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14 essential things to know about the US tax change in France

One in twenty Americans in France were victims of the IRS’s wrongful collection of taxes – are you one of them?

14 essential things to know about the US tax change in France
Photo: Helloquence on Unsplash

The IRS owes between $100-$300 million in refunds for Americans in France. Find out what you need to know about how the IRS’s mistake might have cost you money (and exclusions for past years and years to come!) and what you can do about it.

1. A recent ruling means the IRS owes significant refunds for Americans in France

In June, the IRS admitted that it had been errant in its collection of some taxes that apply specifically to expats living in France. Essentially, due to a misreading of the tax treaty between the US and France, the IRS had incorrectly considered two taxes (the CSG, or “contribution sociale généralisée,” and the CRDS, or “Contribution au Remboursement de la Dette Sociate”) to be social taxes. However, these taxes were not truly social charges, but they were more similar to regular income taxes. And as such, the amounts paid by expats should have applied to the Foreign Tax Credit; however, they did not. Due to the ruling, the IRS will no longer challenge claims of taxpayers taking these taxes paid as a credit on their US returns.

2. The case originated from an audit

The Ory and Linda Eshel v. Commissioner of Internal Revenue case was heard in the US Tax Court. The Eshels are American citizens who reside in France, and the case started from an audit of their 2008 and 2009 tax returns. In 2014, the case was ruled differently – and the tax court upheld that the CSG and CRDS were social charges. But the court of appeals reversed the decision and sent the case back. This new decision is the culmination of a seven-year legal battle.

3. Americans in France may have overpaid by 8 percent in taxes

The CSG was a 7.5 percent tax on income; the CRDS was 0.5% percent tax on income, meaning that if you’re an American in France, the IRS may have overcharged you by about 8 percent of your income.

4. The IRS owes an estimated $100-$300 million in refunds

The best estimates calculate the amount that the IRS owes in refunds to be somewhere in the region of 100-300 million USD. So, if the IRS owes you money, you don’t want to miss your cut of the refunds for Americans in France.

5. Typically, you can get refunds for the past three years – the new ruling allows claims up to ten years

Due to the ruling, the IRS will allow refunds for the most recent ten years. But time is ticking. The available period for refunds begins the day after the regular due date for filing the return (not including any extensions) for the year in which the foreign taxes were paid or accrued.

6. Filing amended returns to get refunds for Americans in France is a little bit of a different process

To file these amended returns, you’ll want to use Form 1040X and include accompanying Forms 1116, starting with tax year 2009. Write “French CSG/CRDS Taxes” in red at the top of the 1040X.

7. France just switched to a Pay As You Earn (PAYE) system, which adds yet another wrinkle

On January 1st, 2019, France moved to a PAYE system of taxation, which led them to have a “white year” in 2018. The white year was basically a year without any income taxes. So, what’s the problem? In 2018, American expats in France paid no French income taxes, so they had no taxes to submit toward the Foreign Tax Credit, and likely paid more in American taxes due to this shift. This sequence of events fundamentally amounts to double taxation, just spread across a couple of years. So there’s an additional reason to amend your taxes: since expats in France did not get a 2018 Foreign Tax Credit, they are relying more heavily on past Foreign Tax Credit carryovers to reduce the tax burden for this year.

Click here to get expert help and advice from Greenback Expat Tax Services

8. Even if you’re not owed a refund, you may still want to amend

American expats in France whose Foreign Tax Credit failed to eliminate their US tax liability at any point in the prior decade may benefit from amending their returns. Also, anyone who believes upcoming Foreign Tax Credits (plus carryover) won’t fully offset any US tax owed may submit an amendment to increase carryovers for future use.

9. Some self-employed Americans in France will not benefit

Self-employed expats in France may not benefit from filing amended returns, as the CGS and CRDS will not reduce the self-employment taxes that were calculated on the return. 

Take this case study as an example: Michael A. Expat.

Michael is a freelance food critic and blogger, married to a French national residing in (arguably) the gastronomic capital of the world: Paris. They decided to move a year ago in order to help generate more content for his blog. He also has a job waiting tables and therefore files French returns jointly with his spouse. Michael always has a US tax liability because of the US self-employment taxes assessed on the blogging income. He had the choice between paying into the American or French system and went with the lower of the two which happened to be the US. Unfortunately, amendments are not going to help here, as the CSG and CRDS will not reduce the self-employment taxes calculated on the return.

10. Some American expats in France living off passive income will not benefit

Those who live off the income generated from US investment or retirement accounts that have only paid US tax will not benefit from amending. 

Take this case study as an example: Suzie N. Expat.

Suzie is a US citizen who lived in the US and made a large salary that allowed her to build up a sizeable nest egg. She keeps everything in a US brokerage account, which generates a 1099 with dividends annually. One day, her company offered her a once-in-a-lifetime opportunity to move to Paris, which she gladly accepted! Fast-forward eight years: she is still there and so is her US brokerage account. Every year, she pays US tax liabilities on the 1099 income, since she does not report it in France and the FEIE and Foreign Tax Credit have covered the US tax on her wages. Unfortunately, amendments are not going to help here, as the US taxes she has been paying are on US income, which has not been taxed by France.

