US expat tax and FBAR: Discussion thread (Ask your questions) Part Two

3,618 thoughts on “US expat tax and FBAR: Discussion thread (Ask your questions) Part Two”

1. @Heidi, I know I can get both but I have since learned of another new acronym WEP, the windfall elimination provision which I think means US social security is reduced because of my bought and paid for UK pension!!

   I found a calculator online and it appears I lose $1 in social security for every $3/£2 of UK state pension.

   Does that sound right? It sounds insane and punative but this is the USSA.

2. George
   Apply for your SSA, before you receive
   your UK pension…

3. @iota.

   “It’s the other way round: if you don’t have enough US credits to be eligible for a pension, your working years in Country X can be counted to bring you up to the US minimum so that you get a small US pension, in addition to whatever Country X pension you’ve earned.

   If you don’t have the minimum Country X credits to get a Country X pension, your US working years can be counted to bring you up to the minimum so that you get a Country X pension in addition to whatever US SS pension you’ve earned.

   It’s not logical, but for once US illogicality works in the subject’s favour.”

   But there is a certain logic to it. Certainly between the US and Canada, it is not at all uncommon for people to divide their working lives between the two countries. Depending on the details of such a situation, it is possible a person could pay substantially into one system but not qualify for any benefits, or even pay into both but not qualify for benefits from either system. That is the purpose of the totalisation agreements; to make sure cross border workers do not totally lose their contributions. This is an example of how governments can work together for the benefit of their respective people, something that should happen much more often than it actually does. I agree, this is all very unlike the US government. Maybe the SSA was able to sneak something sensible past Congress?

   I don’t have a clue about the WEP, but I’m happy to ignore it!

4. @heidi – I think it’s just a mistake. There’s a post starting “OK thanks” which has my name on it but was n’t posted by me. That’s the post I was replying to.

5. @George – sorry, I don’t know if they ask you if you’re currently receiving a non-SS pension, or if they ask you if you will be entitled to receive a non-SS pension. The latter, I’m afraid, is more likely.

   I don’t know how it’s calculated. Sorry not to be able to help.

6. @Maz – I think the totalization treaty is there because without it, CBT would mean that US citizens working for a few years in another country might have to choose between paying double employment taxes, or breaking local law. And foreigners wouldn’t come to work in the US for a few years if it meant they’d have to pay DS but never get anything for it.

   I don’t think America ever gives its citizens anything unless it suits policy objectives to do so.

7. The ironic thing is that at least for government pensions in countries with a totalization agreement, the US has willingly agreed to RBT instead of their usual “stuck on stupid” CBT. Now if they could just take that tiny bit of rationality a bit further…..

8. There’s a lengthy explanation of the reasons for the Totalization treaty at https://www.ssa.gov/international/agreements_overview.html#&a0=9

   Without some means of coordinating Social Security coverage, people who work outside their country of origin may find themselves covered under the systems of two countries simultaneously for the same work. When this happens, both countries generally require the employer and employee or self-employed person to pay Social Security taxes.

   Dual Social Security tax liability is a widespread problem for U.S. multinational companies and their employees because the U.S. Social Security program covers expatriate workers–those coming to the United States and those going abroad–to a greater extent than the programs of most other countries. U.S. Social Security extends to American citizens and U.S. resident aliens employed abroad by American employers without regard to the duration of an employee’s foreign assignment, and even if the employee has been hired abroad. This extraterritorial U.S. coverage frequently results in dual tax liability for the employer and employee since most countries, as a rule, impose Social Security contributions on anyone working in their territory.

   Dual tax liability can also affect U.S. citizens and residents working for foreign affiliates of American companies. This is likely to be the case when a U.S. firm has followed the common practice of entering into an agreement with the Department of the Treasury pursuant to section 3121(l) of the Internal Revenue Code to provide Social Security coverage for U.S. citizens and residents employed by the affiliate. In addition, U.S. citizens and residents who are self-employed outside the United States are often subject to dual Social Security tax liability since they remain covered under the U.S. program even if they maintain no business operations in the United States.

