of federal policy the Commission is charged with looking into are tax and banking policy (including FATCA, Banking Secrecy Act, USA PATRIOT Act), immigration, voting, access to federal benefits (Medicare, Social Security), and student loans. There is an initial study due one year after enactment, and then one year following that report an update of what actions the federal government has taken based on recommendations from the initial report.
I just received this comment privately, and am passing it on.
“Caroline Maloney is really going out on a limb with her bill to create a presidential commission for US expats. I really think she needs some political cover here and I think it would be a good idea for us to write to her and thank her for her initiative even if we aren’t her constituents.
Her contact info is here. She has a special form for comments from people outside her district.”
You can visit the new ACA web site here.
@geez…the irony is it’s precisely the door hitting us that’s the cause for leaving.
@geeez
Yup, you are right. But hate to lose the battle without firing a returning shot (using America’s favorite metaphor)! LOL
*Letter to the Senator:
*
I recall that at
the time Rangel was in trouble with the IRS not reporting income from rental of
his villa in the Dominican Republic one of his “excuses” was that he did not
bring any of that income back to the United States. Although he wrote the tax
laws he claimed to not understand that foreign personal income, unlike foreign
corporate income, is taxed by the US even though it is never repatriated back
home. It would probably be worthwhile if the IRS verified if he submitted FBAR
reports during the time he was “storing” that foreign rental income abroad. In
those days the Dominican Republic had exchange control regulations with
restrictions on the conversion of Dominican Pesos into foreign currency for
removal from that country. If you went there as a visitor and changed dollars
into peso and ended up with a surplus of pesos you could not legally covert them
back into dollars. You could do it on the black market at a substantially less
favorably exchange rate, but you had to be aware this was an illegal
transaction which could land you in jail. I recall that there were lots
of persons hanging around hotels offering to buy your dollars at higher than the
official rate and to sell you dollars before you headed to the airport to fly
back home.
What he got a
slap on the hands for, any ordinary citizen would have been subject to financial
penalties and likely prison time for tax fraud.
Rangel barely won the primary in his district in
the election a few weeks ago. The district boundaries were redrawn as a result
of the last census and now includes a much larger Latin population than it did
before. It was several days after the election before the final results were
determined through numerous counts and recounts.
Certainly it is
the “right thing to do,” and I sincerely hope this is their motive. But doing
it I don’t think is any special kind of deference to the nations in the
Caribbean. All of them have dual citizens who have American citizenship and
unquestionably some of them have returned to the Caribbean after having become
US citizens as well as many who have bond back without bothering to cancel their
green card because they never new it was necessary. I don’t know, but I suspect
there is nothing printed on a green card that indicates that its holder must
formerly cancel it if they abandon residence in the US to return home, or go
elsewhere, or else their world wide income will continue to be subject to US
income tax, and their estates abroad will be subject to US estate taxes when
they die.
@ Roger Conklin
“I don’t know, but I suspect there is nothing printed on a green card that indicates that its holder must formerly cancel it if they abandon residence in the US to return home …”
I don’t have my green card anymore but I have a copy of it, front and back, and there is no indication it must be formerly cancelled. Furthermore when I got the green card many years ago there was an interview involved and no mention was made of tax and FBAR obligations which can haunt people until the day they die, no matter where in the world they are at the time. It was an obligatory “Welcome to America” but we’re not going to tell you what you are really in for type of conversation and I felt a sense of relief when it was over. I wonder if this interview is more like an intense interrogation for Mexicans seeking a green card. I probably faired a bit better than they do. If I had known what I was getting into my husband and I would have chosen Canada when we got married. My biggest concern at the time was the prospect of having no health insurance and rightly so because it turned out we never could afford it and paid all our medical expenses out of our own pocket the entire time we lived in the USA.
I appreciate Carolyn Maloney’s efforts, and thank her.
However,
The ACA, AARO, and others have already have been working on these issues and detailing them for decades. Two years of study is two more years before any possible action is taken (if any is actually contemplated or possible). Frequently here at home in Canada, a political party promises to study a problem (usually one already well-documented and a no-brainer), after great delay releases a document confirming ‘yup there’s a problem’, identifies the same issues that those affected had already laid out, makes recommendations (some vague, with no firm timeline or funding attached), and then does nothing afterwards – but conveniently trots it out whenever potentially embarrassing disaffection surfaces. Or says that the time isn’t right yet to make the changes, or the economy is too weak, or unemployment is too high, or that any change must be phased in, etc. etc.
