US Expat Taxes for Americans Living in Switzerland – What You Need to Know
There are an estimated 40,000 Americans living in Switzerland
All US citizens and green card holders who earn a minimum of $10,000 (or just $400 of self-employment income) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or where their income is generated.
The good news is if you are paying income tax in Switzerland, 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 you earn over US$10,000 (or $400 if you’re self-employed), you have to file form 1040. While taxes are still due by April 15th, expats get an automatic filing extension until June 15th. This can be extended further online until October 15th.
If you have foreign assets worth a minimum of US$200,000 (per person), excluding your home if it is owned in your own name, you should 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 are also required to file FinCEN form 114, also known as a Foreign Bank Account Report or FBAR.
“The amount of tax you have to pay (in Switzerland) depends on your income and savings, your civil status, church membership, where you live and how many children you have.”
– Swiss Federal Tax Administration
If you pay income tax in Switzerland, there are several ways you can reduce or null the tax due on the same income to the IRS. The two primary ways are the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax so long as you can demonstrate that you are a Swiss resident, and the Foreign Tax Credit, which gives you a dollar tax credit for every dollar of tax you’ve paid in Switzerland. The Foreign Tax Credit is often a better option if you pay more tax in Switzerland than you would owe to the IRS, as you can carry the excess credits forward for future use. Don;t forget though that even if you don’t owe any tax to the IRS, if your income is more than US$10,000 (or $400 if you’re self-employed) you still have to file a federal return.
The US and Swiss governments share taxpayer info, while Swiss banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or not fully disclosing your finances on your return. The penalties for tax evasion for expats are horrible, to say the least.
If you’re a US citizen, green card holder, or US/Swiss dual citizen, and you’ve been living in Switzerland but you didn’t know that you were required to file a US tax return, it’s OK: there’s a program called the IRS Streamlined Procedure that allows you to catch up with your filing without facing any penalties. Don’t put it off though, in case the IRS come to you first.
Swiss taxes – what you need to know
Swiss residents are taxed on their worldwide income, while non-residents are just taxed on income arising in Switzerland.
Switzerland has federal, municipal, canton, and church, income taxes. The total, cumulative rates range from 0% of income to 48%. There is also a wealth tax on assets. If you are employed by a Swiss company, tax will be deducted from your income at source, and if this is your only income and you don’t earn over CHF 120,000 per year (CHF 500,000 in Geneva), you don’t have to file a Swiss tax return (although you still might want to, to claim deductions). Returns should be filed by March 31st, though extensions are available (some of which you have to pay for). The details differ depending on which canton you live in.
It’s also compulsory to purchase medical insurance in Switzerland.
Americans will be considered residents in Switzerland if their permanent home or centre of interests is there, or if they stay 30 days working (or intending to work) during the tax year, or 90 days not working or intending to work. Residents pay Swiss tax on their worldwide income, non-residents only on their Swiss sourced income (and wealth).
You can find information on Swiss income tax rates using the tool here.
We strongly recommend that if you have any doubts or questions about your tax filing situation as a US expat living in Switzerland that you contact a US expat tax specialist.