Have a Tax Question? Ask a Tax Expert
As you are a green card holder - you are required to file your tax return based on income level - and are required to report all your income worldwide.
In additional - you might be eligible for a foreign earned income exclusion.
As an US person living abroad - you may claim a foreign earned income exclusion.
The person may qualify for the foreign earned income exclusion - he/she should: -- Work and reside outside the United States for at least 330 days during the year, or -- Meet either the Bona Fide or Physical Presence tests.If the person qualifies, he/she may exclude up to $91,400 (2009 in foreign wages -- plus housing allowances (limited to 30% of the earned income exclusion).
To receive that exclusion - the taxpayer should file either form 2555 or 2555EZ.
Here are forms you likely need:
Please be aware that - the exclusion above will not affect self-employment taxes - only income taxes. Only earned income is excludable. For instance dividends, investment income, etc - are not excludable.
Please also be aware that this credit is not granted automatically - you need to file a tax return and claim the credit.
If the same income is taxable in the US and in a foreign country - you may claim a credit for taxes paid in a foreign country on your US tax return.
To determine the amount of credit -the person should use the form 1116 and attach it to his/her tax return. - http://www.irs.gov/pub/irs-pdf/f1116.pdf
Here are instructions - http://www.irs.gov/pub/irs-pdf/i1116.pdf
As you are a green card holder - your situation is not covered by tax treaties.
Let me know if you need any help.
I was hoping for a more specific answer. Assuming that...
* I earn 300.000$ gross, all in Malaysia
* My wife doesn't earn anything
* I have a 1-year old son
* We live in Malaysia the entire year, going to the US for 2 weeks vacation a year
* Housing is provided free-of-charge by employer
* I have 500k$ on checking accounts in the US
* I have no further financial transactions, or assets (either real estate or other)
Under these conditions, do I end up paying taxes to the US over and above the taxes I (i.e., my employer pays) to Malaysia?
Anne - I'm still a bit confused.
A quick back-of-the-envelope on the income-tax part (forgetting about the 500k checking accounts) seems to suggest that I owe virtually nothing to the US:
Assuming 300,000$ gross income, an exchange rate of 3.43 Malaysian Ringit per US$ gives 1,029,144 RM.
300,000 lies between 195,850 and 349,700, yielding US tax amounts of 43,830.50 + 33% over (300,000-195,850) = total of 78,200$
If I understand Malaysian tax brackets correctly (http://fortunesense.blogspot.com/2009/01/malaysia-individual-income-tax-rate-for.html and http://www.hasil.gov.my/lhdnv3e/individuIndex.jsp?process=21000&menu=13&expandable=1), I'd pay 54,825 RM over the frist 250,000 RM, and 27% over the remainder of 779,144 RM, equating to 265,194 RM = 77,305$ .
I'm not sure where your 30% Malaysian rate comes from, or if the 28% quoted by http://asiatax.wordpress.com/2009/06/30/malaysia-tax-and-accounting-principles-at-a-glance/ is correct. In any case, a higher Malaysian tax-rate could only help me, since my employer would pay more tax to Malaysia, which I can deduct from my US taxes, can't I?
Is the above correct, and does it indeed mean I'd have to pay an extra 78,200-77,305 = 895$ extra tax to the US over and above what I (i.e. my employer) pays to Malaysia, presuming the 27% is indeed the correct max Malyasian tax rate?