This approach allows the US, and the Democrats to deflect what has become a potential international public relations problem, and to claim that the ‘voice’ of those affected has been heard without making any changes. Sucks people in to thinking that if they are patient – change will come. Might gain some overseas votes.
Those who can renounce and are planning for it, shouldn’t be distracted by this – and should continue with their efforts to be free of the US citizenship burden. If a similar proposal came to nothing under President Carter, I don’t see it being any different in outcome now – even IF it ever does get to the commission and reporting stage.
Try telling those stuck in OVDI, or in IRS compliance limbo, that they’ll just have to wait – and continue to pay high priced tax and legal help, or remain depressed and anxious, until the US votes on a commission, strikes one, holds some kind of process, issues some kind of report, and then lets it sit on a back burner before announcing that any actions will have to wait until the economy improves, or until the tax code is simplified ….. not going to fly.
Citizenship-based extraterritorial taxation is an abhorrent and oppressive system with unethical and unjust results, and a threat to our human rights and the wellbeing of our families and the countries where we live. Forcing us to demonstrate years of US extraterritorial tax and reporting compliance, and pay exorbitant fees to comply with incomprehensible and punitive requirements, before allowing us to exercise our international human right to shed unwanted US citizenship is an egregious violation of our human rights.
Our only real defense, is for those who can, is to continue working towards relinquishing or renouncing, and to continue to raise as much public and political noise as possible – each in accord with our particular unique circumstances.
May the numbers of those with CLNs continue to rise.
Have a good look too at these sample GAO reports, which show that the complex compliance burden, cost of compliance, confusion over complex requirements, and low probability of US tax owed from those abroad has already been identified and reported to the US government in the past:
http://www.gao.gov/products/GGD-98-106
Tax Administration
“Nonfiling Among U.S. Citizens Abroad”
GGD-98-106, May 11, 1998
http://www.gao.gov/products/GGD-93-93
Tax Administration
“IRS Activities to Increase Compliance of Overseas Taxpayers”
GGD-93-93, May 18, 1993
sample GAO finding;
“…..(4) enforcement actions taken against nonfilers have not resulted in significant additional revenues, since IRS was not able to contact many nonfilers, many overseas nonfilers were not required to file U.S. taxes, and many nonfilers’ tax liability was negligible after foreign-earned income exclusions were taken into account”….
“Tax Policy and Administration
U.S. Taxation of American Citizens Employed Abroad”
Apr 24, 1981 – demonstrates the need for the FEIE, its limitations and acknowledges the high cost of filing from abroad.
Tax Compliance
“IRS May Be Able to Improve Compliance for Nonresident Aliens and Updating Requirements Could Reduce Their Compliance Burden”
GAO-10-429, Apr 14, 2010
Solid evidence that the IRS, Treasury, Congress et al have known about the problems with extraterritorial taxation – for many years. These reports also demonstrate the change from acknowledging the burdens, complexity, and lack of proof that substantial US tax even exists unpaid from individuals abroad, to the current irrational and unethical insistence on punitive enforcement without evidence of actual taxes owed.
@Badger…
Your point is well taken, as we have a recent example of that in the bipartisan Bowles-Simpson (or Simpson-Bowles Commission ) on Debt reduction. Lots of hard work, and some serious compromise with some that signed onto it that you would not have expected. However, the recommendations have been totally ignored by both Obama and the House of Representatives, and now we are back at partisan girdlock in the political silly season.
As often with these commissions, nothing seems to come out of them, but it does up the public profile of an issue, gets media discussion, and as cynical as I become, maybe they serve a useful purpose in a “process” of moving the political center towards a positive outcome later. Changing a cultural and political mindset is a long term struggle. Often takes generational change, as is happening in America with Gay rights. Although, you would be correct in being skeptical that this will amount to anything in the short term, and I would not delay personal decisions based upon this hope.
Thanks again for those GAO links. It is good to be reminded of them.
