[jess]

I live in NZ but all my income comes from a company in the US. They don't have offices here. I work for them online.

I had been told by the IRD in an email (see this post (http://www.emigratenz.org/forum/showpost.php?p=103466&postcount=13)) that it was fine to continue paying my US withholding and to pay US taxes. Because of the tax treaty I then only pay NZ the difference between what I'd owe in NZ and what I'd owe the US. (So if I earned $1000 (for a small example) and owed $100 in taxes in the US on it but would have owed $300 if I were paying in NZ -- I end up paying the $100 the US wants and then after claiming the exemption for the $100 already paid, I would pay NZ $200 instead of the full $300.)

The US Embassy recommended a US tax specialist here in NZ, and he just told me that I should be paying zero withholding in the US - to stop it immediately - and that 100% of my tax money goes to NZ and that I would have to get my withholding back from the US. Very unsettling to hear!!!!

So I called the IRD and they just contradicted the specialist, and said that I should pay the US first and then only the difference to NZ as I originally thought. So all seems right with the world again.

But... a small voice is wondering how a tax specialist recommended by the Embassy could have it completely wrong. So I still wonder if I'm missing something. :confused:

The IRD is going to schedule a free meeting to look over my paperwork and help me out in person. (Can you believe that great service?)

But in the meantime I'm wondering if anyone else knows anything about this that will set my mind at ease about paying the US first and only giving NZ the difference on my US earned income?

Thanks much!

[KerryS]

If the IRD are satisfied about your tax situation then I personally wouldn't be worrying myself about it, and would just write off the expert's opinion... after all the IRD are the ones that really matter.
I rely on my accountant to do almost everything for me in relation to my taxes, gst etc. She is an absolute gem and I'd be lost without her!

[suebeenz]

Wow Jess. Thanks for the update. Looking forward to hear about the outcome of your meeting. I'm in the same boat, and i think it's sinking.

:laugh

[barryp]

The entire UZ/NZ tax treaty is online:

http://www.irs.gov/pub/irs-trty/newzld.pdf

If you enjoy word games, you might find your answer in Section 15. Were it my situation I would print out those pages and take them to the IRD to have them translated into English ;-) It's beyond my ability at the moment.

That document is the gold standard, and it should eventually tell you unambiguously what to so. It helped me immeasurably (tho our situation is not the same as yours).

[jess]

Thanks BarryP - believe it or not I've read the darn thing, but I think you are right - I'll need a translator to figure out who gets first dibs (which country get's paid and which one gets told how much I already paid the other country.)

Here's the update. The Lady from the IRD who called back and scheduled an appt. to come over to the house to meet with me, look at my paperwork, and help, said that just hearing my summary, she thinks the tax specialist may be right, and that it's true that I may have been wrong to continue withholding in the states. :uhoh But she's going to research the legislation more before coming to see me on the 22nd.

But the IRD had told me when I arrived it was ok to keep doing withholding - and anyway from what I can tell from the IRS pub for expats, my U.S. company can't legally stop withholding for me anyway.

Will keep you up to date on my progress suebeenz. And if you call them the IRD folks are really nice, or have been in my experience. They're at 0800 227 774.

[Super_BQ]

JESS,

Your FIRST tax obligation is with the US IRS. As a US Citizen you are required to file a tax return to the US REGARDLESS WHERE YOU LIVE. Sorry for the big capital letters but so many Americans living abroad overlook this. The only way out of filing a US tax return is if you renounce your US citizenship. Also a return has to be filed for the rest of your life no matter where you live.

Read the 1st paragraph of this:

http://www.centa.com/articles/U.S.Cdntaxation.htm

You could pay no tax to the IRS by filling form 1116 FTC. However, this is not current so rules may of changed since 2001. Post 911, many developed nations have not updated the tax treaties with the US and thus have made it nearly impossible for overseas residents to open bank accounts in the US.

Eitherway, you're still going to end up paying more tax living in NZ (as NZ is the higher income tax rate).

The IRS person is correct. Your employer in the US should not withold your income. Providing you fill the appropriate forms for their accountant to make this exemption. If so, you may have a difficult time seeing the witholding payments back.

