A Life in Paris

Filing Taxes While Abroad

April 2, 2016

It’s tax season!

And, you know what I’m doing? Filing my taxes. (Actually, I’m procrastinating filing my taxes by writing this article for you, but who’s counting… LOL)

So, you think you can move abroad and stop paying taxes?

Think again!

The U.S. tax law states that anyone who is a U.S. citizen is required to at least FILE their tax returns every year.

{*I am not a tax advisor, and none of the information I share in this article should be considered legal tax advice. The information in this article comes from my own experience and may not be similar to your situation or obligations. Please seek advice from a certified tax advisor.}

That’s right, there’s no avoiding it!

Some people, who were born in the U.S. to foreign parents but who then moved back to their parents’ home country, are still U.S. citizens and must declare their income to the IRS – even though they’ve never lived in the U.S.! There are some Frenchies who recently found themselves in this position. Mommy gave birth in the US by accident while traveling, or while the parents were on work assignment in the US, and then brought Frenchie Jr. back to France. Junior grows up in France, has French citizenship, but the kid still has his U.S. citizenship, too. If he wants to keep that U.S. citizenship, little Frenchie Jr. has to file his U.S. tax return!

The IRS is stepping up their game

There’s another wild requirement to know about: any U.S. citizen who has a bank account abroad must declare the account and the amount in it IF the account had $10k in it at one moment in the year. The penalty for NOT declaring your account(s): the greater of $100,000 or half the amount in your account!!! So, if you have $20,000 in an off-shore account and you don’t declare it, you are suddenly $80,000 in the RED! Seriously, folks. It’s called the FBAR. Look it up.

To make matters worse, in 2014 and 2015 the U.S. started howling down the necks of foreign banks, demanding that they share with the IRS any information about accounts held by U.S. citizens. This is called FATCA.

Swiss banks fought back, but it’s an ongoing issue, and banks across the globe are scrambling to keep up. In fact, my French bank recently sent me IRS W9 form recently to fill out and return to them! Quelle suprise!

Big Brother at it’s best…

Now, any American who wants to open up a French bank account has to supply their Social Security Number, and possibly sign a million pieces of additional paperwork related to their taxes.

I had to do all of that when I opened up my French accounts!

In fact, FATCA is so new, that one of my banks messed up. They weren’t supposed to open an account for a U.S. citizen in the first place. New company policy. The banker I had was clueless and he signed me up anyway. Two weeks later a different banker subsequently tried to close my account, but my employers had already transferred my salary into my account. The bank couldn’t close an account with a positive balance (company policy), so I got to keep my account! That was the craziest run-around ever. It took over a month for me to open and get access to my account at Societe Generale.

My experience opening an account with la Banque Postale was much MUCH smoother. They opened our joint account with no trouble whatsoever. They asked me for my fiscal ID number (aka social security number) and within a week the account was active and we could access it. No trouble.

Clearly, I’d recommend la Banque Postale over Societe Generale! LOL

So, here I am, trying to figure out my taxes…

It’s complicated this year, but only because (a) I’m got married to what the IRS calls a non-resident alien, and (b) I earned money in the U.S. for more than half the year.

I have to do crazy things like use a converter to turn my euro earnings into dollars, and read lots of forms and IRS websites to figure out the best way to file my taxes for me as a married lady.

So, do I get taxed by France too?!?

Yes and no… In 2015, I lived in France for less than half the year, so I won’t pay any income tax on the euros I earned in 2015. However, I have had to pay into the French versions of Social Security and Medicare (here they are lumped together and called les charges sociales).

For the 2016 tax year, however, I will have to pay French income taxes on the euros I earn.

The light at the end of the tunnel

Next year, for my U.S. tax return, I will get to use a really cool loophole called the Foreign Earned Income Exclusion.  I will have lived in France for all of 2016, which means that I can file for this exclusion and not pay any US income taxes on the income I earn abroad!

So, basically while I do have to pay U.S. income taxes on my French income for 2015, I will not have to do that for 2016 and any year in which I live abroad for more than 330 days! 😀

I won’t be double-taxed, but I will pay French taxes for 2016 and onward.

High earners, beware!

This Foreign Earned Income Exclusion for U.S. taxes only applies to people who earn less than $100,000 a year. So, high earners may have to pay taxes in their new country AND in the U.S.

Luckily though, there is an agreement about that as well: if income taxes paid to your host country are greater than your U.S. tax burden, you pay nothing to the IRS.

However, if the income taxes paid to your host country are less than your U.S. tax burden, you pay the difference to the U.S.

Thank goodness

I don’t earn over $100,000, right? I mean, sheesh, all those taxes I’d have to pay! LOL haha

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