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Question for the Money Doctors

Question submitted on Mar 14, 2013.

Question

My daughter worked 3 weeks in Jan. 2013 but then moved to the UK and got married. (her husband is from the UK) They both started working in April and have worked ever since. Will they both have to pay US income tax? Is there a special form to fill out? It just seems a little crazy that you work in another country for a company in the UK, but owe the US income tax, even though you are living there. Thanks for you time on this.

Answer

US citizens are taxed on their worldwide income, regardless of where they live or earn their income.

There are different rules depending on her spouse's tax status. For example, if your son in law has obtained a green card, is a naturalized U.S. citizen or otherwise considered a resident alien, then he is treated as a "resident alien", even though he lived overseas the whole year. He will be taxed on his world-wide income, including investment income as if he were a US citizizen.

After 2012, if she does not maintain a residence in the States, she will not likely have a state filing requirement, but she should inquire as the rules vary from State to State.

Included in the income tax filing requirement is Form 8938, Statement of Specified Foreign (non-US) Financial Assets. In addition to the income tax, US citizens may be required to file Form TD 90-22.1 if they own a foreign account worth over $10,000 during the tax year.

IRS Publication 54 is always a good reference tool for US citizens working abroad. The publication discusses special tax rules for U.S. citizens who work abroad or who have income earned in foreign countries.

IRS Publication 54 discusses several tax provisions applicable to US citizens working abroad, such as:

  • Foreign earned income exclusion
  • Foreign housing exclusion and deduction
  • Foreign moving expenses
  • Foreign tax credit
  • Tax treaty benefits

That being said, please note that the income tax rules applicable to expatriates are very complex and that you would be well served by contacting a CPA/PFS who will be able to help you analyze the tax rules and whether or not you are eligible for treaty benefits. Visit www.findacpapfs.org to find a CPA/PFS near you.


For additional information visit http://www.360financialliteracy.org/