Tax returns and compliance

Tax rates

Residence rules

Termination of residence

Economic employer approach

Types of taxable compensation

Tax-exempt income

Expatriate concessions

Salary earned from working abroad

Taxation of investment income and capital gains

Additional capital gains tax (CGT) issues and exceptions

General deductions from income

Tax reimbursement methods

Calculation of estimates/pre-payments/withholding

Relief for foreign taxes

General tax credits

Sample tax calculation

When are tax returns due? That is, what is the tax return due date?

15 April, or the following business day if 15 April falls on a weekend or holiday of the year following the end of the tax year to which the return relates (but see discussion of extensions following).

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in the United States?

Individual income tax returns for residents are generally due on or before the 15^th day of the fourth month following the close of the taxable year (15 April in the case of a calendar-year taxpayer, which is the required year for nearly all taxpayers). The time for filing can be automatically extended for 6 months by filing Internal Revenue Service (IRS) Form 4868 (PDF 518 KB), Application for Automatic Extension of Time to File US Individual Income Tax Return. However, the time for payment of tax cannot be extended.

A nonresident who has compensation subject to withholding must file their income tax return on or before 15 April. In the case of a nonresident who does not have compensation subject to income tax withholding, the tax return is due on 15 June.

Nonresidents generally must file income tax returns on time to be permitted to claim deductions. In addition, nonresidents who claim the benefits of treaty provisions, or otherwise modify an internal revenue law of the United States, may be required to disclose this position on the tax return for the tax year. A failure to disclose could lead to substantial penalties, including possible disallowance of the treaty benefit claimed.

Generally, the tax shown on an income tax return must be paid by the filing deadline for the return, determined without regard to any extension of time for filing the return. The tax is self- assessed and is due without government assessment or notice and demand.

Withholding

Individuals pay tax either through withholding or by making payments of estimated tax. Residents are subject to withholding of income tax on wages paid by their employer. Wages include cash and non-cash payments for services performed by an employee for their employer, unless an exception applies.

Estimated tax payments

A taxpayer must pay a certain amount of tax during the current year to avoid penalties for under-payment, so should make estimated installment tax payments if it is expected that tax withholding will be insufficient to satisfy their tax liability. However, an individual is exempted from estimated tax payment requirements if the tax for the current year, after credit for withholding tax, is less than USD1,000.

See Calculation of Estimates/Pre-payments/Withholding below for further discussion of estimated tax payments.

Withholding

Nonresidents are subject to withholding of income tax on wages paid by their employer for services performed in the United States (i.e. income effectively connected with a US trade or business).

A nonresident may also be subject to withholding on US-source income that is not effectively connected with a US trade or business (generally, investment income). The withholding rate is 30 percent imposed on gross income, unless lowered by treaty.

Estimated tax payments

A nonresident who earns income that is effectively connected with a US trade or business (other than personal service income, e.g. wages) is subject to the same estimated tax payment requirements as residents.

For nonresident taxpayers, the estimated payment schedule is the same as for residents. See Calculation of Estimates/Pre-payments/Withholding below for further discussion of estimated tax payments.

What are the current personal income tax rates in the United States?

There are four types of tax status that may apply to a resident:

• Married filing jointly
• Married filing separately
• Head of household (unmarried and maintaining a home for qualified dependent individuals)
• Single

Each filing status is subject to a different graduated tax rate scale. The tax rates for 2020 are shown in the tables on the next page. A couple will be considered to be married for US federal tax purposes if they were legally married in a jurisdiction that recognizes their union and that marriage is recognized by at least one US state, territory or possession, regardless of the couple’s domicile.

Income tax tables for 2020

Tax rates on long-term capital gains and qualified dividends for 2020

It is generally more beneficial for married taxpayers to file using the status “married filing jointly” versus “married filing separately.” However, married individuals wishing to file a joint tax return generally may not do so if either spouse is a nonresident at any time during the tax year. Certain elections may be available to allow a married couple to use the married filing jointly status when one or both of the individuals is a nonresident during part of the year.

A taxpayer may also be subject to an alternative minimum tax. The alternative minimum tax is payable to the extent it exceeds an individual’s regular tax liability. The alternative minimum tax is figured using lower rates but allows fewer deductions.

A nonresident is subject to tax at graduated rates for income that is effectively connected with a US trade or business, such as compensation for services rendered in the United States. A 30-percent flat tax (or lower treaty rate) applies to US-source income that is not effectively connected to a US trade or business, such as US-source dividend income, certain interest, and royalties’ income.

