Congress Raises Taxes on Expatriots

Last week President Bush signed a $69 billion tax cut package into law, which makes permanent some tax cuts put in place a few years ago. But at the last minute Congress decided taxes needed to be raised on a few Americans: those living overseas.

The tax change, retroactive to the start of 2006, will see some expatriates’ tax bills triple or even quadruple.

Americans living overseas say the provision wrongly focuses on allowances that their employers pay to cover higher costs — like housing, schools and trips home — that they incur by taking a job abroad. The law changes the way taxes are calculated on subsidies like housing allowances, which should push many of those Americans into higher tax brackets, analysts say.

While the move will have limited effect on Americans living in countries with high tax rates — European countries, for example — those living in low tax jurisdictions with high housing costs — like Bermuda, the Middle East, Singapore and Hong Kong — will be hit hardest, partners at two major accounting firms said. . . .

For Kristine Kraabel, a gift shop owner in Singapore, and her husband, who is now the regional human resources director there for an American company, the new legislation will more than triple their American tax bill. Their tax adviser calculates that they will owe $20,000 to $25,000 more in United States taxes, up from $5,000 last year, even as they pay $20,000 in Singapore taxes.

Of course, this only goes after those who choose to continue paying taxes, and according to NYT, does “nothing about the hundreds of thousands of Americans living overseas who have illegally stopped paying income taxes.”

Fun Fact: The U.S. and Libya are the only countries that dare to tax their citizens while they’re working out of the country. And Libya used to be “the enemy.”

  1. So, does this mean that Bush will send another 50,000 troops to live in Iraq so he can shelve them into a higher bracket?

    “Beware of all enterprises that require new clothes.” H.D. Thoreau