   Other features of U.S. law increase the odds that foreign workers in the United States will also face dual coverage. U.S. law provides compulsory Social Security coverage for services performed in the United States as an employee, regardless of the citizenship or country of residence of the employee or employer, and irrespective of the length of time the employee stays in the United States. Unlike many other countries, the United States generally does not provide coverage exemptions for nonresident alien employees or for employees who have been sent to work within its borders for short periods. For this reason, most foreign workers in the United States are covered under the U.S. program.

   Paying dual Social Security contributions is especially costly for companies that offer “tax equalization” arrangements for their expatriate employees. A firm that sends an employee to work in another country often guarantees that the assignment will not result in a reduction of the employee’s after-tax income. Employers with tax equalization programs, therefore, typically agree to pay both the employer and employee share of host country Social Security taxes on behalf of their transferred employees.

   Under the tax laws of many countries, however, an employer’s payment of an employee’s share of a Social Security contribution is considered to be taxable compensation to the employee, thus increasing the employee’s income tax liability. The tax equalization arrangement generally provides that the employer will also pay this additional income tax, which in turn serves to increase the employee’s taxable income and tax liability even further. The employer again pays the additional tax, etc., etc.

   As one can readily see, the employee’s foreign Social Security coverage results in a substantially greater tax burden for the employer than the nominal Social Security tax alone. Depending on the other country’s tax rates, in some countries this “pyramid” effect has been known to increase an employer’s foreign Social Security costs to as much as 65-70 percent of the employee’s salary, as illustrated below.

   You would think that since they can see so clearly the problems created by CBT with regard to employment taxes, they should have no trouble connecting the dots and seeing the problems created by CBT with regard to other categories of income – even before FATCA. Why? Why do they persist with such a pointless tortuous system, which does nothing but create problems for all concerned?

   It’s unfathomable, to me.

9. This bit kills me.

   Territoriality Rule

   The provisions for eliminating dual coverage with respect to employed persons are similar in all U.S. agreements. Each one establishes a basic rule that looks to the location of a worker’s employment. Under this basic “territoriality” rule, an employee who would otherwise be covered by both the U.S. and a foreign system remains subject exclusively to the coverage laws of the country in which he or she is working.

   Replace “coverage” with “taxation”, and you have the solution to the CBT problems. Staring them in the face.

10. ” Why? Why do they persist with such a pointless tortuous system, which does nothing but create problems for all concerned?”

    I’ll take a wild guess and say that its because they’re stuck on stupid. The average American (including members of Congress) simply can’t imagine what its like to live anywhere else but the USA.

11. @maz57, of course they don’t. Most Americans have never been outside the US nor do they want to go outside the US. It’s the greatest country in the world, haven’t you heard that said over and over and over? Tell people something for long enough and they’ll believe it – especially when they have nothing else to compare it against. Most Americans don’t travel outside their own state or if they do it’s mostly to a neighbouring one.

    It’s not that they’re stuck on stupid, it’s just that America is so big the rest of the world doesn’t really impinge on their daily lives. It’s probably better now, but when I was a kid we were lucky if we heard of something happening in New York or LA on the local news, never mind anything that might be going on in the rest of the world.

12. @ a US University conference back in the 70’s, I remember one instructor complimenting an Australian prof on her excellent English.

13. There’s always a policy tussle going on behind the scenes though – the fluctuations in the tax treatment of non-resident USCs isn’t just a manifestation of stupidity. Stupidity oils the wheels, but the motive force is more complicated. The policy seems to have yo-yo’ed back and forth between isolationism and the conflicting yen to suck in capital via foreign trade. All vastly murkified by the Cold War no doubt.

14. I think it is also because the the US simply do not recognise or accept that other countries can and do things better and more logically than they do. It’s the “we are exceptional” mindset” that they find so hard to abandon.

