Taxes - Hong Kong & U.S.

[MMJK]

I am a U.S. citizen who will be working in Hong Kong. I was wondering if anyone could tell me how much I should expect to be paying in taxes to Hong Kong and/or the U.S. Thanks in advance for your help!

[PDLM]

In Hong Kong calculate it here: Salaries Tax Computation It maxes at 15%. In addition you may have to pay up to HK$1K/month in MPF (pension fund), which your employer must match.

For the US I believe you pay what you would pay were you in the US less a "foreign earnings deduction" of US$80-90K or so.

[Freetrader]

Correct. The amount of US taxation depends on how much money you make in your job in HK (this is assuming that you have relocated to HK on a medium to long-term basis and are a US non-resident).

Working for a HK-based employer, you may not have to pay SSI and Medicare taxes, which are the only federal taxes most US citizens pay these days. However, if your employer is a subsidary of a US-based company (i.e., one of those IBs you are looking to work for) then they may pay SSI and collect it from you. Whether that is good for you or not depends on your view of the long term solvency of the US SS and Medicare systems.

As noted by the ever-helpful PDLM, HK taxes are pretty much a flat 15%.

You will need to break your current state residency to ensure you don't pay US state income taxes.

With regard to US federal income taxes, as PDLM pointed out, there is a foreign earned income exclusion that covers around US $90k. Based on your previous post indicating that you were looking for an entry level job, that would mean that you basically wouldn't pay any US tax. You would be well-advised to continue to file US returns and the foreign bank account forms (TD-90.22) however.

If your ascent in the IB world is fast, then you may exceed the foreign earned income exclusion. There is an additional housing deduction that is available, potentially excluding up to $160k or so of your income. Hong Kong is actually the city with the highest exclusion in the world.

Once you get over US $200k or so, you won't be able to exclude all of your income, so since the US tax rates at that income level are higher than HK's, you would pay residual US tax (the dreaded 'world wide taxation' that rich expats are always complaining about). However, you would still get a pro-rated foreign tax credit. If you US federal tax rate is 38%, you would get a foreign tax credit for the 15% HK taxes, and only pay the difference (and only on the non-excluded amount).

So in summary, it depends on how much money you make.

[MisterTanaka]

Sorry this reply is a bit late.

Regarding US state taxes: Most states will not allow you "break residency" until you actually establish residency in another state (NOT overseas), meaning that most people I've worked with on overseas taxes still have to file a state tax return.

The good news is, if you qualify for the Form 2555 Foreign Earned Income Exclusion, your state taxes will be correspondingly lower in most cases. (I say "most cases" because I'm not familiar with all state income tax laws, but I am familiar with many of them.)

Most states calculate your tax based on your Federal Adjusted Gross Income, which already includes the excluded amount -- or excludes the excluded amount, depending how you look at it. Simply put, as an example:

Income derived in Hong Kong: $40,000
Income derived in the US: +$ 0
Foreign Earned Income Excl: -$40,000
Adjusted Gross Income (AGI): =$ 0

Since most states use the AGI to calculate state taxes, your starting number would be in the above example. If you make more than the excludable amount (US$91,500 in 2010), you may end up paying state taxes.

You can simply ignore the state taxes, but most states will try to track you down (almost all of them share information back and forth and between the IRS these days), especially in light of the budget problems most states have right now.

[kale]

there r 4 states with no state income tax. I guess u may want to establish a new residency before u leave. Florida being one. Google search for the others
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[Freetrader]

there r 4 states with no state income tax. I guess u may want to establish a new residency before u leave. Florida being one. Google search for the others
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Nevada is another one. Alaska doesn't either, I think. However, that strategy won't work - and anyway, what is the point of moving to another state and then leaving the country? If you actually leave the US and break state residency, you will no longer pay State taxes in any case.

[Freetrader]

Sorry this reply is a bit late.

Regarding US state taxes: Most states will not allow you "break residency" until you actually establish residency in another state (NOT overseas), meaning that most people I've worked with on overseas taxes still have to file a state tax return.

I find your comment a bit baffling - establishing residence in another state doesn't affect your home state one way or the other. Either you break your local residency, or you don't. If you really 'break' your State residency, you don't pay State taxes anymore. Period.

[BenderBends]

I agree... All I did was moved to hk and registered with consulate declaring my new residency is in HK, and that I no longer maintain a tax home in USA. Therefore I do not pay or file any state tax. That being said, I am able to continue to renew my us driver license by declaring my parents residency there.
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[fth]

The other big headaches are when investing offshore, declaring your MPF fund (various schools of thought here) and self employment.
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[BenderBends]

The other big headaches are when investing offshore, declaring your MPF fund (various schools of thought here) and self employment.
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regarding MPF...i was told by tax agent to declare my MPF as part of my income. meaning if you make $1000 a month, and you contribute $1000 to MPF personally, and employer contributes $1000 too...then just declare your income as $3000 per month.