[tigerlily]

I'm wondering if I will still have to pay US taxes when I become a PR? Do I pay both NZ taxes on my NZ income and US taxes? I understand that if I earn any income in the states in a given year, I'll need to pay US taxes. My husband has been mumbling about tax treaties, but I have no idea what this means.

Any help would be great.

[feathers]

Hi there

Its all a bit confusing but basically I think if you are out of the country for 330 days a year then the US is no longer your tax home and they can't tax you on any NZ income.
There is a very long winded IRS document that explains it all
http://www.irs.gov/publications/p54/index.html

Tax treaties mean you don't have to pay tax on the same income in two different countries. So for instance if you made an income by renting out your american home while you were in NZ then if a treaty was in place it would mean that you would declare that income to NZ tax authorities as that is now your tax home and they would tax you on it. You would also have to declare it to the IRS but if a treaty was in place (which I think it is) you would not be taxed here as you will be paying the tax in NZ. Or it could be the other way round and you pay it in the US and not NZ but you don't have to pay it twice!

Anyway I'm definitely not an accountant and have probably succeeded in confusing you even more so I will stop now!
Good luck
Feathers

[toesonthenose]

I am not sure your post was accurate. I've looked into this before and as a US citizen, we are taxed on foreign income. There is a large exclusion, for 2004 it is $80,000. But, you will be responsible for taxes on income above this amount, I don't know at what rate. The US arguement being you are still reaping the benefits of US citizenship (Pax Americana and all!) so you have pay into the system, in addition to this exclusion is deductibility on foreign taxes paid. With NZ's top rate of 39%, I imagine you would have to earn US$100,000+ before you had to pay any US federal income tax. I don't know the answer about Medicare/Social Security.
Later

[feathers]

Hi there toesonthenose

Yes I think I should retract everything I said earlier and I should read the IRS stuff more thoroughly!! I stand corrected, my apologies for misinformation, its all just a bit too confusing for me!
I think to claim the $80,000 exclusion you have to make sure your tax home is in New Zealand but you are absolutely right anything over $80,000 gets taxed, do you have to pay state taxes too?

[tigerlily]

We are, for the moment, planning on keeping our house in Washington state. So we will have rental income, and would have to pay state taxes on that. BUT Washington has no state income tax, so we are off the hook there. If we earned income from a company in a state or lived part of the year in another state, I feel sure we would have to pay that state's taxes. But as to living and working only in NZ, I don't know if you would need to pay any state's taxes in that case.

[cloudboy99]

I'm speaking from my time in the military and being a resident of California, but what is important is your "domicile". When I was stationed in Illinois, Florida, and Mississippi I did not have to pay state taxes however when I was domiciled (stationed) in California, I was lucky enough to start paying income taxes again as that is where I was a resident and living.

[Baskey]

Tax is generally applied on your worldwide income by the territory in which you are tax resident.

US rules don't appear to be that different from those of the UK (home for me until two years ago).

Here's a brief summary containing the treatment in your final year of US tax residency:-

Residents of the US are generally taxed on worldwide income and non residents generally taxed on US source income only.

A resident of the US for tax purposes is an individual who is either:

- a lawful permanent resident (the "green card" test) or
- meets the substantial presence test (present in the US for 31 days in the current calendar year and 183 days during the current and two preceding years counting all of the days in the current year, one-third in the in the first preceding year and one-sixth of the days in the second preceding year)

In the last year of residencea person will not be treated as resident during any portion of the calendar year which the following conditions are met:

- actual presence ends (or the person is no longer a lawful permanent resident)
- the person has closer connections with a foreign country (i.e. NZ)
- the person is not a resident of the US during the next calendar year.

My understanding from this is that you will have to return tax on any US sourced income and apply the tax credit against any NZ tax payable on the US income from the point of becoming a NZ tax resident.

The documents highlighted earlier on the IRS website seem to be focused on US residents who may be doing expat work in NZ.

Hope this helps.