11. Expats who owed taxes due to the white year may particularly benefit from amending

Those who owed US tax due to the white year may especially benefit from amending. 

Take this case study as an example: Jane Expat.

Jane, a US citizen, moved to France in 2015. She’s always timely when filing her US and French tax returns. In 2015, her income exceeded the Foreign Earned Income and housing exclusions, and she would have owed if not for the Foreign Tax Credit. Jane had CGS and CDRS withheld from her wages; the French income tax was not withheld, paid, or even determined until 2016. Jane filed Foreign Tax Credit Form 1116 for 2015 claiming the taxes that accrued on her 2015 income earned in France, but she was unable to claim the CGS or CDRS prior to the IRS notice.

When Jane did her 2018 tax return in early 2019, she ended up owing the IRS because she did not have enough Foreign Tax Credit carryovers left over from the prior years. She accrued no French income tax in 2018 on her wages because of the “white year.” A reminder: Jane cannot switch her Foreign Tax Credit from claiming the amount accrued during the tax year to the amount paid during the tax year, as she's already claimed what she paid in 2018 (accrued in 2017) on her 2017 return. It would likely be beneficial for Jane to amend her tax returns to claim the CGS or CDRS taxes and increase her Foreign Tax Credit carryovers to offset the 2018 liability.

12. Expats whose income fluctuates may also benefit from amending

Those who have fluctuating income – like that of sales commissions – may benefit from amending. 

Take this case study as an example: Jack Expat.

Jack is a dual-status French-American who has been living in France for a while. He always files his US returns on time. Jack is a salesperson paid on commission, and his annual returns are “feast or famine.” Some years, he makes over the Foreign Earned Income or housing exclusion thresholds and ends up owing the IRS. Other years, he makes well under and only claims the Foreign Tax Credit to carry over his unused credits. Jack may look into amending to add the CGS or CDRS taxes accrued or paid depending on his situation for the tax years he owed in order to get a refund.

13. Filing an amendment is less time-consuming than you might think

The only things you need are your prior years’ US Federal Tax Returns (up to ten), and prior years’ French Tax Returns (up to ten).

14. Waiting to amend can cost you money

The longer you wait, the less money you may be refunded. If you wait until the next tax season, that’s one less year for you to claim a refund. And, if you could use the Foreign Tax Credit carryovers, you could be missing out on potential tax deductions in the future, as well. 

Leave It to the Professionals

Deciding whether or not to resubmit tax returns for the past ten years is a big decision. The experts at Greenback are helping many Americans in France through the process and can make it easy to find out whether or not filing amendments will benefit you financially. Get started with Greenback today!

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This article was produced and sponsored by Greenback Expat Tax Services.

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UPDATE: Is it possible to drive between Spain and the UK via France?

Travelling between Spain and the UK during the pandemic has been very difficult due to border closures, cancelled flights and quarantines, but what is the situation like now? Is it possible to drive between Spain and the UK via France?

Driving between Spain and UK
Photo: Bertsz / 67 images/ Pixabay

Several readers have asked about the restrictions and necessary documents and tests needed to drive to the UK and if it’s possible. Here’s what you need to know.

Travelling by car between the UK and Spain at the moment is possible, but not very easy. Although it’s a lot easier now than it was before the state of alarm ended, it will still involve PCR and/or antigen testing, quarantine, and lots of form-filling. This will mean extra expenses too. 

Spain and France have both updated their rules on travel as restrictions begin to ease. Here’s a look at what you need to know driving between the UK and Spain, via France right now.

Leaving Spain

Movement in Spain has become a lot easier since the end of the state of alarm on May 9th. This means that you can easily drive across regional borders without the need to prove specific reasons.

There may still be certain municipalities or health zones that you might need to avoid because their borders are still closed due to a high number of cases, but for the most part, your drive through Spain, up until the French border, will be easy.

Keep in mind that some regions still have certain restrictions in place such as when bars and restaurants are allowed to open and a few still maintain curfews, so you’ll need to check the rules of those regions you’re planning on driving through.

READ ALSO: UPDATED: What are the post state of alarm restrictions in each region in Spain?

Crossing the French border from Spain

Travel into France is allowed for any reason, including for tourism and family visits. This easing of restrictions was introduced on May 3rd, which saw France opening up both its regional and international borders.

According to the French embassy in Spain: “Entry into the metropolitan territory from a country in the European area is subject to the presentation, by travellers over eleven years of age, of a negative result of a PCR test, carried out within 72 hours prior to departure. This obligation applies to all modes of travel (arrival by road, rail, air or sea)”.