In most cases, nonresidents must file their US income tax return using single or married filing separately status.

For the purposes of taxation, how is an individual defined as a resident of the United States?

As a general rule, a foreign citizen is treated as a nonresident for US tax purposes unless the individual qualifies as a resident. Under US domestic law, a resident is defined as an individual who either is a lawful permanent resident (the “green card” test), or meets the “substantial presence” test.

A lawful permanent resident is an individual who has been officially granted the right to reside permanently in the United States. These individuals are often referred to as green card holders.

An individual who meets the substantial presence test is an individual who has been present in the United States for at least 31 days in the current calendar year and an aggregate of 183 days during the current and 2 preceding years, counting all the days of physical presence in the current year, one-third of the days in the first preceding year, and one-sixth of the days in the second preceding year. In general, a partial day of presence in the United States is counted as 1 day of US presence for purposes of applying the substantial presence test.

An individual may be both a nonresident and a resident at different times during the same tax year. This may occur in the year a foreign citizen arrives in or departs from the United States. For an individual who meets only the green card test, residence begins on the first day of the calendar year in which the individual is physically present in the United States as a lawful permanent resident and will generally cease on the day the lawful permanent resident status officially ends.

Residence under the substantial presence test generally begins the first day during the year on which the individual is physically present in the United States. An individual generally will cease to be a resident following their last day of physical presence in the United States provided certain conditions are met.

Is there a de minimis number of days rule when it comes to residency start and end dates? For example, taxpayers cannot come back to the host country/jurisdiction for more than 10 days after their assignments end and they repatriate.

A period of up to 10 days of presence in the United States will not be counted for the purpose of determining an individual's residency start and end dates; those days of presence will be counted, however, for the purpose of determining whether the 183-day component of the substantial presence test has been met.

What if the assignee enters the country/jurisdiction before their assignment begins?

If the taxpayer has multiple short visits to the United States prior to commencing residency, the residency start date is deemed to be the first day of the visit during which the individual’s cumulative presence for the year exceeds 10 days. An individual may be present in the United States for 10 days in total (for example, on a short business or house-hunting trip) and not trigger residency under the substantial presence test (discussed above), if the individual has a tax home in a foreign country/jurisdiction and a closer connection to the foreign country/jurisdiction during those days. (An individual may generally establish that the tax home is in a foreign country/jurisdiction by showing that their principal place of business and/or abode is located in such foreign country/jurisdiction.) The purpose of a visit to the United States is not relevant for determining whether a person is a US resident, nor for determining the residency start date. Under the rules of the substantial presence test, residency is a function of presence rather than intent.

Are there any tax compliance requirements when leaving the United States?

Generally, all foreign nationals departing from the United States are required to first obtain tax clearance – commonly known as a “sailing permit” – from the IRS by filing either Form 1040-C (PDF 195 KB) US Departing Alien Income Tax Return, or Form 2063 (PDF 313 KB), US Departing Alien Income Tax Statement, and, in most cases, to pay any tax due or post a bond. Form 2063 should be filed with the IRS if there is no taxable income for the year of departure and the preceding year or, in the case of a resident, if the IRS is satisfied that the departure will not jeopardize collection of tax. The departing foreign national should make the application for the sailing permit with the IRS at least 2 weeks, but not more than 30 days, before departing the United States. If the IRS deems all requirements have been met, the foreign national will be issued the sailing permit. Certain categories of individuals, students, trainees, exchange visitors, and certain foreign nationals temporarily in the United States, may be exempt from the sailing permit rules if specific requirements are met.

What if the assignee comes back for a trip after residency has terminated?

If an individual who qualified as a US resident under the substantial presence test returns to the United States for short visits which total more than 10 days later in the same year, US residency may be extended until the last day of actual presence in the United States.

Do the immigration authorities in the United States provide information to the local taxation authorities regarding when a person enters or leaves the United States?

Formal information sharing among US authorities can occur.

Will an assignee have a filing requirement in the host country/jurisdiction after they leave the country/jurisdiction and repatriates?

If US-source income is received after an assignee ceases to be a US resident, the assignee must file a nonresident income tax return in order to report the income, remit any tax due, or claim any refund.

Additionally, because the tax return is due 15 April of the year following the close of the tax year, the assignee will have to file the tax return for the year of departure in the year following departure.

