US Citizens and Residents living in Jamaica liable for US Taxes

Information released during the last US general elections, indicated that up to twenty thousand US citizens and Green Card Holders reside in Jamaica. Many are Jamaican citizens who have acquired US residency or citizenship status but have chosen to continue living and working in Jamaica. Others commute between Jamaica and the US, often operating businesses in both jurisdictions.

Most of these individuals either work or do business in Jamaica and pay their taxes to the Jamaican government by way of PAYE or through annual returns to Inland Revenue.

What some may not know is under US tax law, they are also required to file a United States tax return. The US requires that all its citizens and residents file a tax return irrespective of their place of actual residency. The same tax requirements that apply to US citizens and residents living in the US, apply to those living outside the US. Specifically, US tax filers are required to report their “worldwide income” which would include any income earned in Jamaica. The income is reportable whether or not it has been taxed in Jamaica. Jamaican resident US tax filers are subject to the same penalties and interest for late filing, under reporting of income and underpayment of taxes.

Fortunately, Jamaica, like it does with several countries, has a bilateral double taxation treaty with the US. Under the treaty, citizens of both countries are relieved from double taxation on income earned in either country. The net effect of this treaty allowance is that the taxpayer pays taxes at the higher of the tax rates prevailing in the two countries but does not pay taxes on the same income in both countries. Tax rates in the US, unlike in Jamaica where it is a flat percentage, depends on the individuals level of income, so whether or not a US citizen or resident living in Jamaica pays at the US rate or the Jamaican rate will depend on the level of their worldwide income.

Us tax filers who reside in Jamaica and do spend more than 35 days in a one year period are allowed to exclude up to US$87,600 per person from income for the 2008 fiscal year. The return must still be filed and the exclusion claimed even where income is less than this figure.

In addition to income tax, US tax filers may be subject to social security, capital gains, gift, estate or alternative minimum taxes. The double taxation relief is applicable to all of these taxes except for social security taxes.

US tax filers, whether residing in Jamaica or in the US must be aware of several benefits from filing US tax returns. Often, there are several cash credits to taxpayers as in the case of the 2008 economic stimulus payments. Some credits have a US residency requirement and the 2008-2009 first-time homebuyer US$7,500 credit requires the purchase of a house in the US. Taxpayers who have contributed to social security and are eligible for benefits will receive substantially larger benefits than NIS benefits, irrespective of where they reside. Several years of tax returns are usually a prerequisite for mortgages and loans in the US.

It is also important to note that immigration authorities will also frequently request several years of tax returns for green card holders applying for their citizenship in the US.

US taxes are quite complex and persons should always consult an accountant or tax professional either in Jamaica or the US. Visit http://www.crichtonmullings.com for more information.