If you have wondered about working abroad or your employer has asked you to consider such an opportunity, you have undoubtedly thought about a myriad of items. At a minimum, you will have a new job, home, and bank account. You will have new employee benefits to consider and questions about how to handle finances abroad.
The questions we are often asked by our clients in this situation are:
Will I have to file a U.S. tax return even when my income is all from abroad?
Will I have to file a tax return in the country where I work?
Once you move abroad, you will continue to file a U.S. tax return. You will include worldwide income and financial assets, just as if everything was held and located in the U.S. Worldwide income includes compensation such as wages and self-employment income, as well as investment income from banks and securities. Distributions from pensions and net rental income from property in the other country will also be taxed in the U.S. Any business interests you have in the other country will be subject to U.S. international tax rules. If you are paying tax on any of this income in the other country, there may be a foreign tax credit calculation to reduce the U.S. tax liability on the same income and thereby avoid double taxation.
Planning Tip: Meet with a Kerkering Barberio international tax professional to understand U.S. tax issues on worldwide personal income and international business income and how the foreign tax credit may reduce your U.S. tax liability.
You may be able to avoid double taxation on your earnings through the Foreign Earned Income Exclusion. For 2020, up to $107,600 of your foreign employment wages and compensation or self-employment income (as adjusted by the regulations) may be excluded from your U.S. taxable income.
Planning Tip: Learn more from your Kerkering Barberio international tax professional about how to qualify for the Foreign Earned Income Exclusion and whether the exclusion or the foreign tax credit will produce the better result for you.
Any financial accounts you hold outside of the U.S. will be reported annually on the Foreign Bank Account Report (FBAR). Certain other financial disclosures for your foreign financial assets may also be required.
Planning Tip: Ask the Kerkering Barberio international tax group about the FBAR and financial disclosure requirements. Our experienced professionals may be able to help you minimize the reporting burden.
There are unique U.S. tax rules and tax rates on non-U.S. mutual funds (called PFICs in the U.S.). A prudent step is to avoid owning non-U.S. mutual funds in order to not be subject to U.S. taxation under the PFIC regime.
Planning Tip: Discuss with us how to structure your investment portfolio and financial assets before moving abroad. We can assist with structuring your portfolio in a tax efficient manner for U.S. tax purposes.
Pensions, retirement accounts, tax-free accounts, and social security-type benefits (Plans) offered by non-U.S. employers and countries are seldom “qualified plans” under the Internal Revenue Code. As a result, you cannot have a tax-free rollover from a U.S. to a non-U.S. Plan. You also cannot have a tax-free rollover from a non-U.S. to a U.S. Plan.
Planning Tip: Consult with Kerkering Barberio about how to best plan for retirement when working abroad and participating in a non-U.S. Plan.
For U.S. tax purposes, participation in a non-U.S. Plan means you will not have the benefit of pre-tax contributions or income tax deferral on the earnings in the Plan even if the other country’s pension rules allow one or both benefits. For example, assume earnings of $50,000 and a $5,000 pre-tax contribution to your non-U.S. Plan. In the U.S., you will pay income tax on the full $50,000. When your non-U.S. Plan is credited with investment income, you will pay income tax on the investment income in the year it is credited.
However, you may be able to claim benefits under a U.S. Income Tax Treaty to mitigate these disadvantages. Some U.S. Income Tax Treaties offer relief in the form of U.S. recognition of pre-tax contributions and/or deferral of tax on investment income in the Plan until distributions start. Once you start taking distributions from the Plan, the distributions will be taxable on your U.S. income tax return.
Planning Tip: Inquire if the U.S. Income Tax Treaty with the country you are moving to provides relief from double taxation on your retirement income. Any time you rely on a treaty benefit, you have to disclose the treaty article you are claiming on your U.S. income tax return.
Tax filing requirements vary widely from country to country. Most likely you will have to file a tax return in the country where you live and work.
Planning Tip: Be sure to learn about the tax filing requirements in the country where you will live and work. Kerkering Barberio only prepares and consults in U.S. tax returns and matters, but we may be able to assist with a referral to a tax professional in that other country.
If you are planning to move abroad, the U.S. international tax professionals at Kerkering Barberio & Co. have the knowledge and experience to assist with your U.S. tax filings and disclosure requirements. If you are living abroad and were unaware of your U.S. reporting requirements, the Kerkering Barberio international professionals can assist you with and through the IRS offshore compliance programs. We will also help identify planning opportunities to lessen your reporting obligations.
For more information, contact Tax Manager Debbie Willis, CPA or Tax Manager Danielle Logan. Debbie and Danielle both have primary practices in International Tax, providing consulting, tax planning, and preparation of U.S. tax returns for U.S. citizens and tax residents who have international income and investments. They assist individuals with offshore tax compliance issues related to Foreign Bank Account Reports (FBAR) and the Foreign Account Tax Compliance Act (FATCA). Debbie can be reached at , Danielle can be reached at or by phone at 941-365-4617.
Update as of 11.16.2020
Dear Clients and Friends of Kerkering, Barberio & Co.,
Kerkering, Barberio & Co. is taking a cautious and methodical return to our prior state. Our offices are open by appointment only. Please note that all staff and visitors in our office must wear a mask. If you do not have one, we will provide one.
To drop off documents, the following still apply:
Kerkering, Barberio & Co. is committed to our continued operations for the benefit of our clients and team members. If you would like to schedule an on-site appointment, please contact your Kerkering Barberio representative.
We appreciate your continued support. If you have any questions, please don’t hesitate to contact us at 941-365-4617.
Robert J. Lane, CPA
President and Managing Shareholder