Do the taxation authorities in the United States adopt the economic employer approach to interpreting the Income from Employment article (article 15) of the Organisation for Economic Co-operation and Development (OECD) treaty? If no, are the taxation authorities in the United States considering the adoption of this interpretation of economic employer in the future?

The United States does not explicitly adopt the economic employer approach. Rather, under the 2016 US Model Income Tax Convention (which serves as the basis for the US negotiating position for income tax treaties), the United States may not tax employment income if three conditions are satisfied: (a) the individual is present in the United States for a period or periods not exceeding 183 days in any 12-month period that begins or ends during the relevant tax year; (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the United States; and (c) the remuneration is not borne as a deductible expense by a permanent establishment that the employer has in the United States.

If a foreign person pays the salary of an employee who is employed in the United States, but a US corporation or permanent establishment reimburses the payor with a payment that can be identified as a reimbursement, neither condition (b) nor (c), as the case may be, will be considered to have been fulfilled.

Is there a de minimis number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimis number of days?

No.

However, under US tax law, a nonresident alien performing personal services for a foreign employer in the United States, who is present in the United States for a period of 90 days or less, and whose compensation for those services is no more than USD3,000, will not be subject to US tax on the income earned.

What categories are subject to income tax in general situations?

• The following is a list of typical items in an international assignment compensation package that are fully taxable (to a resident or nonresident) unless otherwise indicated. Please note this is not a comprehensive list.
• Basic salary.
• Foreign location premium.
• Reimbursement of host or home country/jurisdiction taxes.
• Reimbursements of tuition for children.
• Home leave reimbursements.
• Employer contribution to rent.
• Free or below-market-value use of employer-furnished accommodation. (However, if employer-furnished accommodation is provided on the employer’s business premises for the convenience of the employer, and the employee is required to accept it as a condition of employment, the value of such lodging may be excluded. Camp housing is, in most cases, covered by this exception.)
• Personal use of a company car, including home-to-work travel. (Business use of a company car will generally not be taxable if adequate records are maintained and proper accounting is made in the employee’s tax return or to their employer.)
• Moving allowances and moving expense reimbursements such as meal expenses, expenses incurred while searching for a new home, cost of selling the old residence or acquiring a new residence, and temporary living expenses.
• Employer stock (in certain cases). The taxable amount of employer stock and other property is the excess of the fair market value of the stock/property over the amount, if any the employee pays for the stock/property. Special rules exist where such property is encumbered by restrictions. In addition, elections may be made to lessen the tax charge.
• Stock options in certain cases. The tax treatment of stock options depends on the nature of the option. See Taxation of Investment Income and Capital Gains below for more information.

Will a nonresident of the United States who, as part of their employment within a group company, is also appointed as a statutory director (i.e. member of the Board of Directors in a group company situated in the US) trigger personal tax liability in the US, even though no separate director's fee/remuneration is paid for their duties as a board member?

Yes. However exposure to US income tax would derive from the person’s having worked in the United States, rather than as a result of being employed by or serving on the board of a US company.

a) Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in the US?

No. Income for personal services is taxable to a nonresident to the extent that the income is related to services that were provided in the United States.

b) Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in the United States (i.e. as a general management fee where the duties rendered as a board member is included)?

No.

c) In the case that a tax liability is triggered, how will the taxable income be determined?

If the director is also employed by the company, generally the US-source portion of their compensation will be determined by applying the ratio of days worked in the United States over all days worked during the year, regardless of whether the services provided in the US were directors’ duties or other responsibilities. The answer might be different if there was a separate contract for the director duties, or if the employment contract specifically stated which portion of compensation was related to director duties.

Are there any areas of income that are exempt from taxation in the United States? If so, please provide a general definition of these areas.

Below we highlight the most common items of compensation that are exempt from income tax. Please note this is not a comprehensive list.

Contributions to profit sharing or pension plans

Generally, contributions to profit sharing or pension plans paid by the employer on behalf of the employee are not currently taxable (that is, they are tax deferred) if the plan is a US qualified plan. Certain tax treaties may provide favorable treatment for similar foreign plans.

Medical expense reimbursements and accident and health insurance premiums

Medical expense reimbursements and employer-paid accident and health insurance premiums for US qualified plans.

Meals and lodging

Lodging and 50 percent of meals that are provided for the employer’s convenience, on business premises, and as a condition of employment.

Certain fringe benefits

Certain employee benefits of nominal value.

Temporarily-away-from-home travel expenses

For a discussion of away-from-home travel expenses, see Special Considerations for Short- Term Assignments.

