A few recent articles about expats in Canada about a new Affordable Care Act (a.k.a. Obamacare) tax actually is relevant to American expats everywhere. As is well documented, the new law creates a lot of tax changes that will be a big surprise to many people, and this definitely includes American expats:
And many could find themselves owing money to Uncle Sam for the first time.
The problem arises because, under U.S. law, Americans must file tax returns every year with the IRS, regardless of where they live and work.
These people typically do not owe any U.S. tax if they live in a country such as Canada, where taxes are higher.
The catch this time is that people will not be able to offset the new tax by applying foreign tax credits because of the way the U.S. law was drafted, tax experts warn.
Another article about American expats in Canada and taxes Obamacare imposes upon them adds the following insight:
It also complicates things for expats contemplating use of the IRS amnesty program, which allows then to get up to date by filing only three years of back taxes as long as they owe less than $1,500 in each year…
“People may not be able to use it,” he said. “I would hope that most people would [choose to] get through this streamlined process now.”
The deal between the Obama administration and Congress to avert the so-called “fiscal cliff” also means higher income tax rates kick in this year, which could also leave expats owing for the first time.
“There really is a perfect storm gathering for Americans living outside the U.S.,” said Peter Megoudis, a partner with Deloitte & Touche in Toronto.
So expats all over the world better get ready. Whether you wanted Obamacare or not, there are changes headed your way, and it could get really expensive quickly if you don’t stay on top of what you owe to the IRS.