BUSH
HAMILTON, Bermuda (The Royal Gazette):
AMERICANS LIVING abroad will see their tax costs rise dramatically as a result of tax legislation United States President George W. Bush signed last week.
The election year tax measure aims to cut U.S. taxes by US$70 billion over the next decade by extending low tax rates on dividends and most capital gains until 2010 and preventing 15 million households from being hit by the alternative minimum tax.
However, the 4.1 million Americans - excluding military personnel and foreign service officers - living outside the United States will bear a portion of those cuts via complicated tax rules which will result in them paying $2.1 billion more in taxes over the next decade.
Currently, United States expatriates are exempted from paying U.S. taxes on the first US$80,000 of foreign earned income. The new legislation would increase the exemption by US$2,400 to US$82,400 as of tax year 2006. However, U.S. citizens will see the tax exemption on foreign housing expenses significantly reduced.
Currently, American expatriates can deduct virtually all of their housing expenses. The new rules, however, cap the housing deduction at US$11,536 although U.S. Treasury has the ability to adjust the housing deduction when countries have abnormally high costs of living relative to the U.S.
HIGHER TAX BRACKETS
Expatriates will also be subject to higher tax brackets so a single taxpayer or married couple filing jointly taxpayers who maximise the foreign earned income exclusion and housing deduction - approximately US$93,000 - would see additional tax costs of US$20,806 and US$16,811 respectively, said PriceWaterhouse-Coopers Bermuda tax adviser, Rick Irvine. Republican Senator, Charles Grassley, chairman of the Senate Finance Committee, who was a key player in an unsuccessful bid to eliminate the foreign income and housing deduction for expatriates in 2003, helped move the last minute modifications to the 2006 tax legislation through Congress.
In 2003, U.S. business groups successfully lobbied against the plan to eliminate the deductions on the grounds it would make it prohibitively expensive to promote American products and ideas.
This time around, however, the provision related to U.S. workers abroad was added late last week with no warning, and therefore, little time for opposition.
"This came out of nowhere, this was basically thrown in as a revenue raiser at the last minute without many people having opportunity to comment on it," said Mr. Irvine. While passage will drive up personal tax costs making it less attractive for American expatriates to work outside of the U.S., Mr. Irvine said that in Bermuda it is likely that the greatest impact will be on local or exempt companies who employ Americans.