Are there any concessions made for assignees in the United States?

Generally, the United States does not offer any expatriate concessions to foreign citizens working in the United States. However, holders of F, J, and Q visas may be exempt from income tax on compensation under certain circumstances.

Is salary earned from working abroad taxed in the United States? If so, how?

A US citizen or resident who has a tax home in a foreign country/jurisdiction and who is physically present in a foreign country/jurisdiction or countries/jurisdictions for at least 330 full days during any period of 12 consecutive months may elect to exclude a portion of their foreign earned income from gross income. The amount that may be excluded in 2020 is USD107,600. This amount is adjusted annually for inflation. An additional exclusion or deduction for certain housing costs may also be claimed subject to limitations.

A US citizen who establishes that they have been a bona fide resident of a foreign country/jurisdiction or countries/jurisdictions for an uninterrupted period that includes an entire calendar year may also elect to exclude a portion of their foreign income from gross income, subject to the same limitations noted above. A housing deduction or housing exclusion may also be claimed subject to certain limitations.

Are investment income and capital gains taxed in the United States? If so, how?

A US citizen or resident is subject to US tax on worldwide income. Thus, a resident is subject to tax on investment income (wherever paid) including interest and dividend income, capital gains, and income (less expenses) from partnerships and rental properties.

For a nonresident, US-source investment income that is not effectively connected with a US trade or business is generally taxed at 30 percent (or the lower treaty rate, if applicable). The tax applies to gross income without deductions. Items of investment income subject to tax include, in part, dividends, certain interest (including original issue discount), rents, royalties, and certain capital gains.

Certain investment interest income and certain capital gains are exempt from US taxation.

In general, nonresidents are not taxed on net capital gains, except for any dispositions of a US real property interest and sales of assets used in a US trade or business.

Generally, US residents are subject to tax on dividend, interest, and rental income (net of deductions).

Nonresidents are generally subject to tax on US-source income. Dividend income is US source if paid by a US corporation. Interest income is US source if paid by a US corporation or other entity that is a US resident. However, interest on US bank deposits received by a nonresident is specifically exempt from tax.

Nonresidents are taxed on gross rental income from US real property held for investment at the flat 30-percent (or, if applicable, the lower treaty) rate. This rental income is not considered effectively connected with a US trade or business, so no deductions (such as interest, taxes, and depreciation) are allowed. An election can be made to treat rental income as effectively connected with a US trade or business. The election permits rental income to be reduced by expenses allocable to the income (such as interest, taxes, and depreciation). The election also causes the net income from the property to be taxed at graduated rates. An income tax return must be filed to make this election, which in most cases is beneficial. Gain recognized by a nonresident from the sale or disposal of US real property is generally subject to tax at the regular graduated US tax rates, including the applicable capital gains tax rates.

A stock option is the right granted do an employee or to an independent contractor to purchase shares in their corporate employer or a related company. The option agreement usually specifies the purchase price and time period during which the option may be exercised. The taxation of stock options to an individual depends on whether the options are incentive stock options or nonqualified options.

An incentive stock option (ISO) is an option that meets certain statutory requirements. If all requirements are met and an option is considered an ISO, no income is recognized upon grant or exercise of the option; instead, capital gain is recognized when the acquired stock is sold.

A nonqualified stock option (NQSO) is generally any option other than an ISO that is granted to acquire employer common stock. Unless the option has an ascertainable fair market value, an individual is not taxed when granted a nonqualified stock option. Upon the exercise of the NQSO, the individual is treated as receiving taxable compensation measured by the excess of the fair market value of the stock received over its purchase price. The subsequent sale of the stock will result in a capital gain or loss. In determining gain or loss, the basis of the option stock is the purchase price plus the compensation recognized at exercise.

Although this is generally not the case with compensatory options, if an option has a readily ascertainable fair market value at the time of grant, the individual recognizes income at the time of grant, or at the time of vesting if later, instead of at the time of exercise of the option.

US residents are taxed on the entire amount of compensation income, while nonresidents are taxed only on the portion of the income that is from US sources. Generally, this is determined by applying the ratio of all US work-days between the grant and vesting dates to the total number of work-days over the same period to the total stock option income recognized at exercise.

* Assumes a NQSO with no readily ascertainable fair market value on the grant date.

