What hath TIFRA done for us expats?

American expatriates are quite naturally concerned about double taxation. As citizens of the United States they must report and pay taxes on their world-wide income. But as residents of a foreign country they must also report and pay taxes on the same income. Presumably they are protected from paying taxes on the same income by a double taxation treaty. These treaties often exist between the United States and the foreign country. In addition the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC) are intended to prevent expatriates being double taxed.

For some years FEIE has excluded $80,000 in foreign earned income from US taxation. For many expats, this exclusion has meant that tax filing is merely routine with taxes being something that was assessed and paid to the foreign country of residence. For those who earned above this threshold, however, US taxation began at the 10% or 15% level depending.

With the advent of TIPRA - Tax Increase Prevention and Reconciliation Act - in 2005, FEIE was increased to $82,400. But the taxes are now assessed on earnings above this threshold as though the taxpayer had been taxed on the full amount. So those who "enjoy" higher earnings will find themselves liable for taxes to the U.S. starting at the 25% level. Since many European countries assess at fairly steep levels already, anyone earning over $82,400 could find him or her self paying out 3/4 of earnings in combination to both country of citizenship and country of residence.