US TAX FILING REQUIREMENTS FOR AMERICANS IN THE NETHERLANDS
As a U.S. citizen or resident living and working in the Netherlands you should be aware of the following:
Reporting of Worldwide Income
U.S. citizens and residents are required to report their income from worldwide sources. If you are a U.S. citizen living in the Netherlands with income from sources within the Netherlands, this income will be taxed both in the Netherlands and the United States. The tax treaty between the Netherlands and the United States will provide some relief for double taxation.
Tax Credits, Deductions and Exclusions Available to U.S. Citizens Living in the Netherlands
Foreign Earned Income Exclusion. If you live and work abroad, you may be able to claim the Foreign Earned Income Exclusion. If you qualify, you will not pay tax on up to $102,100 of your Dutch wages and other foreign earned income in 2017. The exclusion amount is adjusted annually for inflation. In addition, taxpayers may also exclude employer-provided housing amounts or deduct non-employer provided housing costs.
Please note that only earned income can be excluded, which does not include unemployment benefits, social security income, pension income and other unearned income.
Foreign Tax Credit. You can claim a credit for income taxes paid to the Netherlands to offset your U.S. tax liability. Generally, Dutch income tax rates are high in comparison to the U.S. tax rates. Therefore, the foreign tax credit for Dutch income taxes paid is often sufficient to completely offset your U.S. tax liability.
It might be beneficial for you to claim both the Foreign Earned Income Exclusion and the Foreign Tax Credit. However, you are not allowed a Foreign Tax Credit on foreign taxes that relate to the amount excluded under the Foreign Earned Income Exclusion.
Standard Deduction and Itemized Deduction. Every taxpayer can avail of either the Standard Deduction (a fixed deduction amount which is based on your Filing Status) or the Itemized Deduction (deduction of actual expense incurred subject to limitations), whichever is higher.
Examples of Itemized Deductions include, but are not limited to: unreimbursed medical expenses, unreimbursed employee business expenses, tax preparation fees, mortgage interest, certain taxes, U.S. charitable contributions (contributions to Dutch charities are not deductible) and miscellaneous expenses.
Additional Forms U.S. Citizens Living Abroad are often Required to File
If you are a U.S. citizen or resident alien, the rules for filing income tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. However, additional rules may apply and additional forms may have to be filed depending on your specific facts and circumstances. Some of the most common tax forms filed by Americans living abroad:
FBAR – FinCEN Form 114, Report of Foreign Bank and Financial Accounts. You are required to file this form if you have one or more foreign financial accounts with an aggregate value that exceeds $10,000 at any time during the year. We charge a flat fee of €80 (approx. $90) for the preparation and electronic filing of your FBAR with up to 10 foreign financial accounts.
Form 8938, Statement of Specified Foreign Financial Assets. You need to file this form with your federal income tax return if the total value of your specified foreign financial assets exceeds a certain threshold.
Form 5471, Information Return of U.S. Person With Respect to Certain Foreign Corporations. This return must be filed as part of the U.S. federal income tax return of certain U.S. citizens and residents who are officers, directors, or shareholders in certain foreign corporations. For example, if you are a U.S. citizen living in the Netherlands and you (partly) own a non-U.S. legal entity (such as a ‘B.V.’), you may be required to file this form with your U.S. tax return.
Non-compliance with the tax rules that require you to file the above forms can potentially result in serious fines. Please contact us if you would like know whether you have a filing requirement.
Form 1040, U.S. Individual Income Tax Return. As a U.S. citizen living abroad, you receive an automatic 2-month extension of time to file your U.S. federal income tax return and time to pay your tax. The deadline to file your 2017 tax return is June 15, 2018. Interest will still be charged, however, on payments made after the regular due date, which is April 15, 2018, without regard to the extension.
FBAR – FinCEN Form 114, Report of Foreign Bank and Financial Accounts. As a U.S. citizen living abroad, you receive an automatic 2-month extension of time to file your 2016 FBAR. An additional 6-month extension can be requested through October 15, 2018.
If you’re a U.S. citizen in the Netherlands, contact us with any questions you have about your U.S. tax filing requirements. We have experience with both the U.S. tax system as well as Dutch income tax law and tax filing requirements. We speak Dutch and all information is available in Dutch.