Being a US citizen is difficult in regards to taxation. If you sell a house in NZ for a big tax free capital gain, you'll still have to declare it on your IRS 1040 tax return. It's more of the inconvenience of having to file 2 returns than anything else.

BQ

[Oregonkiwi]

Jess, wouldn't your income qualify for the IRS foreign earned income exclusion? Meaning that the first US$80K (I think) is exempt from US income tax.

The place where you perform the services is what defines your income as foreign, not where or how you are paid. For instance, income received for personal services performed in France is foreign earned income, even if the employer is American and your pay is deposited in an American bank.
http://www.irs.gov/taxtopics/tc855.html

[Park City Partner]

I'm not sure who the US embassy recommended but I mat with Peter Chatfield of Smith Chilcott Bertelsen Harry and found him to be excellent. His firm handles a lot of US and NZ tax returns. His number is 09 379 8035 if you care to give them a ring. The process is a bit complicated, especially since there are different tax calendars involved, but as Peter explained it to me you (or in my case my accountant) completes a draft of the US return and then they review it and fill out some additional documents based on NZ circumstances and return it to the accountant with docs and comments to be finalized.

This of course does not directly answer your question but is info none the less...good luck!

[jess]

As a US Citizen you are required to file a tax return to the US REGARDLESS WHERE YOU LIVE. I'm filing in both places, but it's who get's my money first that is the headache. The US first with NZ getting the leftover due to the higher tax rate? Or NZ first with the US getting told I already paid NZ?

Jess, wouldn't your income qualify for the IRS foreign earned income exclusion? Meaning that the first US$80K (I think) is exempt from US income tax. Oregonkiwi, this is interesting, because I thought I didn't qualify because of requirement 2 and 3. You cleared up 2 because it says:
"For instance, income received for personal services performed in France is foreign earned income, even if the employer is American and your pay is deposited in an American bank."
So I would qualify I guess.

Requirement 3 says I need ot have lived in this country for at least 330 full days during any period of 12 consecutive months -- I have lived here almost a year now from April 6 2006 to now. I guess that would count even though the 330 is not during the US tax year in question (Jan - Dec 06)?? If I can count the last few months even though they don't fall within the tax year then I can meet that requirement as well and qualify for the exclusion!

If I qualify and I file the right paperwork with the IRS, will they really give me back all the money I've had withheld for me during the year? That's a rhetorical quaestion I guess. The IRS person is correct. Your employer in the US should not withold your income. Providing you fill the appropriate forms for their accountant to make this exemption. If so, you may have a difficult time seeing the witholding payments back.I'm afraid it will turn out all the money should go to NZ but when I file in the US they won't give me back my withholding from all this time.:no

Thanks ParCityPartner for the contact info. The guy recommended by the embassy was down my way - and may have been completely right. I was afraid to call the guy in Auckland and bug him since I wouldn't be a paying customer making an appt.

Thanks all for the help!!! I am trying not to be stressed out about this, but I have visions of having to pay it all in NZ and not being able to get withholding back from the US -- so ending up double taxed.

[suebeenz]

Thanks all for the help!!! I am trying not to be stressed out about this, but I have visions of having to pay it all in NZ and not being able to get withholding back from the US -- so ending up double taxed.

Ugh that would be painful indeed. 65% tax. ouch - you're scaring me. I'm hoping you'll have exciting news soon. I have an added monkey wrench in it all that I'm not a US citizen. Fearing that I'll need to recruit a tax specialist in the US, and another in NZ. Will let you know once/if I learn something.

In the meantime, thanks for all the the info everyone!

[Oregonkiwi]

I am trying not to be stressed out about this, but I have visions of having to pay it all in NZ and not being able to get withholding back from the US -- so ending up double taxed.

If you overpay your US taxes, you'll be entitled to a refund, surely?

Also, the IRS will give you an extension of filing time if you don't quite meet the 330 days but will soon - it's all on the IRS website.

Good luck!!!

[jess]

If you overpay your US taxes, you'll be entitled to a refund, surely?

Also, the IRS will give you an extension of filing time if you don't quite meet the 330 days but will soon - it's all on the IRS website.

