Foreign Nationals In The US Face Particular Financial Planning Issues
Recent arrivals to the US need to prepare for what is likely to be a very different financial system than the one they are used to.
Most HR departments faced with inbound foreign nationals coming to work for the U.S. entity do a good job in making certain preparations for the employee’s arrival. Either on their own, or with the assistance of specialist relocation firms, they make preparations to deal with the immigration, real estate, educational and even cultural awareness needs of the new foreign employee.
However, there are a host of issues that foreign nationals face in the U.S. particularly in the fields of taxation, estate planning and credit development, where non-citizen staff are left to their own devices. And here we face the problem of “you don’t know what you don’t know” since most of them are unaware of some of the risks they are taking in these areas, let alone what to do about them. Among these concerns are:
The foreign employee paid in the U.S. is likely to become a “U.S. person” for tax purposes and that subjects them to declaring their worldwide income to the IRS. But to what degree can even depend on how many actual days they have spent in the US over the past few years. And since most people don’t tend to emigrate to the U.S. overnight on New Year’s Eve, it is likely that, at a minimum, in their first year they will 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 U.S. 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 many of these accounts to the Treasury Department (separate from those that must be disclosed on a regular tax return) can lead to often crippling penalties.
The rules here are complex and estate planning law can change at the whim of Congress. But while the rest of us are generally exempted from paying the 40% federal estate tax for estate values of over $11 million (2020), many non-citizens can possibly face an exemption of only $60,000 on their U.S.-based assets before they are liable for the federal estate tax. And, to make matters worse, most states impose another layer of estate taxes on top of the 40% federal estate tax that are just as harsh on the foreign national. This can obviously impact the decision on if and when to bring money and assets into the US from the home country. Also, U.S. citizens can pass an unlimited amount upon death to a spouse free of any federal estate tax. Not so for anyone who is not a full U.S. citizen who can also face restrictions on what can be passed tax free to a spouse during life. As you can probably imagine, in the case of many non-citizens who happen to die here, the effect on the surviving family can be potentially disastrous in certain circumstances if not planned for.
Overseas credit reports or records or income history are almost always disregarded by banks and credit issuers when it comes to assessing credit limits in the U.S. This can mean extremely low credit limits (or even no unsecured credit limit at all) being offered to recently-arrived foreign nationals, who essentially have to start building their credit from scratch, regardless of their credit history in their own country.
Similar to the credit issue, most lenders tend to look unfavorably on someone whose credit and income history is from outside the U.S. The trick is to know which institutions are going to be more cooperative than others.
And There’s More ..
Foreign nationals can face restrictions on, or even denial of, things like apartment rentals with no US income history, life insurance (a potential solution to the estate tax problem), participation in college savings plans, becoming a shareholder in a S-corporation, even something as basic as opening a bank account can be problematic in certain circumstances. Under certain circumstances, green card holders can also find that their obligations to file US tax returns with the IRS may continue every year, even after they return permanently to their home country.
The Bottom Line
Recently arrived non-citizens on visas face many financial, tax and legal issues that U.S. citizens do not. And yet, they are far less networked to be able to find resources to help with them than those who have been here all their lives. HR staff at work and immigration attorneys are not usually financial planners, qualified tax professionals or foreign estate planning specialists. They are simply not in a position to offer advice or help in these matters, even if they are aware of them in the first place.
However, a qualified, fiduciary CERTIFIED FINANCIAL PLANNER™ personal finance consultant with a specialty in these areas can act as a quarterback and point person, raising awareness, suggesting forms of pre-planning, offering advice and bringing in outside professionals from their own network to consult with the foreign employee and their family.
At Anglia Advisors, we make it our business to be aware of these issues and have deliberately developed connections among professionals who can help in this specialized area. We offer a special consultation at which we will go through everything and make suggestions, recommendations and introductions.