Hi, My wife and I were in the exact same situation and we have lived here for 6 years now. I worked as a consultant and traveled 1 week a month to DC to work there yet it qualified as FEIE. Because of international dual taxation treaties you only pay income taxes in one country. However, the US requires all US citizens to file in the US regardless of where you pay taxes. That said, it is actually more advantageous to do so. Because of the Foreign Earned Income Exclusion (FEIE) any income EARNED overseas comes under this exclusion which is now $100,800. You pay zero income taxes on the money your wife earns up to that amount assuming you meet the test of foreign residency. You do have the onerous duty to file any FATCA requirements and all Hungarian banks are compliant to the FATCA rules so this is not a huge problem. I am assuming one of your pensions is military. You do have to pay income taxes on that income and possibly social security. If you have enough deductions and take advantage of all the interesting loopholes created for overseas contractors and the rich who hide their money in off shore accounts you might actually end up paying no income taxes anywhere. It is all legal and was created that way by Congress so I do not feel guilty of legally taking advantage of these loopholes. If you are over 65 you will have to think hard about whether or not to pat for Medicare Part B. That is a requirement to maintain your military medical coverage under Tricare Overseas. We have decided to not pay any more. We do not plan to leave Hungary and medical care here is less than we are paying for Part B alone even with extensive surgeries etc. So we are paying cash for all medical here and have never had any problems and have found the care to be excellent. Tricare is horrible and we abandoned trying to file claims years ago as their error rate is well over 500% and it takes so much time to deal with them it just isn't worth the hassle. I am certain that is deliberate and they want to discourage military retirees overseas from filing. Anyway, that is a choice you must make yourself. If there is any probability you plan to return to the US then it might be wiser to keep paying it.

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Wow. Thank your for your quick and valuable response. Just to clarify....are you saying that both my military and my federal civil service pensions as well as Social Security will be taxed in Hungary AND the US. I know the US will get theirs. Also, during the two years we lived in HU (2010-2012) we did not open a HU banking account and our US bank (USAA) worked well. Will we have to open a HU account to qualify for residency? Thanks. I wanted to try to catch you before it gets too late in your day.

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No, none of it is taxed in Hungary and all of it is taxed in the US. You 'could" choose to pay income tax in Hungary but then you still must have withholding in the US and still file in the US and you lose the FEIE advantage. We do not have tax numbers or file at all in Hungary. I can't imagine living in Hungary without a Hungarian bank account. We, in fact, have 3 accounts here in Hungary all at the same bank. One in dollars, one in forints, and one in Euros. Most bills here are paid by bank transfers which again avoids excessive fees. You must have been paying big fees for ATM withdrawals. We maintain both. My military pension is direct deposited here which avoids the wire transfer fee. Our Social Security is paid into our US account and we transfer it as necessary. We also maintain our numerous IRA and brokerage accounts in the US as my wife day trades with them in the US market. All are in equity accounts she manages personally. It isn't as bad as all that sounds. The permanent residency was a much larger hassle. Also, getting the military to direct deposit to a Hungarian account took about 6 months to get established. That can only be done through the Federal Reserve Bank which is an enormous hassle but worth it in the end. Just pay attention to the FINCEN reporting requirements for foreign assets. It is just another small bureaucratic hassle.

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Thanks. That clears up a lot of things and helps clear the way for us. We have our house for sale and when it goes, we hope to go too!

I saw on another expat site that for the temp residency, you have to have a "reason" to be in the country....not just that I want to live there. Any suggestions that seem to pass the HU test? Thanks again.

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I can't remember exactly what we stated but basically things like respect for the Hungarian people and their way of life, values, work ethic. Our status was other and pensioner. The first residence visa is for 5 years and then you can apply for the permanent residence visa. The first is relatively easy and requires proof of income and insurance. I got a letter from Tricare Overseas which covered that part but make certain they include you wife's name on it as well or you will have to do it twice. They always put a clause in there that not all claims are honored which is typical US government escape clause but it freaked them out here. The permanent one is much more detailed and requires a police background check which you have to do in the US. Also, be prepared to pay a lot at the embassy for US notarizations. You'll find out. The last interesting tidbit is 3rd country residents like us cannot register a car in our own names. You must have permanent residence permit, address, and Hungarian ID cards to register a car as of last year. No clue as to why but it is a problem and you will need a Hungarian friend. You can be registered as the owner but not as the user. Then you get a power of attorney from the user letting you use your own car. It is bizarre to me especially as the insurance is also in their name. You will run into a bunch of interesting stuff like that here in Hungary but we have equally dumb rules for foreigners in the US so it isn't unique. Unless you are fluent in Hungarian you will need to find a Hungarian friend or hire a translator plus a good attorney. You didn't mention where exactly you are looking to live. Near Balaton or heading in the direction of Vienna there are a lot more Hungarians who speak English and/or German. The further east you go the less English except in Budapest where it is relatively common. They are also far more tolerant of foreigners in the western part of the country and especially around Lake Balaton.

We are very happy to have moved here and really all things considered have had few problems. As you are retired military you will appreciate that the commissary/BX at Vicenza or Aviano are only 5 hours away by car which is another benefit living in Hungary.

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I forgot to mention it is important to establish a permanent mailing address in the US for US type mail. We have a friend who is doing this for us and she opens the mail, scans and emails it to us. This helps us a lot and mail to Hungary can takes weeks to months. This also keeps you with a US Representative to write to in case you need some political representation in the US. Expats do not typically do this and lose out on the potential to write their Congressman and/or Senators. Plus for some things you will need to be able to get mail in the US. Credit cards come to mind. Also, you must have a US address for your IRA/401K/Roth accounts especially if you actively manage them. We have established our permanent official address here in Hungary but it is necessary to keep a US address for all that other stuff.

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It is so kind of you to spend so much time writing the detail you have. It will prove very valuable. Now a little about us. We are currently in North Carolina. We moved here when we left Hungary. While in Hungary, I worked at Papa Air Base on the Multi-national C-17 program. I was responsible for the support of 40+ USAF personnel assigned to the base. We want to go back to Papa to live. We established friendships with Hungarians that are very precious to us. We have already been back twice since we left. There are many English speaking people there as Boeing has the maintenance contract on the aircraft with 60+ personnel from the US on their team. Also, the common language of the multinational unit is English. We had a tough time with Hungarian but we want to work harder on it this time. My wife, Michelle, and I look forward to meeting you and your wife so we can personally thank you. I want us to stay in touch if that is OK with you. Our contact info is:

Bill and Michelle Gardner
1332 Fieldtrial Circle
Garner, NC 27529
Mobile: 919-621-3416
My email: billgardnerpapa@gmail.com
Michelle's email:
mrswtgjr@gmail.com

Do you use Skype to communicate back to the US?

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