@Roger, @Em, The various immigration instructions and booklets never mention taxes, it’s like a parallel universe where taxes don’t exist. At the same time, the IRS allows the foreign earned income exclusion to immigrants, even though living in another country for most of the year may result in the cancellation of a green card. The immigration service and the IRS apparently do not even attempt to communicate with each other, which can be a good thing: the border and immigration officers have no information about taxes that people may owe, and the IRS has no information on when people entered or left the US.
@badger,
You have summarized it well in your last paragraph. The US knows the problems of their extraterritorial citizenship taxation; the US has ignored its own laws in requiring tax returns and FBARs from those abroad for decades and now using fear tactics and punitive action; the US has ignored our crossing into the US with passports other than US issued for decades but now we are learning of the US law that prohibits us from entering the US on another passport if we are US citizens; the US has blatantly ignored Nina Olson, thereby making the Taxpayer Advocate, at least for expat issues, a sham; seemingly, the US will continue to punish its expats with horrendous penalties for little or no tax owed and label us traitors and tax evaders; the US will not allow Parents/Trustees/Guardians the right to renounce the senseless citizenship of their US family members with developmental disabilities or other mental incapacities, even if their family lives abroad and it makes no sense for them to hold on to that supposed US citizenship and be economically disadvantaged from others in their countries of residence; the US is now trying some PR with establishment of a bipartisan commission. I will continue my path to renunciation. I don’t trust the US or believe in its fairy tales. I do believe in history repeating itself.
*Shadow Raider, Yes I am aware that in the past there has been very little communication between Immigration and the IRS. I believe there is more now than there has ever been, but my impression is that it is still not too good.
Several years ago when I was in Washington as part of the ACA Washington Week group, we met with the individual, a career State Department officer, who was in charge of the relations with the US consuls around the world. Informally I asked him about the renewal of US passports abroad for persons who had checked the box indicating they were aware that they were required, as US citizens, to file tax returns with the IRS. I asked him of the IRS received information on those renewing their passports abroad.
His reply was yes. He told me that the names of all of the persons who renewed or were issued US passports at consulates abroad were supplied to the IRS, but then added “I have no idea what they do with those names.”
I still have his business card.
It has been many years since I renewed my US passport abroad and have no idea today what information is required in doing so. Someone else may have more recent experience.
@badger, Very interesting reports. I didn’t know that the US government had already thought about this before.
@calgary411, I understand your situation and I don’t want to be disrespectful, but is there any harm for a person with mental incapacity to keep US citizenship? I imagine that such person would not have any income or assets.
*@Badger, one of the recommendations of the Simpson-Bowles Commission was: “A territorial tax system should be adopted to help put the US system in line with other countries, leveling the playing field.” This is from page 25 of the Commission’s report, paragraph #3, dated December 2010. This was a bipartisan commission. Not all of the commission members signed that report, but the majority of the members did.
As Just Me as noted, not a finger has been lifted to act on this or any other recommendation in this Commission report. The Commission was appointed by President Obama as the National Commission on Fiscal Responsibility. A lot of hard work went into it and as far as I am concerned it was a positive effort which could have served as the basis for significant fiscal reform if the president had not chosen to simply push it aside and pay no attention to any of its recommendations. A total waste of time and talent with a lot of good insight simply gone to waste.
*@shadow Raider, an incapacitated person might actually be receiving significant disability income, from which the IRS takes a big hunk right off the top because it is not earned income and therefore none of it is excluded under the foreign earned income exclusion. And because an incapacitated person is likely unable to personally renounce US citizenship he or she cannot do so. The State Department will not accept a renunciation from a guardian or a person with a power of attorney for the disabled person. So what this means in practicality a portion of the person’s foreign disability income is skimmed off by the IRS rather than fulfilling its intended purpose of providing care for the incapacitated person.
That to me is an outrage.
@Roger, Thanks for the information. But I still think that the IRS and immigration have almost no communicaiton with each other. For example, if a person returns a green card and becomes a nonresident, the IRS asks for a copy of a document that shows that the green card was returned. It also asks all nonresidents who file form 1040NR to list their days of presence in the US. I imagine that the IRS wouldn’t ask for this information if it had other means of obtaining it. Also, the reports of tax fraud using fake social security numbers suggest that the IRS doesn’t check those numbers with the Social Security Administration.
