[Alberta's Child]

We really ought to follow the rest of the world and make taxation a TERRITORIAL system, i.e., you get taxed in the country where you earned your income.

I believe that's exactly how the U.S. tax code works right now. You get taxed in the country where you earned your income, but you still have to file a U.S. tax return. You get a credit on your U.S. tax return for the taxes you paid in the foreign country, so you only pay the difference (if any) between what is owed to the IRS and what you've already paid in the other tax jurisdiction.

[Pearls Before Swine]

Not completely true. You are filing a full US return. While you do get a credit for taxes paid, and an overseas living exemtpion, (around 100K), you are still responsible to the IRS for differences where US taxes are higher. Further, you have onerous reporting requirements for any overseas assets, if you can now find a bank or brokerage that will take you as a US citizen.

It’s really stealth capital controls, IMHO, even if you dress it up pretty and call it fraud prevention.

If the US went to a territorial income system, like almost every country in the world, there would be no need for all of this. And, the heavy penalties and involved reporting on overseas accounts smacks of totalitarian regimes of the past. What are we supposed to do—sew diamonds in our clothing?

[Spirochete]

so you only pay the difference (if any) between what is owed to the IRS and what you've already paid in the other tax jurisdiction.

But you still pay the IRS, even if they're splitting the difference. It' because the IRS claims ownership of you and your wages, regardless of where on the planet you may be.

[beef]

When German citizens work in the US, they do not have to file a German tax return. The US banks where they have accounts do not have to report to the German government. Our tax system is an economic Berlin wall, designed to punish Americans who dare to attempt an escape. How are we any better than the east bloc was?

[SES1066]

You get a credit on your U.S. tax return for the taxes you paid in the foreign country ...

True only if there is a tax treaty between the two governments and then the deducted amount is still subject to limitations in actual use. Add to this the severe actual consequences of being unable to use local banking due to IRS regulatory burdens upon those institutions and you end up with real disincentives.

[PapaBear3625]

I believe that's exactly how the U.S. tax code works right now. You get taxed in the country where you earned your income, but you still have to file a U.S. tax return. You get a credit on your U.S. tax return for the taxes you paid in the foreign country, so you only pay the difference (if any) between what is owed to the IRS and what you've already paid in the other tax jurisdiction.

I don't think that's what SeekAndFind meant.

In a territorial system, there would be no "pay the difference". I would only pay US taxes for income earned in the US. If I work the year in Germany, I only pay German taxes, and zero US taxes, and while I might be required to file a US return, I would only need to list as gross income what I earned in the US (zero).