By Simon Brady, CFP®, Founder and principal, Anglia Advisors
(Aimed at HR departments of companies hiring foreign nationals in the US, this article was originally published on the blog of Avant Relo LLC , a strategic partner of Anglia Advisors).
Most HR departments bringing foreign nationals to the US for work do a good job in preparing for the employees’ arrival. Either on their own, or with the assistance of relocation firms, they make specific preparations to deal with the immigration, real estate, educational and even cultural needs of the inpat.
However, there are a host of issues that foreign nationals face in the US, particularly in the fields of taxation, estate planning and credit development, where non-citizen staff are left to their own devices. Here, we face the problem of “you don’t know what you don’t know” since most of them are unaware of the risks they are taking in these areas, let alone what to do about them.
Among these concerns are:
Income tax: The foreign employee paid in the US is likely to become a “US person” for tax purposes, which requires them to declare their worldwide income. In their first year, it’s likely they’ll have a somewhat complex tax return to complete, with income being generated from at least two countries.
Overseas account reporting requirements: The rules here apply to every US person, including American citizens, but the fact is that the foreign nationals are far more likely to have overseas accounts with their names on them, and failure to disclose these accounts can lead to horrendous penalties.
Estate Planning: The rules here are complex and dynamic, but while the rest of us are currently exempted from paying the 40% federal estate tax for estate values of under $US5.5m, many non-citizens face an exemption of only $60,000.00 on their US-based assets before they pay the federal estate tax. Most states impose another layer of harsh estate taxes on foreign nationals, and while US citizens can pass an unlimited amount to a spouse free of any federal estate tax, this is not the case for anyone who is not a full US citizen. As you can imagine, should a non-citizen happen to die here, the effect on the surviving family can be catastrophic.
Credit and Mortgages: Overseas credit reports or records or income history are almost always disregarded by banks and credit issuers when it comes to assessing credit limits or eligibility for mortgages and other loans in the US. This can mean low credit limits (or often no unsecured credit limit at all) being offered to recently-arrived foreign nationals, and great difficulty in obtaining home financing.
And There’s More: Foreign nationals can often face restrictions on, or even denial of, things like life insurance (a potential solution to the estate tax problem), participation in 529 college savings plans, becoming a shareholder in a S-Corporation, etc. They also face a layer of tax on gifts to a spouse while alive that American citizens are exempt from.
The Bottom Line: Recently-arrived inpats are far less able to find resources to help them with these particular issues than a native-born American citizen. HR staff are not qualified tax professionals, financial planners, or estate attorneys, and most are not in a position to offer advice or help in these matters.
This is where a qualified, fiduciary CERTIFIED FINANCIAL PLANNER™ with a specialty in these areas can raise awareness, offer advice, and bring in outside professionals from his own network to consult with foreign nationals and their families.