[suebeenz]

I contacted IRD and asked which US taxes that I can mark down as taxes paid, to figure out NZ liabilities. To my surprise, the response explicitly mentioned that credit would not be given for state tax paid.

If I have a look at this document below, it mentions that federal yes, social security no. However, no specific mention of state tax either way. Anybody else been down this road? I'm wondering if there is wiggle room, or if it's black and white. I hate paying tax twice ....

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

>>
ARTICLE 2
Taxes Covered
1. The existing taxes to which this Convention shall apply are:
(a) in the United States: the Federal income taxes imposed by the Internal
Revenue Code (but excluding the accumulated earnings tax, the personal holding
company tax, and social security taxes), and the excise taxes imposed with respect to
private foundations (hereinafter referred to as United States tax);
>>

[jryorkshire]

hello suebeenz

my understanding confirms what IRD have told you, but I could be wrong.

jr

[constablechuck]

The reason is that NZ has a double taxation agreement with the U.S. government rather than individual states, some states in the U.S. don't even have income tax ie: Nevada, Delaware ect... unlike Federal taxes your obligation to pay state income tax depends on your residency in that state.

Interestingly though is that the NZ IRD does have reciprocal agreements with certain U.S. states to collect child support.

[jess]

I still work for a US company in VA via internet. I don't double pay state and NZ tax. I pay NZ tax and then use the foreign earned income exclusion to be exempt from fed and VA taxes.

For the NZ 2008 tax year (April 07 - Mar 08) for example, I am paying provisional taxes to NZ in advance (it's basically like withholding but in 3 lump sums during the year), and no state or federal taxes are being withheld for me in the US, although SS is still being taken out. When it comes time to file in the states for 07 I will file a 1040 saying I owe nothing on federal due to the foreign earned income exclusion of taxes already paid in NZ. That's how it was set up by the tax specialist in Wellington at least. VA gives me the same exclusion that the IRS does, so I will file but will owe nothing to VA either after NZ taxes.

Of course I'm paying full NZ taxes, so not getting off free or anything; just not double paying.

Is it possible for you to stop withholding (see pub 54 for form), pay NZ first, and use the foreign earned income exclusion (IRS pub 54 (http://www.irs.gov/pub/irs-pdf/p54.pdf)) for US fed and state taxes (depending on whether your state honors the IRS exclusion)?

[akp713]

Do you pay social security tax because you still work for a US company? I will be a teacher in NZ so I certainly won't have to pay US social security tax right? That would certainly be double-taxation and there's no way I could afford to pay that on my budget.

[suebeenz]

Hi everyone thanks for your responses. Breaks my heart to read them, but thanks (i think?). ;-) My situation is rather unique, so I can't stop paying any of the US taxes. So looks like I'll be double taxed on a fair bit.

akp713 no i don't think you'd need to pay any US taxes. (sorry to cause you any worry!)

[mgf]

Good info. Some questions that I have been thinking about. I was under the impression that I wouldn't have to pay US taxes as I would be living and working in NZ. Am I wrong?

[Oregonkiwi]

I was under the impression that I wouldn't have to pay US taxes as I would be living and working in NZ. Am I wrong?

Most likely you won't have to pay US taxes, but you still do have to file.

If you're not familiar with the foreign earned income exclusion, read all about it here:http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html

[jess]

Sorry for any confusion for folks who will be working for an NZ company. All my income is US sourced, and Suebeenz has a US sourced income issue, so we are bit unusual and are talking about tax issues that will not affect most people.

My US income is why I pay Social Security still. They do not allow me to cease paying it while working for a company based in the US. That will not be an issue for most people, because you'll be earning income from an employer in NZ. My husband for example, works for an NZ employer and only pays NZ taxes. He does, as OregonKiwi said, still have to file in the US for federal taxes, but owes nothing. He does not have to file for state taxes.

I really only got a handle on taxes over here after reading the IRS publication 54 (there's a link to it on the great page OregonKiwi lists above). Once I made myself sit down and really read that it was all pretty clear to me - at least for our two situations.

--

Best of luck Suebeenz. Sorry you are not able to avoid doubling up on the state tax. :no

[constablechuck]

If you don't actually reside in a state then you should not be paying state income tax, if whoever does payroll for your U.S. based employer automatically deducts state taxes anyway then you could change your address to a state that has no income tax.

[jess]

If you don't actually reside in a state then you should not be paying state income tax

I don't know about other states, but if you earn income from a VA company, Virginia makes you file as a non-resident. In VA they will give you the same foreign earned income exclusion amt that the IRS does, but if I earned over the $85,700 limit of the exclusion (I should have such problems) I could have to pay some VA taxes even though I'm not a resident. The instructions to the VA non-resident form (http://www.tax.virginia.gov/Web_PDFs/indForms/currentyear/763_Instr.pdf) has this info. Perhaps VA is particularly greedy... :roll

[suebeenz]

Thanks everyone. I think it about clears it up for me. I guess it's just money. :-)

[suzer]

If you don't actually reside in a state then you should not be paying state income tax, if whoever does payroll for your U.S. based employer automatically deducts state taxes anyway then you could change your address to a state that has no income tax.

So you have to report your overseas Income to the State and pay tax on that?

[suebeenz]

>> So you have to report your overseas Income to the State and pay tax on that?

I take it you mean overseas from US? I don't know, the answer to that. I don't have any NZ income, so fortunately I'm in the clear there. Hopefully someone else in the know, can chime in on this point.

My situation is a rather unique, so I wouldn't advise taking any notes from it, but I personally have to pay both state and federal in the US (and medicare, SDI, etc etc). US tax rate is signifcantly lower than NZ, so NZ wants its share. Although there is a double taxation agreement in place between NZ and US, it only applies to federal taxes. So, in my situation, this means that I effectly get double taxed on 8-10% of my income. That is, double taxed on taxes paid for state, medicare, SDI, etc etc.

[krdk]

Jess,

Did you and your tax specialist talk about retirement accounts? I'm hearing that all unrealized gains in US tax-deferred and Roth IRA's are taxed in NZ. Is this anything you've had to deal with?

Katie