US Expat Taxes for Americans Living in New Zealand – What You Need to Know
There are an estimated 25,000 Americans living in New Zealand.
Living in New Zealand is an incredible experience for a variety of reasons: the famous landscapes, the friendly people, and the food to name but a few. As an American expatriate living in New Zealand though, what exactly do you need to know regarding filing US expat (and New Zealand) taxes?
All US citizens and green card holders are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is if you are paying income tax in New Zealand, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS, too.
US taxes – what you need to know
If your annual income is more than $12,400 (in 2020, or $12.550 in 2021), or just $400 for self-employed individuals, or just $5 for Americans married filing separately with a foreigner, then you have to file form 1040. While any tax owed is still due on April 15th, expats get an automatic filing extension up until June 15th. This can be extended further until October 15th.
If you have foreign assets worth more than US$200,000 (per person), excluding your home if it is owned in your own name, you must also file Form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign accounts at any time during the tax year, you must also file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
Thankfully, there are several exemptions you can claim that allow you to pay less or no US income tax to the IRS.
“If you are a resident of New Zealand for tax purposes, you will be taxed in New Zealand on all of your worldwide income”.
– The Inland Revenue Department
The two primary ones are the Foreign Earned Income Exclusion, which allows you to exclude the first around US$110,000 of your foreign earned income from US tax if you can demonstrate that you are a New Zealand resident, and the Foreign Tax Credit, which gives you a dollar tax credit for every dollar of tax that you’ve already paid in New Zealand.
The Foreign Tax Credit is typically a better option if you pay more tax in New Zealand than you would owe in the US, as you can carry the excess tax credits forward for future use.
The United States – New Zealand Tax Treaty
The United States – New Zealand Tax Treaty covers double taxation with regards to income tax, corporation tax, and capital gains tax, however, a clause called a savings clause in Article 1 paragraph 3 states that “the United States may tax its citizens and United States companies as if the Convention had not come into effect.” This means that US expats still have to file US taxes on their global income.
However, the treaty allows US expats to avoid double taxation on their income earned in New Zealand by letting them claim US tax credits when they file their US tax return to the same value as New Zealand income taxes that they’ve already paid, when they file their US tax return.
For income earned (and so taxed first) in the US, the treaty allows Americans in New Zealand to claim New Zealand credits to the value of the US tax paid on this income, although they may have to pay some extra New Zealand tax on top, the New Zealand tax rates being higher than the US.
To claim US tax credits against New Zealand taxes paid, expats must file Form 1116 when they file their federal tax return.
By doing this, the vast majority of US expats in New Zealand won’t end up owing any US income tax, as New Zealand has higher income tax rates than the US.
The US – New Zealand Tax Treaty also allows the New Zealand government to share US expats’ New Zealand tax information with the IRS, as well as their New Zealand bank and investment account details and balances.
Some Americans in New Zealand will benefit from the treaty though, for example artists, teachers, athletes, students, as well as expats receiving dividends, interest, royalties, and pension income.
Expats with these types of income should consult a US expat tax specialist to check. Expats who can claim a provision in the treaty should do so by filing IRS Form 8833.
New Zealand taxes – what you need to know
New Zealand residents are taxed on their worldwide income. Tax rates range from 10.5% to 33% (you can find New Zealand tax information for expats here).
Americans are considered residents in New Zealand for tax purposes if they have a permanent place of abode in New Zealand, or if they spend at least 183 days or part-days in the country in a 12 month period.
New Zealand’s tax authority is called the IRD (Inland Revenue Department). The tax year in New Zealand runs from April 1st to March 31st. If your only income source is employment in New Zealand, tax will be deducted at source and you don’t have to file a return. If you do file a return, it is due on July 7th. The form is called IR3, and you can download it and find out more about it here.
Other than income and business taxes, there are relatively few taxes in New Zealand – no local or state taxes, no inheritance tax, and only capital gains taxes on some asset disposals.
Expats in New Zealand who are behind with their US tax filing because they were unaware that they had to file from abroad can catch up without facing penalties under an IRS amnesty program called the Streamlined Procedure, so long as they do so before the IRS contacts them about it.
We strongly recommend that if you have any doubts or questions about your tax filing situation as a US expat living in New Zealand that you contact a US expat tax specialist.