I am getting majorly screwed on my taxes. What can I do?

I am an expat trying to complete my tax return, and it looks like I am getting majorly screwed. Here are the facts:

In 2017, I earned a salary of roughly $130,000. Of this, over $10,000 was for a health insurance policy, however, locally the value of the policy is taxed as regular earned income.

Gross income: $130,000
-Private Health Insurance: $10,000
-Social taxes, unemployment insurance: $12,500
-Income tax withheld: $15,500

I hired an accountant to complete my local taxes. After working his magic, he was able to reduce my taxable income down to $105,000. He was able to do this by claiming deductions which wouldn’t be claimable in the US. However, even after all these deductions, my local tax liability is still over $18,000, leaving me with a tax bill of $3,500 to make up the difference.

As if that wasn’t bad enough, here comes Uncle Sam, making things much worse. Here is roughly what my 1040 looks like:
Income: $130,000
-Foreign Earned Income exclusion: $102,100
Net income: $27,900
-Standard Deduction: $6,350
-Exemption: $4,050
Taxable Income: $17,500
28% tax: $4,900
-Foreign Tax Credit: $900 (local taxes paid on the $3k income above the Foreign Earned Income Exclusion)

In addition, I will most likely get charged with underpayment penalty.

Am I doing this right? Or am I just completely fucked?

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23k tax on 130k income when single and taking the standard deduction is not getting ‘screwed’, especially if you receive plenty of social services for those tax dollars. (Edit: Assumption made that you are a US expat)

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So you’re a US resident working elsehwere, or you’re working in the US as a foreign national?

By local tax, do you mean city/county or do you mean tax in a foreign country? Either way, you should provide us with whatever this jurisdiction is as it doesn’t sound like you have a problem with the US income tax amount, only the local tax liability.

Looking just very quickly at your US numbers, the one thing that strikes me is what appears to be a flat 28% tax on the taxable income. I’m not familiar with the intricacies of the foreign earned income exclusion so that may be correct, but it would be one of the things I would look at.

Sorry, for the confusion, I am a US citizen working abroad.

Local tax means country tax, cantonal tax + municipality tax. This was paid outside of the US.

The 28% tax is correct, when you have gone past the Foreign Earned Income Exclusion, the tax brackets simply pick up at the point where they would have been had no income been excluded.

I guess I am just pissed because I have an unexpected bill for $7,500 meanwhile I live in a shithole and drive a car with a market value of $3k. In reality, it’s actually a bit higher, as this is just the simplified version of my tax return.

Makes sense. I would also check the result if you claim the foreign tax credit on all of your income. Or, if you’re allowed, only claim the income exclusion on some of the income, and the FTC on the rest - find the sweet spot. Sorry if you already did this, but these are just my unsophisticated thoughts on possibilities.

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“cantonal tax + municipality tax” - Switzerland ? Expensive.
If so you probably saw that already:

Here are some pages from KPMG on expat taxation
http://www.kpmg-institutes.com/institutes/taxwatch/articles/2017/12/us-taxation-americans-abroad-2018.html
http://www.kpmg-institutes.com/content/dam/kpmg/taxwatch/pdf/2017/us-taxation-of-americans-abroad-2018.pdf
http://www.kpmg-institutes.com/content/dam/kpmg/taxwatch/pdf/2017/ustaa-jan-2017-final.pdf

Though not sure if there’s any new info in there, seems you got a handle on the numbers.

I agree with a poster above, income tax of <20% on taxable income of >$100k (in your current home country) doesn’t seem that high.
And the US tax bill is just an added bonus of being a US citizen, the only country in the world that taxes it’s citizens anywhere in the universe (except for the 2% expat tax in Erithrea).

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Did you also take the foreign housing exclusion? That can reduce your US taxable income further (assuming you paid for your lodging).

Have you asked a US tax expert for help figuring your US federal income tax owed?

You should try to pay as little as legally possible, but I’d hardly consider paying ~17% of your gross income in us and foreign income tax as “getting screwed.”

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I know about the foreign housing deduction, however, my rent is very low, basically living in a tiny matchbox apartment so no deductions there.

$22k total income tax on $130k income isnt getting screwed. Or at least not any more than everyone else gets screwed.

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It is very unfair, as that money was earned overseas, and the US is pretty much the only developed country that engages in this practice.

Furthermore, it just sucks waking up one morning and finding out that you owe another $7500, an expense that I never saw coming.

boo-hoo

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Well, you can always become a citizen of one of those other developed countries instead…

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If I understand you correctly, you’re a single taxpayer who withheld at the 12% level locally and 0% for US taxes.

While I’m sympathetic to our high rates of taxation, and especially the double-taxation standard imposed on ex-pats, the fact is that I’m not sure what exactly you expected. None of these facts are new impositions, and all of them should have been part of your tax planning process.

Anyone who withholds nothing for USA taxes had better be sure that he’s right. Or expect to pay taxes and (possibly) an underwithholding penalty to boot.

If it makes you feel any better, as a MFJ taxpayer with children my net tax rate in the United States was significantly higher than yours.

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That wouldn’t be enough, the only way to get out of it is to give up US citizenship, which I don’t think would be a very wise decision at this point.

I am mostly just venting. I have lived abroad for 3 years now, and this is the first year that I have actually gotten bit on my US taxes.

I’m just frustrated, because in the US, as an employee, your health benefits are tax free. When you are an expat, my health insurance benefits are taxed at 28%. Switzerland taxes me on my already accrued wealth. I am not even eligible to deduct this as a credit on my US taxes.

On another note, those saying it’s $22k income tax on $130k income, well that’s not really accurate. In the US, this would count as $120k income, a rate of 18.33%. And then you have to take into consideration the COL, paying $40/person to eat a basic meal at a restaurant, paying $7.50/gallon for gas, etc.

I am just frustrated and this is a way for me to vent.

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What is the equivalent median salary for your vertical and experience level here in the states. I assume it is significantly less than 130k, otherwise you would have had little incentive to move to the EU.

Then I won’t pile on. Just plan for it this year.

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In the US, I would make somewhere in the range of 110-120k a year. The extra salary certainly does not make up for the additional COL. From a purely financial perspective, this was not a very good move. I also think it is unlikely that I will ever earn a higher salary due to the experience I gained while living abroad.

To be completely fair, there have been a lot of upsides to living abroad. Just yesterday I was talking to a friend back home, and he was absolutely amazed that I am planning on taking a 4 week long vacation this summer.