Are you a US citizen living abroad? Or, juxtapositionally, are you a foreigner with a US work permit? In other words, do you spend part of the year in the USA and part of the year in another country like Israel or any other country? How do you file taxes in both the countries where you live and work?
The concise answer to how to file taxes is that you hire an accountant from Phillip Stein to assist you. They understand the ins and outs of the need to file tax returns in more than one country, for example, the USA and Israel.
Therefore, by way of expanding on this answer, let’s consider the following points:
The lawinsider.com defines the phrase “tax obligations” as the amount of tax owing by an individual to a tax authority.
Each country has its tax rules and residents, whether temporary or permanent, are required to pay tax in the country they reside in. These tax laws become slightly more complex when individuals live and work in more than one country in a particular tax year.
Explaining overseas taxes: A case study
Let’s assume for the purposes of this content that you are an Israeli citizen and spend a large part of the year working in the USA. The remainder of the year, you live and work in Israel. Therefore, in theory, you would be required to pay income tax to both the Israeli and the US tax authorities.
The practical application of these laws is very different. It is dependent on several variables, such as the number of consecutive days spent in each country and whether there is a tax treaty between the relevant countries.
It is worth noting that there is a tax treaty between the US and Israel. This treaty was first set out in 1995 and has not been updated since. However, if you hold dual nationality and pay taxes in both countries, it is essential to know what is contained within this treaty.
The USA is unique because the tax regulations require every citizen to pay taxes irrespective of where they live and generate an income. If you are a US passport holder or green card holder, you must pay taxes, or at least file an annual tax return.
Juxtapositionally, if you are, let’s say, a European Union (German) citizen living and working in Israel, you are not required to file a German tax return. However, even if you have never set foot in the US, but you are a US national by birthright, not only do you need to file a tax return, but you might also have to pay US tax on your Israeli income.
COVID-19: The curved ball
The caveat to 2020 is the global pandemic caused by the novel coronavirus, SARS-CoV-2. First found in Wuhan, China at the end of 2019, it has since rampaged its way across the world, resulting in a global economic shutdown because most of the world’s countries implemented some form of hard lockdown or shelter-in-place where all non-essential business were closed, and many employees furloughed or laid off.
Therefore, you would have spent most of this year living either Israel or the USA, depending on where you were when both countries closed their borders and implemented nationwide or state-wide lockdown or shelter-in-place regulations. The US federal government did not implement a nationwide lockdown. Individual states were required to do so depending on their virus transmission rates and the hospitalization and fatality rates.
Each country also implemented national or federal stipends for residents. The USA also added a number of special tax laws set out within the CARES (Coronavirus Aid, Relief, and Economic Security). This will affect US and Israeli citizens that hold dual nationality.
How will it affect individuals in this scenario?
Again, these tax laws are complicated, especially for people who have a registered address in two countries.
For the income earned in Israel and the Israeli stipends received, you would only be required to pay tax to the Israeli government on this amount.
However, even if you were stuck in Israel for most of this year due to the lockdown, you are still obliged to file a US tax return, specifying the total income earned for the year, irrespective of where you were living at the time it was generated.
As highlighted throughout this discussion, there is no clear-cut answer to the question of how to navigate your overseas taxes during the COVID-19 pandemic. As the infection rate is still climbing, even after two-thirds of 2020 have passed, the global, national, and federal economic conditions remain fluid.
A typical example of this is that Israel is the only country in the world that has implemented a second nation-wide lockdown in an attempt to halt the rampant spread of the virus. Countries like the UK, Spain, and France are doing their best to avoid a second lockdown of this nature. Whether they will succeed or not, no one knows.