By the way, I’ve heard of too many cases of US consular officers who don’t do their job right and end up causing a lot of trouble. They make errors in judgment, do not complete required paperwork, and sometimes even write data incorrectly in documents. And it’s very hard to complain and get them to correct their mistakes. It also seems to me that they don’t like their jobs or are overloaded with work, and end up being rude with the people being served. I hope I don’t have to use a US consulate when I travel abroad.
@Roger, Thanks for the explanation. I didn’t think that disability income would be taxable, and I thought that it would be received by the guardian of a mentally incapacitated person, not by the actual person. This may be part of the problem, but in any case I agree that the US should allow the guardian to make the decision on renunciation. If the US is concerned with the will of the person, it could allow the renunciation to be reversed later if the person somehow becomes no longer incapacitated, like the exception for minors who renounce.
@calgary, thank you, I agree with you wholeheartedly that history is the best indication of what the US will continue to do – and feel that we should act accordingly as/when/if we can.
@Shadow Raider, I’m certain that there is much much more, but those GAO reports are very interesting reading, and were just the ones fairly easy to find and access. Not hard to find, read and interpret either (unlike most IRS written in the ORCish language). The GAO report footnotes and references are very interesting too.
@JustMe, and RodgerC, thanks re the citations, reminders and comments on Simpson-Bowles, I’m not familiar with it, and will try to follow up reading what you cited. I know you’ve described it before, but I just didn’t get to it.
@all, Perhaps IBS could have a thread to add links to these reports – with a brief annotation as to why they are significant. I thought about annotating a few of the GAO ones, because they are so very relevant to all the comments and issues we discuss – but ended up with so many really significant excerpts in just one of those reports that I gave up. I’m sure there are many more, but we just don’t know where to look.
I’d like to find more – official governmental commentary (ex. foreign affairs, etc.) originating from Canada and the US, on the Eritrean tax and the Phillipines one that existed until the 90’s? There has got to be material, but especially in the case of Eritrea, haven’t found much so far. More obviously relevant and hard to dismiss when the criticism comes directly from the mouths of official organs.
Seems though that if we’ve turned all this up by the work on this site, that anyone with better access and dedicated research skills in the US (like the aides of Senators and Congresspersons) could very easily do the same and much much more. I don’t think it should take 2 years and millions to produce some compelling and robustly documented evidence of what we are experiencing. I would hope that a Commission would go further than that – like compelling the release of what is not so easily obtained – through judicious and targeted Freedom of Information requests that will illustrate the deliberate and egregious rationale and willfulness behind the continue intransigence of the IRS, and the unethical choices they continue to make to treat all of us with willful injustice. They know full well that there is actually 0 or minimal US tax to be had from us. They know our bank accounts and assets are legal and post-tax where we live. They know that they are costing us each thousands just to file meaningless returns with zero US tax assessed. They know our data isn’t even stored safely by the IRS – as the GAO report this spring documented.
I’m sure that it would turn out that there are internal documents that would establish a lot of this is conscious and deliberate strategy, without any concern for the results – and ‘untended’ consequences. Surely someone inside the US can uncover some of it without too much work. Look what Moby accomplished on his own.
I can only hope that this crusade ultimately backfires and ironically results in the beginning of the demise of UScitizenship based taxation – the numbers of US citizens ‘abroad’ continue to be greatly reduced through mass renunciations. Funny, most people just adjust, and take the path of least resistance, but the US and IRS has overplayed this hand – and made compliance so expensive, complex and fraught with peril, that they have hastened the full departure of those they say they want to comply. It forced many to make choices they would never have made if there were other alternatives. The US threatens our families and our essential wellbeing – and our very ability to even subsist. There is no way to live with or accept that.
@ShadowRaider- there is a significant drawback for a disabled person who has U.S. citizenship. For one thing there is the whole problem of inheritance issues. If you provide for the future of a U.S. person via allocating various investment vehicles for that U.S. person’s future then that disabled person can have significant present and future tax reporting requirements along with possible penalties for non compliance. Not only can the U.S. person be in trouble with the IRS but so also can any trustee, even though that trustee is not a U.S. person.
