FATCA cost-effective? Hmmm….

HR 5016 -- you never heard of it? It's the "Financial Services and General Government Appropriations Act, 2015’ so it is important. It passed the House on July 16 and will now have to pass the Senate. There is an amendment to the bill that concerns us as Americans living overseas: it has to do with FATCA, of course. A cost-benefit analysis was never done and it turns out, as is no surprise to AARO, that implementation is expensive, perhaps costing more than the tax income it might generate. On July 14, Congressman Bill Posey (FL-8) proposed an amendment to HR 5016, H.Amdt. 054, which passed on a voice vote. In the Congressional Record,Congressman Posey is reported as saying: 

"My amendment transfers $1 million from the Internal Revenue Service enforcement division to the IRS office of the Inspector General. It is my intent that this money be used to study the impact of IRS nonresident alien bank account reporting and requirements on the United States economy." 

The amendment has received support from the Credit Union National Association, which said, "We believe this study is necessary given the complexity of implementing FATCA, the complex rulemaking that has taken place, and the myriad unintended consequences of the law on U.S. financial institutions and U.S. citizens living abroad." (For the full text of the CUNA letter, click here

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Citizenship

My daughter has given birth to a child whose father is not American. My daughter lived only four years in the U.S. What can she do to make sure my grandchild has American citizenship?

Assuming the daughter is American, she can either 1) apply for an immigrant visa for her minor child at a US consulate abroad and travel with the child to the US where citizenship becomes effective upon entry as an immigrant or 2) apply to the Immigration and Naturalization Service, also listed under Citizenship and Immigration Service, for special naturalization for minor children, travel to the US with the child once the application is approved and be naturalized at a local CIS office.

Method number 2 would require that the American grandparent of the child have lived in the US a total of 5 years (2 after the age of 14), since the American mother did not. For more information about these two methods, see page 6 of the "Citizenship Fact-Sheet". There is a third way if the American mother is not married ”“ a child born out of wedlock to a US citizen mother is a US citizen at birth if the mother had been physically present in the US for a continuous period of one year prior to the child's birth.

Taxation

Why should I worry about US income taxes? All my income comes from my host country and I pay plenty of taxes there!

The United States is the only developed country in the world that insists on taxing on the basis of citizenship rather than residency. What this means is that all US citizens (and Green Card holders) must file tax returns if their worldwide income for the year exceeds the threshold limits for filing. For a married taxpayer filing separately (the case for many Americans married to foreigners, or "non-resident aliens" as the IRS likes to call them) the threshold for filing can be as little as $3000.

The good news is that earned income from overseas can be exempted from US income tax (but only if you file a return and elect the exemption!) up to $80,000 for the year 2002. Then, there is a tax credit available for income taxes you've paid to foreign governments and the US has tax treaties with most host countries, designed to avoid double taxation under most circumstances. Even if you don't owe any US income tax, you still are required to file a return. If you haven't been filing, there are often ways to come forward and clear your name voluntarily before the IRS gets involved and starts talking interest or penalties.

Driver's License

Do I need an international driver”’s license to drive in Europe?

Until you hold a French residence permit (carte de séjour), your American driver”’s license is valid in Europe. You can go so far as to get an international driver”’s license, but there really isn”’t much difference. However, your American driver”’s license becomes invalid in Europe when you become an official “resident”.

If my state has a reciprocity agreement with France, how do I go about getting a French license?

Americans who hold a driver”’s license from a state with a reciprocity agreement must exchange it for a French license during the 365 days from the date their carte de séjour was issued. After that, it can no longer be done, and your only recourse is to take the official written and practical tests to get a French driver's license. If your U.S. license comes from any other state, you must likewise take the official tests to get a French license.

Be aware that France requires your American driver”’s license to have been valid for a year before you exchange. The reason is to foil attempts by individuals who get a new American driver”’s license from a state that has reciprocity with France, for the purpose of immediately exchanging that new one for a French license. Unfortunately the French have not been able to foil attempts at this same scheme by individuals who plan a year in advance.

Social Security

If I retire overseas, will I lose my Social Security pension? Can I combine a U.S. pension with a foreign one, having worked at home and in another country?

You can receive your U.S. old age pension even if you reside overseas. It can even be deposited directly into your foreign bank account by Social Security which may assure you of a more favorable exchange rate. Americans having worked in the U.S. and in another country (and having contributed to both old age pensions) run the risk of being penalized in the U.S. by application of the Windfall Elimination Provision (WEP) which reduces the U.S. pension. This offset may be avoided by invoking Totalization Agreements between the US and a foreign country by proper planning, which must be started before retirement. AARO is lobbying Congress to reduce/repeal the WEP.

What is AARO doing about WEP?