15. OMG, that’s so funny, Heidi. Someone from England should speak really good English then.

16. @bubbles
    You Canadians are pretty fluent too. 🙂

17. Should I come forward? I came to the UK when I was 21 and am now 70. I have only recently learned of FATCA and CBT. I have just been asked by one of my banks to complete a W-9. From what I have read, it seems that I have invested in all the wrong things for my retirement, i.e. investment bonds and ISAs. I have dual citizenship and intend never to visit the USA again. Can the IRS seize my assets? Can they penalize me for never having submitted a tax return or FBAR? Should I enter the system?

18. Hi Angharad – I was five years behind you. I came to the UK in 1965 and am now 75. I learned of CBT/ FATCA / FBAR and the rest of the devil’s alphabet last summer. I renounced a.s.a.p. and am very glad I did.

    The IRS can’t seize your assets. They can’t do much of anything, if you have no US assets and don’t intend to travel to the US in future. Unfortunately, since your bank has sent you the FATCA letter, staying under the radar is difficult. You may need to sign the W-9 and then consider the filing / not filing options.

    Are the investment bonds with NS&I? If so they may be FATCA exempt.

19. @Angharad; No one can tell you what to do, but you should study and read as much as you can before deciding what to do next. You should know what you want to do BEFORE speaking to a cross border compliance jackal.

    You may wish to start at the top of this blog and just read down the article list.

    You need to determine IF you are a so called dual citizen, you may have relinquished in the past. A past relinquishment can be documented other than a CLN.

    If you have relinquished and are not a US Citizen in your mind, you need to decide if you want that documented from the US side because they may disagree!!!

    The good news is you are NOT alone, according to the last UK census there are roughly 50,000 persons in the UK, who were born in the USA, who solely carry a UK passport and solely identify being British.

    You will need to do some philisophical soul searching which is very important. Are you British, are you American, are you this thing called dual. If you are solely and absolutely British, you need to walk away from America meaning no voting, no passport and maybe being exiled.

    Are you in absolute full compliance with HMRC?

    You need to schedule an appointment with your MPs next surgery and explain how they threw you and other British Citizens under the bus and demand what they are going to do to help you.

    But again DON’T PANIC, study…….

20. @Angahard, how did you get ratted out? Was it a high street bank, a building society?

    I assume you would have always self identified as British, did you open a new account and face the place of birth question?

    If you sign the W-9, you will be reported.

    If you do not sign the W-9, you will be reported.

    Notice the end result is the same?

    But by signing that form, you are admitting that you are a US Citizen and you MIGHT no longer be a US Citizen. There are a whole bunch of ways to have lost the disease under old law that need to be examined.

    You may want to review the FATCA IGA to see what types of accounts are reportable and what are not, meaning you may want to open a credit union account, buy NSI premium bonds etc etc.

21. @Angharad – don’t worry about the scary-sounding FBAR penalties. If need be, you can enter the Streamlined Procedures (https://www.irs.gov/Individuals/International-Taxpayers/New-Filing-Compliance-Procedures-for-Non-Resident-U.S.-Taxpayers)

22. @iota, ” You may need to sign the W-9 and then consider the filing / not filing options.”

    What is gained by signing?

23. @George – very good point about possibly having already relinquished US citizenship! Wouldn’t that be good news!

24. @Angharad

    You’d be advised to follow George’s suggestions before you jump into anything. The banks are generally not up to speed on what constitutes US citizenship.

    When did you attain citizenship in the UK, and have you done anything since then that would establish ties with the US (such as vote in a US election, or attain a US passport)?

25. @George – keeping on good terms with one’s bank while researching the options and deciding what to do.

    If Angharad is below the threshold her accounts may not be reportable. If she finds that she is still a USC, and doesn’t sign the W-9, the accounts will be treated as refractory.

Comments are closed.