US Income taxes for salary earned in the Netherlands

Question

I'm considering a job offer in the Netherlands. As a US Citizen, I would be eligible for the 30% ruling in the Netherlands, which reduces my tax burden there. What I'm curious about is how this may affect any taxes I pay in the US.

I understand that as a US citizen I must file a US tax return, but that tax treaties will likely reduce or eliminate my tax burden in the US. Realistically, as a US citizen working in the Netherlands, what will be my US tax burden? 0 or negligible? Will I be required to pay US income tax on the 30% of my salary that is not taxed in the Netherlands? Is it far more complicated than all this?

If it matters, I own no property or any other source of income in the USA. I have a small IRA account, but that doesn't pay taxes until retirement anyway.

Answer 1

Regardless of tax treaties, you can exclude the first (roughly) $100k of your earnings from your taxable income if you meet certain requirements. This is known as the Foreign Earned Income Exclusion.

In addition, there is a tax treaty between the US and the Netherlands, which touches on social security taxes, among others. There are lots of American expatriates in the Netherlands, so you shouldn't have a hard time finding an accountant or tax preparer who is familiar with these issues.

Answer 2

Tax treaties generally don't affect citizens unless very specific circumstances (for example, public pensions are usually covered). However, there may also be a Social Security totalization agreement which may affect you.

In any case, on top of the foreign earned income exclusion you should familiarize yourself with terms like FBAR, FATCA, PFIC, CFC, Foreign Trust, forms like 114, 1116, 2555, 3520, 3520A, 5471, 8938 and what else the United States throws at its citizens who dare to live abroad. I suggest finding a local US-licensed tax adviser (US-licensed EA or CPA) who's proficient with the relevant treaties and understands the banking and financial terms.