Double taxation can be a concern for individuals who relocate abroad from the US. Double taxation occurs when the same income is taxed twice – once in the country where it was earned, and again in the country where the individual is a tax resident. This can occur if the US has an income tax treaty with the country where the individual is relocating that doesn’t fully eliminate double taxation.
To avoid double taxation, the US has entered into income tax treaties with over 60 countries. These treaties typically provide for reduced rates of withholding tax on certain types of income, such as dividends, interest, and royalties. They also often provide for a tax credit or an exemption from US tax on foreign-source income, depending on the terms of the specific treaty.
The Foreign Earned Income Exclusion (FEIE) is another way to avoid double taxation. The FEIE allows US citizens and resident aliens who are living and working abroad to exclude a certain amount of their foreign earned income from US taxation. For tax year 2022, the maximum exclusion amount is $112,100 per individual. However, the FEIE only applies to foreign earned income and does not apply to passive income, such as dividends, interest, or rental income.
It’s important to note that the rules surrounding double taxation can be complex and depend on the specific country and tax treaty involved. It’s a good idea to consult with a tax professional who specializes in international taxation to understand your specific situation and ensure compliance with all applicable tax laws.
In conclusion, double taxation can be a concern for individuals who relocate abroad from the US. However, income tax treaties and the Foreign Earned Income Exclusion can help avoid or mitigate double taxation. It’s important to understand the specific rules and work with a tax professional to ensure compliance with all applicable tax laws.