Good luck!!!Yes, the more I read publication 54 carefully, the calmer I'm getting. When I first read over the Foreign Income Exclusion I thought I didn't qualify. I should have read further, but the stuff realy gives me a 'brain cloud'. Now that I'm reading fully I see that I do qualify under physical presence since I've been here almost a year, and I have the form provided in pub. 54 (form 673) filled out for my employer to stop future withholding. It looks like the specialist was right after all, and NZ will get all my money and the IRS will refund my withholding once I file with them.

Which is good. It means I can trust the tax specialist - despite the contradictory info from the IRD - and make an appt. to see him once I have all the info he requested together.

I have an added monkey wrench in it all that I'm not a US citizen. Suebeenz I have no idea what that does to your situation. (Not surprising since I can't figure out my own very well.) Wishing you all the best on that.

Thanks so much everyone for the help!! :yes I am so relieved to have a little bit of a handle on it.

[Super_BQ]

Jess,

I'm filing in both places, but it's who get's my money first that is the headache. The US first with NZ getting the leftover due to the higher tax rate? Or NZ first with the US getting told I already paid NZ?

Definitely the US will get tax paid 1st (maybe nothing if you get the FTC from form 1116). The remainder (which may be ALL) tax will be paid to the NZ IRD.

I'm afraid it will turn out all the money should go to NZ but when I file in the US they won't give me back my withholding from all this time

Unfortunately you won't see it which is why it's so important the employer does not withold any % of the pay. In terms of payment to the IRS (if you're not eligeable for form 1116 FTC), you simply offset that tax amount in the NZ IRD tax form under the 'foreign tax credit' section of the tax return (may be in a separate form). Because of tax treaties between the US and many other countries, you are allowed to offset the tax paid in 1 place over the other ; thus there's no double taxing.

You should also look at the state income tax requirement. We've only discussed the federal level IRS tax but most states in the US have a different requirement in terms of income tax. They have all funny rules that conflict with each other that may result in a double taxing. California and NY come to my mind.

Lucky NZ is too small of a country to have an additinal state/prov level of taxation.

BQ

[jess]

You should also look at the state income tax requirement. We've only discussed the federal level IRS tax but most states in the US have a different requirement in terms of income tax.

Yes, I also have to deal with VA. :uhoh So far I have been thoroughly confused by the state info.

[barryp]

There is no risk of double taxation - the treaty exists just so people with two tax loyalties can avoid that result.

Your FIRST tax obligation is with the US IRS. As a US Citizen you are required to file a tax return to the US REGARDLESS WHERE YOU LIVE. Sorry for the big capital letters but so many Americans living abroad overlook this.

The second part of that post is undoubtedly true, but the first part is untrue. There is no general concept of 'first tax obligation' that arises from being a USA taxpayer, so saying 'your first tax obligation is with the IRS' is misleading and can be just plain wrong. (For example, given my current income regimen, as a US citizen, my ONLY tax obligation is to the NZ government, and I do not pay ONE CENT of my income as tax to the IRS. My only obligation to the IRS is to file a return once per year, until death renders it moot.)

I'll be consulting an actual tax professional as a result of reading this thread - it's clear that no one posting here, including me, really knows the score. If I find out anything generally helpful, I'll share it.

[barryp]

Definitely the US will get tax paid 1st (maybe nothing if you get the FTC from form 1116). The remainder (which may be ALL) tax will be paid to the NZ IRD.

I make it a point to be positive and helpful when posting here, but will make an exception in this case.

Super_BQ, YOU ARE WRONG. You are assuming a hierarchy of obligations that DOES NOT EXIST. Therefore your well-intended posts are MISLEADING. The truth is spelt out in the tax treaty referenced above, and it bears no resemblance to your interpretation of it.

State income tax liability is also not a given, as it depends on indices of liability that do vary from state to state. If you no longer maintain physical assets such as a home in a particular state, do not maintain voter registration there, etc. you will not be subject to state income taxation AS A RESIDENT OF THAT STATE. But your point there is well taken - just because you can demonstrate nonresidency does not mean your state tax burdens all vanish.