The start of the New Year also means changes in the tax code, as the government loves to fiddle with our money. Most changes aren’t too bad, as many tax breaks have been extended. Additionally, many items and tax benefits see an increase due to inflation adjustments. Let’s take a look at some of the changes that may impact us Americans living and working on the Cote d’Azur.
Congress kept the 10%-35% tax rates and made them permanent. The six tax brackets crept upwards slightly. Now, if you’re single, you can have gross income of $9,750 without filing a tax return. That amount rises to $19,500 if married.
You may be wondering how that translates into euros. The IRS generally requires translation of foreign currencies into US dollars for reporting purposes. There is no official exchange rate to use, though you can’t go wrong with the 0.809 euro/USD that is listed on the IRS website (www.irs.gov).
For those of us working overseas, there is good news. The foreign earned income exclusion has risen from $92,900 in 2011 to $95,100 in 2012. Unchanged is the requirement that to claim the exclusion, one needs to file a tax return. The IRS will not allow the exclusion if you are audited.
No real change to the foreign tax credit rules, but I note it as a reminder that it is an effective tool in reducing or altogether eliminating the US tax liability. Unfortunately, the CSG tax is not considered an income tax for this purpose.
Another item indexed for inflation is the unified tax exemption. This exemption is for both gifts and estates subject to taxation (hence the term “unified”). The amount excluded from tax is $5,120,000, with the excess being subject to 35% tax. For 2013, the exemption is reduced to $5,000,000 and the tax rate on the excess is raised to 40%.
Starting this year, there is a big change in the tax rates is taking place: the new 39.6% “tax the rich” bracket comes into play. A new Medicare tax of 3.8% kicks in on investment income if your adjusted gross income is over $200,000 (filing single) or $250,000 (filing married filing joint, or MFJ). Also for high wage earners is the phase-out of tax deductions and credits.
George Donnelly, CPA, is a local US tax accountant who specialises in Americans living overseas.
He welcomes your questions, and can be reached at:
US Tax Revisions 2013 for Americans living and working on the Cote d'Azur
- George Donnelly