In the case of Canada this situation is even more compounded by the Canadian government’s recent enactment, 2008, of the Registered Disability Savings Program. This program is desinged specifically for with the purpose of being a counterpart of the Registered Retired Savings Plan that is used by those who are not disabled and employed. The way that the RDSP program works is that the disabled person or others, make annual contributions of 1500 minimum and the Canadian government makes contributions of 3200.
The U.S. government sees this as trust accounts and the Canadian government’s contribution is counted as current income to the trust holder. Under the provisions of the RDSP the trust holder cannot be the disabled but must be a competent none disabled individual who is usually a relaltive or someone who is a designated legal guardian. So what happens is that the trust holder ends up having to claim the Canadian government’s contribution as his/her income and is therefor obligated to pay U.S. tax on it. Now this contribution is considered passive income under IRS regulations and therefore is subject to the full force of the tax code. In addition to this problem there is also the problem that you must pay tax on the value of the fund itself because that is the rule for passive income accounts such as mutual funds.
These two things combined destroy the value of the RRSP for anyone who is a U.S. person. I forgot to mention the costs that are involved in filling out the 3520 form on which these accounts must be reported.
I believe that the situation with the disabled really throws into high relief just how absurd U.S. taxation of none U.S. income is. This is because the income that the disabled receive is actually received gratis from the Canadian government paid for directly out of the Canadian Treasury. This raises in complete clarity the question of what right does the U.S. have to tax the currency issuances of another country’s treasury? This is a question that can be made of all such issuances no matter if the money has been worked for or received as a result of a welfare payment. It is all the same currency distributed by the same Treasury. Does not the government of Canada have the sole right to make tax policy with regards to the issuances of its own treasury?
This also shows how FATCA and citizenship based taxation make all financial assets that are held by U.S. persons abroad essentially worthless. Basically if you can’t bank, get a mortgage, apply for credit etc. then everyone thing that you own as a U.S. person is now only valued at fire sale prices. Doesn’t this picture remind you of another situation in world history where another people saw their worldly assets turned into trash?
You must also remember that any of us can at any time end up disabled and not capable of making decisions with regards to our financial affairs. This means that all of your financial assets will be vulnerable to U.S. taxation predation and I wish you good luck in finding a sucker who is willing to be your guardian or to exercise power of attorney on your behalf. No one will want such a task when they realize that it exposes them to IRS rules and penalties. Then on top of that try finding someone who is willing to take care of your tax filing requirements for a reasonable price.
In the end you can build up all of the financial reserves that you think you need as a source of adequate passive income in the event that you are not able to work but the U.S. will step in and tax it away because passive income doesn’t qualify for any protection under the tax treaty. All you can hope for is that the foreign tax credit will help you to some extent but even that benefit is limited. Also do you want to be filing two tax returns when you are no longer able to work? What would be the point?
So I say that if you are a U.S. person who is of sound mind and body then one of the best tax planning actions that you can take is to renounce your U.S. citizenship today. You never know what tomorrow will bring but whateve it brings you can count on the U.S. government to not care when it comes to getting what they so ignorantly think they deserve.
@ShadowRaider, here is a sample of the problem with RDSPs and the impairment/discrimination against those with disabilities. Unfortunately they contend with multiple barriers where they live, as well as from the IRS and US from afar. Those with disabilities that cause diminished capacity (ex. dementia, schizophrenia, developmental/intellectual delays, head injury, etc) are particularly severely impacted. Those with diminished capacity are not allowed to renounce, but neither can those with legal guardianship/POA allowed to do it on their behalf. The RDSPs are penalized by the IRS as ‘trusts’ – with specialized and expensive accounting – even though they are encouraged, and tax privileged where we live in Canada. It is the same for our TFSAs – and PRPPs (a type of pension plan), and also our RESPS – for education tuition.
http://rdspresource.ca/index.php/2011/11/treatment-of-rdsps-by-the-us-internal-revenue-service/
http://gswlaw.com/irsblog/2010/08/25/us-tax-compliance-foreign-grantor-trusts-foreign-gifts/
http://rdspresource.ca/index.php/2011/11/a-solution-for-the-legal-capacity-barrier/
*@shadow Raider, disability income for persons in the US from a US source is generally tax free. But if it is from a foreign source then it is subject to US taxation as nonearned income. That is obviously discriminatory and wrong, but that’s the way the tax law reads. The same is true of social security benefits. If the US person’s income is below a certain level it is tax free. Above that threshold 85% of social security retirement is subject to US tax.
