[jess]

We saw a tax specialist recommended by the US embassy for our first attempt at filling out the forms for two countries. Although based on our particular situation, some of the info may be useful, so I'm including it here:


My OH was fairly straight forward, because he's working for a New Zealand company. We had to divide up his income for the first year into everything earned (and withheld) while he was still in the US and everything earned (and withheld through PAYE) after the date we moved to NZ.

I though my situation would be quite different, since I continue to work for the US company I worked for before the move, and that company has no office here in NZ. In fact my situation was different only in small ways mentioned below. I also had to divide my earnings into those earned stateside and those I earned while living in NZ.


US

Because we were filing while overseas, we had an automatic extension until June 15.

We filed jointly in the states, and our US 1040 lists our earnings as the total of what I and my OH were paid for the three months of 2006 that we lived the US.

Even though I work for an American company, my earning are still considered to be "foreign earned" because I'm living overseas. Both my OH and I qualified for the foreign earned income exclusion (see page 11 of IRS pub 54 - Tax Guide for US Citizens and Residents Living Abroad (http://www.irs.gov/pub/irs-pdf/p54.pdf) - pdf file - for details) That exclusion meant that I should not have been paying withholding on any pay earned after I moved to NZ even though I earned it from a US company and it went into a US checking account. Since I mistakenly paid US withholding all year, I had a whopping big number to put in the line where you state how much has been withheld.

Tax owed is figured using the amount we entered that we earned while living in the US. Since I actually paid withholding on the full year's pay instead of just the 3 months of the year we lived in the US, we qualify for several thousand in refund.

State taxes for VA were handled in the same way, with a refund due because of too much withholding.

I have since filled out form 673 (which is on page 9 of pub 54 (http://www.irs.gov/pub/irs-pdf/p54.pdf)) - Exemption from Withholding due to the foreign earned income exclusion - and filed it with my US employer so that no further withholding comes out of my pay. However, because I work for a US company I must continue to pay Social Security (see Pub 54 (http://www.irs.gov/pub/irs-pdf/p54.pdf), page 8).

When we file the 1040 next year we will both have $0 listed under job earnings (since we will have lived in NZ the entire year and our earnings will be exempt from US taxes due to the foreign earned income exclusion).



NZ

We each filed form IR 3A, and this time our amount earned was everything we were paid for the year after the move to NZ. On mine it was 9 months of US income figured with the exchange rate.

The several thousand in US refund will be spent on NZ taxes. My OH's PAYE withholding was pretty close to the mark, and he qualified for just a $54 refund on his NZ taxes. I on the other hand owe taxes for nine months of US income I earned while living here, for which I did not pay any withholding in NZ. Luckily the US refund will about cover it after the exchange rate is figured in.

Due to the fact that we hired a tax specialist, we do not have to pay the 2006 NZ taxes I owe until April 7, 2008. (That's a later due date than those filing on their own - I think, though I could be wrong, that the standard due date is Feb of 2008).

For next year, my husband will continue to have PAYE - the automatic NZ withholding. Because I don't have anything like that for my income out of the US, I have been set up as a provisional tax payer for 2007. This means I have three times during the year at which I must pay lump sum withholding on my 2007 taxes.

Because it gets paid during the year long before final taxes are due, I will actually end up paying most of my 2007 taxes before I ever pay my 2006 taxes! -- I have to settle up on 2006 taxes by April of '08, but my 2007 withholding payments are due in July, and Nov of this year, and the final payment in March of '08. Then when I file for the 2007 year, if I have underpaid at all, the difference will be owed by early 2009.

--

I hope that wasn't hugely convoluted or confusing. I'm not so great at explaining this stuff, but wanted to add our experience in case it's helpful...

[Ana&Steve]

Thanks for posting that, Jess! Just curious, could you file quarterly taxes in US to help pay for 2007 NZ taxes? Maybe too much of a hassle, though.:confused:

Maybe we could get the name of your tax guy sometime in the future?

Ana

[barryp]

You can file as an NZ provisional taxpayer from abroad. You can't let the IRS do the grunt work for you.

Also relevant to note that capital gains are treated differently between the two countries, so if you have shares or a house to sell, best to plan for the tax consequences in advance. (It is a myth that NZ has no capital gains tax; it's just a tax that doesn't apply in cases where it would apply in the USA.)

Thanks for posting that - most helpful. I'm glad that we'll have a simple tax regimen moving forward (file Form 1040, take exclusion, pay nothing).

Thanks

[Nathan]

....we qualify for several thousand in refund.
...
TELESCOPE!!! :yes


I on the other hand owe taxes for nine months of US income I earned while living here, for which I did not pay any withholding in NZ....
Oooops, no telescope...:no



....I hope that wasn't hugely convoluted or confusing. I'm not so great at explaining this stuff, but wanted to add our experience in case it's helpful...
Thank you, Jess!! We'd been eagerly awaiting this post. It's very helpful.:nice1

[jess]

TELESCOPE!!! :yes

Oooops, no telescope...:no :laugh:laugh

[jess]

Just curious, could you file quarterly taxes in US to help pay for 2007 NZ taxes? I am no longer paying any withholding in the US, so there's no need for me to file quarterly for the current 2007 tax year to get any money refunded sooner - (if that's what you're asking?). The US won't have any of my tax money now that I've sent the form to stop all US withholding.

That may or may not have answered the question you were trying to ask - I get muddled. :o

Will PM you re tax guy...

[Ana&Steve]

I am no longer paying any withholding in the US, so there's no need for me to file quarterly for the current 2007 tax year to get any money refunded sooner - (if that's what you're asking?). The US won't have any of my tax money now that I've sent the form to stop all US withholding.