Foreign exchange gain is generally taxable. Whether the gain is considered ordinary and taxed at the graduated tax rates, or capital and taxed at a lower tax rate, depends upon whether the gain is related to a trade or business, in which case it will be ordinary gain. If the gain is related to investment activity or a personal transaction, it will be capital gain. If the foreign exchange transaction results in a loss, it will be deductible against all other income if it is ordinary loss; but if it is capital loss it can only be deducted against other capital gains.

Up to USD250,000 of gain realized on the sale of a principal residence (USD500,000 for a married couple that files their tax return jointly) may be excluded from income if certain conditions are met. To qualify for this exclusion, the individual must have owned and used the property as a principal residence for periods that total at least 2 years in the 5-year period ending on the date of sale. The ownership and use requirements may be satisfied during non-concurrent periods provided both tests are met during the 5-year period ending on the date of the sale. Once claimed, this exclusion cannot be claimed again for 2 years. If the “two-out-of-five-year ownership and use” tests are not met due to certain specified unforeseen circumstances (such as change in place of employment, health, or divorce), a pro rata exclusion may be allowed.

If a property is used for a purpose other than as a principal residence (e.g. as a rental property or vacation home) after 31 December 2008, and is subsequently used as a principal residence, then upon sale, the gain attributable to the period of time that the property was not used as a principal residence is not eligible for the exclusion. Certain exceptions to this rule may apply.

Generally, capital losses are deductible only against capital gains. However, residents may deduct up to USD3,000 (USD1,500 on a married filing separate return) of net capital loss against other income. Unused capital losses may be carried forward indefinitely to be used in future years.

For nonresidents, capital losses from the sale or exchange of capital assets effectively connected with a US trade or business are taxed under the same rules that apply to US residents.

Gain realized on the sale of assets held for personal use is generally taxed as capital gain. Loss on such assets is not deductible (however, a deduction is allowed in connection with personal losses suffered due to casualty or theft).

Recipients of gifts are not subject to tax upon receipt of the gift. The donor of a gift may be subject to gift tax, which is based on the value of the gift. Annual and lifetime gift tax exemptions apply to the donor. See Gift, Wealth, Estate, and/or Inheritance Tax below for further discussion.

Are there additional CGT issues in the United States? If so, please discuss?

No.

Are there CGT exceptions in the United States? If so, please discuss?

Gain on disposition of real property may be deferred if the property is exchanged for other real property. Such transactions are subject to various restrictions and generally require careful planning in order to accomplish the deferral of tax.

Not applicable.

Generally, not applicable. However, a deemed disposition tax could apply for individuals subject to an exit tax upon expatriation. See Other Taxes below for more information.

What are the general deductions from income allowed in the United States?

Ordinary and necessary business expenses generally are deductible from gross income. In addition, deductions are available for certain expenses of a personal nature. Listed below are some of the deductions available.

• Individual retirement account (IRA) contributions up to the lesser of compensation included in income or USD6,000 in 2020 (USD12,000 for a married couple filing a joint return). The amount is increased by USD1,000 for any taxpayer age 50 or older. For an active participant in an employer-sponsored qualified retirement plan, the maximum deduction is phased out where adjusted gross income exceeds certain limits.
• Certain away-from-home business expenses such as travel, meals, and lodging may be deductible, if with respect to a temporary assignment of less than 1 year.
• Qualified student loan interest.
• Medical expenses in excess of 10 percent of adjusted gross income. State and local income and property taxes, up to USD10,000.
• Charitable contributions.
• Interest on home mortgage (limited to interest on acquisition debt of no more than USD750,000, or USD1 million if acquisition debt was incurred before 15 December 2017).
• Casualty and theft losses incurred in a federally-declared disaster (in excess of 10 percent of adjusted gross income).
• Nonresidents are allowed to deduct certain expenses that relate to income effectively connected to a US trade or business. Qualifying charitable contributions, state and local income tax, and certain casualty losses are also allowed as itemized deductions to nonresidents.

In lieu of 'itemized deductions', such as those listed above, an individual who has been a resident for the entire taxable year may claim the standard deduction. The amount of the standard deduction is determined according to the filing status of the taxpayer.

What are the tax reimbursement methods generally used by employers in the United States?

The current-year gross-up method is most commonly used.

How are estimates/pre-payments/withholdings of tax handled in the United States? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), etc.

Employers are required to withhold taxes from each payment of wages and other compensation. Taxes withheld include federal income tax, social security tax, and Medicare tax. Most states and some localities also require withholding of income tax, and some states impose additional withholding taxes.