Foreign social security retiremment is fully taxed by the US unles there are provisions in the tax treaty between the US and the other country to the contrary.
@recalcitrantexpat, @badger, Thank you for the explanation, I didn’t know about these things. It’s really absurd that the US taxes the income given by Canada. I also hadn’t thought about the possibility of someone becoming incapacitated later in life, after already having assets.
Does the recent IRS decision to exempt Canadian retirement accounts include the disability and education accounts? Are there exemptions for similar accounts in other countries too?
@ShadowRaider- I am glad that you found my posting interesting. Unfortunately there is currently no exemption for Registered Disability Savings Plans (RDSP), Registered Education Savings Plan (RESP) or Tax Free Savings Accounts (TFSA) and I doubt that there will ever be such accomodation made.
Why though a sovereign nation should have to go hat in hand to the U.S. and ask for their blessing on the participation of U.S. citizens in any of the tax policies of their country of residence is an absurdity. The U.S. doesn’t do that with respect to the immigrants within its borders but they have they gall to foist this humiliation upon other governments. It is nothing more than pure arrogance.
@Roger, Are you serious? Disability income is tax-free if from a US source but not from a foreign source? I know that US social security income is tax-free below a certain level, but it’s because the US social security contributions are taxable income. On the other hand, foreign social security income is taxed, but the foreign social security contributions are not taxable income. In fact, the contributions are considered income tax and can be used as tax credits. (This is the standard case, unless a treaty specifies something else.)
@ recalcitrantexpat
Thank you for the perfect explanation of why it is crucial that guardians be able to renounce on behalf of their disabled charges. You and Julian Hudson are both SMEs. 😉 I thought that might stand for Super Magnificent Expounder but Just Me tells me it means Subject Matter Expert.
*Shadow Raider, I am not a a tax expert but I am pretty sure this is correct. Perhaps we have a reader who is more expert in this area than I am.
It is also my understanding, and again if there is an expert who knows In am wrong, I hope they well speak up: It is my understanding that if you are living and working abroad and you and your employer are requred to contribute to a foreign social security system, that both your contribution on the contribution made by your employer is considered taxable income as far as US tax lawn is concerned, and that you are required to report it on your Form 1040. If foreign tax rates are higher your foreign tax credits may be sufficient to cover your US tax obligation, but even though you never actually see either of these contributions to a foreign social security system it is taxable foreign earned income as far as the IRS is concerned.
Foreign social security taxes are not considered income tax for US tax purposes, UNLESS they happen to be in a country where there is a single “income” tax which includes the funding of of social security rather that a separate social security tax. I believe there are a few countries where this is the practice.
Also, if your income is in a foreign currency and the value of that currency with respect to the US dollar increases between the date you receive it and the date you actually spend it, then you are subject to a capital gains tax on that increased value. Likewise if the foreign currency depreciates in value, you may claim a capital loss on that depreciatedn value. Whether it is a long term or short term capital gain or loss depends on how long you have held it before you spend it.
When I lived in Brazil where the currency was rapidly depreciating with respect to the US dollar, I actually went through this excercise because, with this devaluation I had short term capital losses which reduced my US tax obligation. In those days people in Brazil were generally paid twice per month, on the first and 15th. On those paydays the supermarkets were packed as people stocked up on groceries the next moring after payday becuase in the afternoon the prices went up. Prices were generally adjusted every day so you wanted to do your buying in the morning before the price went up that afternoon. Some of the large supermarkets had 150 check-out lanes which were packed only the morning after paydays, but virtually empty the other days of the month.
Presumably when you actually receive foreign social security benefits you should only be subject to US tax on the difference between what you and your employer have contributed (in US dollar value) and what you receive, since you have already paid tax as income on what you contributed.
It is things like this that drive you up the wall if you are a US person living and working in a different country.
Here’s where you probably need then assistance of trained professionals in order to do it right.
*EM, guardians should be able to renouce on behalf of the incapacitated, but US law does not permit this. Totally absurd, but that’s the law.
This is just one of a million items that needs to be emphasized on why US citizenship based taxation is a total abuse of then basic universal rights of which US citizens living outside of their country are totally deprived.