That may or may not have answered the question you were trying to ask - I get muddled. :o

Will PM you re tax guy...I think that's what I meant:o I do understand the part about not paying US withholding anymore! Thanks for the PM:nice1
Ana

[suebeenz]

http://wellington.usembassy.gov/irs.html

Overview
U.S. Tax Information
I am a U.S. Citizen living overseas, do I need to file a U.S. tax return?

Yes, most U.S. Citizens must report their worldwide income on their U.S. tax return (minimum income levels apply as determined by filing status). This also applies to those people who are self-employed and earn a net-profit of US$400 or more as they are subject to social security and medical taxes. In many instances, you will qualify to claim an exclusion of up to US$70,000 for your foreign earned income; however, you must file a return to claim the exclusion. You also may be entitled to a credit for taxes paid to a foreign government, but you must file a return to claim this credit.
What if I haven't filed tax returns recently?

You are required to file a tax return for any year that your income exceeds minimum filing levels. Contact the IRS to bring your accounts up to date. If you owe back taxes and are unable to pay in full, the IRS offers installment payment arrangements and considers offers-in-compromise to satisfy a tax liability. Taxpayers who come forward, make a true voluntary disclosure, and file an accurate return, will not be prosecuted. For more information or filing assistance, please contact the IRS.
When am I required to file my tax return?

* U.S. Citizens - 15 April
* U.S. Citizens living overseas - 15 June (please attach form 4868 to your tax return explaining your residence outside of the U.S.)
* Non-resident Aliens with U.S. wage income - 15 April
* Non-resident Aliens with no U.S. wage income - 15 June

Additional extensions are available by filing form 4868 for extensions.

How do I contact the IRS?

How do I obtain IRS forms?
Could you please advise the tax exchange rate?

For the Year ended 31 December 2006 the exchange rate is:

*
NZ$ to US$ = .6492
*
US$ to NZ$ = 1.5403

For the Year ended 31 December 2005 the exchange rate was:

*
NZ$ to US$ = .7049
*
US$ to NZ$ = 1.419

Are there U.S. tax specialists in New Zealand?

*
Auckland
Peter C. Chatfield Ph: +64 9 379 8035
Simon Rogan Ph: +64 9 309 9301
*
Wellington
Richard McKechnie Ph: +64 4 495 7326

[Nathan]

http://wellington.usembassy.gov/irs.html

*
NZ$ to US$ = .6492
*
US$ to NZ$ = 1.5403
[/I]

Ahhh... the good old days!

[suebeenz]

I'm confused.

I recently rang up the IRD, and they told me since I was working for US based company (via the interweb), that my work-income was deemed as foreign income, even though I'm physically here. Furthermore, since I arrived in NZ after April 2006, all that income would considered nz-tax-exempt. I am, however, paying full US taxes (which is great, because it's certainly lower than NZ).

She talked to her supervisor a couple times and reconfirmed this. Perhaps I'm dense, but this seems to contradict other info. .

An accountant that I phoned said that I would need to file an amendment to my US tax return, and get that money back and pay it all (and more) to NZ. Furthermore, also stated, that I would have to rollback my 401K and IRA contributions as well, since I did not qualify for them.

I've got that deer in headlights feeling.

[jess]

Suebeenz - I'm sorry for your confusion - it is an awful deer in the headlights feeling.

Months back, the IRD wasn't sure what to tell me when I called either. They had someone come out to my house to talk to me about it, and that person seemed quite confused by my situation (which is like yours) and thought I had to register as a small business in NZ; she thought I worked freelance without charging GST, because I did not have a work contract to show her. I tried to explain that I was employed full time at the US company, not a consultant, but she was still confused.

That's when I went to a tax specialist, and I read IRS Pub 54 thoroughly. From both I gathered I had to pay my taxes in NZ. Pub 54 (in "Source of Earned Income" on page 16) says income earned is foreign even if you earn it from the US, because it's based on where you are living not on where the company is - basically the opposite of what the IRD said to you on the phone.

At least if it is true that you have to pay in NZ, you should be able to just file amended returns to fix the situation. Of course, as you said, the taxes will be higher paying in NZ, plus you'd have the hassle of dealing with it all again. I'm sorry you're having this trouble.

By the way I have a 401K, and our tax adviser knew that, but did not say I needed to do anything with it. Maybe he slipped up, but he didn't seem to think it was a problem.

-------------------------------------------------------------

The tax specialist just sent his bill, by the way - far more than estimated. Really floored me. :exit

Next year we will do it ourselves. Pub 54, once I got my head around it, seems to have all the info I need.
_

[suebeenz]

Thanks Jess for your reply. Feels good to commiserate , .... but then I felt worse because means I have to pay NZ tax. :roll

I've been recording my phonecalls with IRD (hope that's legal? .. hmm ...), to make sure that I have it straight in my head and have proof that I'm doing my best to seek out the proper info. The person I spoke with today, did in fact confirm I was given incorrect information. Namely, that overseas work, physically performed here, was tax exempt. I think i knew that in my heart of hearts to be false, but I so wanted it to be true!

She gave me her take on all the questions (for instance, 401K contributions tax exempt, etc), but encouraged me to write them a letter describing my circumstance and understanding of tax implications. They'll double check with latest legislation etc, and will give a written response. She said that I could use the response to that letter as a 'final ruling'.

Also, she said in my case, without an accountant representing me, my filing will be considered as 'late', and therefor probably assessed a penalty. A whopping $50. That sounds much better than overcharging accountants (which would get you a pretty substantial extension on your file date).

About your sticker shock, Jess, I feel like I've been the victim of devious billing practice from a highly regarded accountant here in NZ. I'm taking it up with NZ Consumer Affairs, Citizen's Advice Bureau, and New Zealand Institute of Chartered Accountants. I'm actually pretty livid about it.

Cathartic ....