If withholding is not expected to cover the individual’s annual tax liability, estimated tax payments may be required of the individual. Failure to pay sufficient tax through withholding and estimated tax payments may result in assessment of penalties

When are estimates/pre-payments/withholdings of tax due in the United States? For example, monthly, annually, both, etc.

Estimated tax payments, if required, should be made quarterly. For a calendar-year taxpayer, payments of federal estimated taxes are due quarterly on 15 April, 15 June, and 15 September of the current year, and on 15 January of the following year. States and localities generally follow the same payment schedule, but some of the due dates may vary.

Is there any relief for foreign taxes in the United States? For example, a foreign tax credit (FTC) system, double taxation treaties, etc.?

US citizens and residents may claim a credit against US tax for foreign taxes paid or accrued on foreign-source income. The amount of the credit is the lesser of the amount of foreign tax paid or accrued, or the amount of the US tax on the net foreign-source taxable income.

Excess foreign tax credits can be carried back 1 year, and forward 10 years. (Note that not all US states allow a foreign tax credit.)

Residents of countries/jurisdictions with which the United States has income tax treaties may be eligible for certain benefits. Generally, most treaties provide a lower rate of withholding tax on certain types of income, including dividends, interest, and royalties. Many tax treaties provide that a nonresident will not be taxed on compensation for services rendered in the United States if the individual is present in the United States for a short period of time (generally not more than 183 days during a calendar year, or relevant 12-month period, depending on the treaty) and is rendering services for a foreign employer that is not engaged in business in the United States. For more information, see section above titled Economic Employer Approach. (Note that not all US states recognize income tax treaties.)

In some treaties, specified income or income below a certain level is also exempt from tax in the United States. A foreign citizen who is resident in two countries/jurisdictions at the same time may also be able to invoke the tie-breaker provisions of a treaty to determine the appropriate primary taxing jurisdiction.

What are the general tax credits that may be claimed in the United States? Please list below.

The most common tax credits available to a resident individual taxpayer include credits for:

• Adoption expenses – non-refundable credit for qualified adoption expenses for each eligible child. In 2020, the maximum credit amount is USD14,300, and is subject to phase- out based on income level.
• Child credit – partially refundable credit of USD2,000 for each US resident qualifying child under the age of 17. The amount of the credit is gradually phased out for higher-income taxpayers. In order to claim the credit for a qualifying child, the qualifying child must have a US social security number (SSN).
• Dependent credit – non-refundable credit of USD500 for each US resident non-qualifying child dependent. The amount of the credit is gradually phased out for higher-income taxpayers. In order to claim the credit, a non-qualifying child dependent must have either an SSN or individual taxpayer identification number (ITIN). A dependent who would otherwise be a qualifying child eligible for the child tax credit but for the SSN requirement is eligible for the dependent credit, provided the dependent has an ITIN.
• Child or dependent care expenses – non-refundable credit for a percentage of dependent care expenses that enable a taxpayer to work. The amount of the percentage is based on a taxpayer’s income level. The maximum qualifying expenses are USD3,000 for one dependent and USD6,000 for two or more dependents.
• Post-secondary education expenses – nonrefundable credit for qualified college or vocational school expenses for eligible students. There are two different tax credits available and both are subject to phase-out based on income level. Only one of the two credits can be claimed in a given tax year.
  • American opportunity tax credit (modified Hope credit) – maximum credit of USD2,500 per student for each of the first 4 years of post-secondary education.
  • Lifetime learning credit – credit of 20 percent of up to USD10,000 of expenses and is available for education expenses incurred at any time to acquire or improve job skills.

This calculation¹ assumes a married taxpayer resident in the United States with two children, whose 3-year assignment begins 1 January 2018 and ends 31 December 2020. The taxpayer’s base salary is USD100,000, and the calculation covers 3 years.

• The employee is deemed resident throughout the assignment. The taxpayer's children are under age 17 and have SSNs.
• All earned income is attributable to local sources.
• Bonuses are paid at the end of each tax year, and accrue evenly throughout the year. Interest income is not remitted to the United States.
• The company car is used for business (55 percent) and private (45 percent) purposes and originally cost USD50,000. The deemed taxable annual lease value is USD13,250. Only the portion of that amount attributable to personal use is included in income.
• The foreign interest income may be subject to foreign withholding tax. If so, such tax could result in a US foreign tax credit that would lower that US tax liability.
• Tax treaties and totalization agreements are ignored for the purpose of this calculation.
• Many US states impose income tax. This calculation is for federal tax only.

Calculation of Taxable Income

Calculation of tax liability