AARO has joined the Coalition Assuring Retirement Equity (CARE), a Washington alliance dedicated to the repeal or the WEP and representing many employee associations. Bills are pending in both Houses for repeal or reform of WEP and AARO remains alert to join CARE initiatives to roill back this inequitable measure.

I have worked in the USA and accumulated 35 quarters under US Social Security. I have also worked 20 quarters in a foreign country having a Totalization Agreement with the US. Am I entitled to a US old-age pension?

Yes, if your foreign quarters have been earned in a country having a Totalization Agreement with the US, they can be used to make up the missing five quarters required for vesting a US pension. Such pension however will be calculated on the basis of your US quarters only.

Representation

What possible solutions have been proposed for this problem?

AARO and its sister organizations representing overseas Americans have long discussed options for improving our representation in Washington. Some options frequently mentioned:

  • Bi-cameral, bi-partisan caucus on Capitol Hill
  • Executive branch office dedicated to overseas Americans”’ issues
  • Consultative council representing overseas Americans”’ interests
  • Non-voting delegate in House of Representatives
  • Voting member(s) of one or both houses of Congress

Each of these options presents its own advantages and disadvantages. They are not generally viewed as being mutually exclusive several; of them could exist simultaneously, providing overseas Americans with complementary avenues for pursuing change.

AARO and its sister organizations participating in Overseas Americans Week have put forth concerted effort on the first of these options, which came to fruition in 2007 with the creation of the Americans Abroad Caucus.

AARO”’s current priority is to increase the size and geographic and political diversity of the membership of the Americans Abroad Caucus. As the Caucus grows, it will become a focal point for AARO to present issues to members of Congress who are interested in our concerns.

In the future, AARO and its sister organizations will likely take further steps towards implementing one or more of the other options. The Americans Abroad Caucus ”“ a historic development for Americans abroad ”“ is just the first step on a long road towards effective representation of overseas Americans.

Census

Has the Census Bureau ever made an effort to count American civilians living overseas?

After lengthy efforts by AARO and its coalition partners, the Census Bureau agreed to conduct a voluntary test census in 2004 in three countries: Kuwait, France and Mexico. The response rate in 2004 was less than five percent of the State Department's estimate of Americans living in the three test countries, a rate too low to have any statistical significance. The lack of response, in AARO”’s opinion, was due mainly to three factors:

  • The Bureau”’s outreach program among overseas Americans was inadequate. Among other things, no attempt was made to mail a questionnaire to an address ”“ a standard procedure in the U.S.
  • The reasons given for the survey were unclear and unconvincing. Under Congressional guidelines, the Census Bureau was not allowed to state that one of the main purposes of the test was for apportionment of House seats.
  • Most of the $7.8 million appropriated for the test was spent by the Census Bureau internally, in a budget not specific to this program.

REAL ID Act

How was this act passed?

The REAL ID Act was slipped into an emergency bill for military funding and tsunami relief. Because it passed as an amendment to an emergency spending bill, the Real ID Act has never come up for a vote on its own ”“- or for full debate ”“- in Congress. Meanwhile, a number of states have confirmed that they will oppose the act through legislation in their own states.

When is this act due to be implemented?

The original deadline for states to implement the bill was May 2008. However, in response to complaints about the projected $11 billion cost and potential disruptions, the administration indicated in March 2007 that it will allow states to postpone the launch by up to 19 months.

Medicare

I paid into Medicare for years. I plan to retire abroad and need health care coverage. Now I hear Medicare won't cover me overseas. What can I do?

Although Congress has extended hospitalization and medical coverage to military personnel and family retiring abroad under the Tricare Standard program, Medicare is not available to American civilians abroad even though they paid into the system.

Since its inception AARO has lobbied Congress for Medicare or substantially similar coverage for civilians abroad but so far without success. Congressional objections dwell on the cost and difficulty of administering such a program abroad, although the latter problem has obviously been solved for military retirees.

Americans retiring abroad can subscribe to the AARO Group Medical Insurance Plan which operates world-wide and has links to plans in the USA in case of return. The AARO Plan (see Health Care Insurance on this Site) provides several kinds of coverage including supplementary insurance over and above national schemes.

I”’ve heard about Health Savings Accounts. Can they be used by someone living and intending to retire abroad?

We are advised that Health Savings Accounts, associated with high deductible medical insurance policies, may be used to pay medical expenses abroad until retirement. However, upon reaching retirement age (65) when Medicare would normally protect you, such uses of the Account will no longer be possible.

Voting

Can I vote in U.S. elections even though I live overseas?

As a U.S. citizen living outside the country, you can vote in federal elections by absentee ballot. Federal elections are those for President, Senator and Congressional Representatives. You are entitled to register to vote in the district of your last legal residence in the U.S. whether or not you ever registered to vote or voted from that residence while you lived there. You will need a street address and zip code of your last residence in order to register.

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