They also state that all travellers will have to present an affidavit/certificate of international travel, certifying that they do not have symptoms of Covid-19 infection and that they are not aware of having been in contact with a confirmed case of Covid-19 in the fourteen days prior to the trip.

“If you are over eleven years old, you agree that a biological test for SARS-CoV-2 will be carried out upon arrival on French territory” it continues.

The certificate can be downloaded from the website of the French Ministry. The supporting documents must be presented to the control authorities at the border.

The test must be carried out within 72 hours of departing for France and the antigen test is not accepted. You must take a PCR test, otherwise, you’ll be refused entry to France.

A Spanish police officer checks PCR coronavirus tests at the border between Spain and France. Photo: RAYMOND ROIG / AFP

You can drive straight through France, as there’s no quarantine requirement for those coming from inside the EU.

Note that France still has several restrictions in place, but they are gradually easing. As of May 19th, the curfew was extended to 9pm and bars and restaurants were allowed to operate outdoor services only. This means that you’ll need to stop driving and find somewhere to spend the night after the 9pm cut-off time.

If you have to travel past curfew for an essential reason, you will need an attestation permission form, which you can find HERE.

From June 9th, the curfew will be extended again until 11pm and the interiors of bars and restaurants will be allowed to re-open. 

Masks are compulsory in all indoor public spaces across the country, and also outdoors in most of the larger towns and cities. If you don’t wear one, you could face a fine of €135.

Entering the UK

On May 17th, the UK government lifted its ban on all non-essential travel abroad and replaced it with the traffic light system, assigning countries to red, amber or green lists, according to their health data.

France and Spain are currently on the amber list, as well as most other European countries, bar Portugal, which is on the green list.

READ ALSO: EXPLAINED: The European countries on England’s ‘amber’ travel list and what that means

This means that you must follow the amber list rules.

The UK government website states that if coming from an amber-list country, even if you’ve been vaccinated, you need to follow these rules before you enter England:

 On arrival in England you must:

  • quarantine at home or in the place you are staying for 10 days
  • take a COVID-19 test on or before day 2 and on or after day 8

Children aged 4 and under do not need to take the day 2 or day 8 test.

You may be able to end quarantine early if you pay for a private COVID-19 test through the Test to Release scheme.

The traffic light list only applies to England, but Scotland also has its own traffic-light system, which at the moment has the same green-list countries as England. It is thought that Wales and Northern Ireland are likely to adopt the traffic light system too.

If you’re entering the UK from an amber country, you can go for any reason. It doesn’t have to be an essential trip and entry is not limited to UK nationals or residents.

Find further information on UK travel rules HERE.

If in the future, France makes it onto the green list, then no quarantine will be necessary. Regardless, of this, a negative Covid-19 test is still needed to enter England, plus another test on or before day 2.

What about driving back to Spain?

The UK is still advising against travel to amber countries for leisure or tourism reasons, which France and Spain are both currently on.

This isn’t a travel ban, but the official stand can mean that your travel insurance won’t be valid, so check your policy before you travel.

JUNE UPDATE: From Monday, May 31st, France is tightening up entry requirements for arrivals from the UK, following in the footsteps of Germany and Austria as European countries become increasingly concerned about circulation of the ‘Indian variant’ of Covid in the UK.

So what’s the situation if you are just passing through?

If you are returning to your permanent residence in another EU or Schengen zone country then you can travel, as one of the listed ‘vital reasons’ is returning home. You will, however, need to show some proof of your residency, ideally a residency card.

If you are travelling for another reason you can travel through France, provided you spend less than 24 hours in the country.

The testing requirement applies to all arrivals, even if you are only passing through France, but if you spend less than 24 hours in the country you are not required to quarantine.

You will also need to check the rules in your destination country on arrivals from France. If you are entering France from an EU or Schengen zone country you will need to show a negative Covid test taken within the previous 72 hours and this must be a PCR test. You can enter France for any reason from an EU/Schengen country.

And yes, these rules all apply even to the fully vaccinated.

To find out more about the rules and exceptions for travel between France and the UK click the link below.

READ MORE: Spain-UK road travel – Can I transit through France despite the new Indian variant restrictions?

Currently, the Spanish government website states that only citizens and legal residents of the European Union, Schengen states, Andorra, Monaco, The Vatican and San Marino, as well as those who can demonstrate through documentary evidence an essential need to enter Spain, will be able to enter the country.

However, Spain recently announced that it would welcome British tourists into the country without a negative PCR test from May 24th. 

READ ALSO:

The website also states that “all overland travellers (excluding children under the age of 6 years old) who wish to enter Spain by road from France, are required to present a negative PCR or antigen test taken within 72 hours prior to entry”.

This applies to everyone, even if you have been vaccinated already.

Please note The Local is not able to give advice on individual cases. For more information on international travel to and from Spain, see the government’s website and check the restrictions in your destination country with the appropriate embassy.

READ ALSO: Reader question: Can I fly from the UK to Spain to visit family or my second home?

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