The United States of America: Land of the Free, Home of the Brave; the American Dream; the Big Apple; the NY Yankees; Stephen Curry & the Warriors. These are some of the items that might come to mind when thinking of the US.
While there can be many benefits of moving to the US such as education, job opportunity, or career advancement, there are taxation considerations. In this Insight, we discuss five tax implications of relocating: income, capital gains, worldwide income, reporting, and foreign investments.
Depending on where you are moving from, the US might have a higher income tax rate than the country you reside in. While a lot of European countries have higher income tax rates than the US, places like Hong Kong, the UAE, and Singapore are considered low-tax jurisdictions.
For example, in 2023, Singapore’s top income tax rate for wages, salary, and bonus is 24% (applies to those earning $1,000,000+ SGD per year). On the other hand, the top US federal tax rate for the same income is 37%. In 2026, when current tax laws are expected to sunset, this will increase to 39.6%.
There is also state and local tax to consider. California’s state tax is as high as 13.3%. Adding these up, you can go from paying 24% tax to 50%+. If you receive a job offer with a higher salary, on an after-tax basis, you could be taking home less money. It is essential to take into account federal, state, and local income tax when considering a move to the US.
Capital Gains Tax
One of the big financial benefits of living in Singapore is the current lack of capital gains tax on investments. You can buy $500k of Apple stock, sell it for $750k, and not pay tax.
In the US, this is not the case. Capital gains are subject to tax rates of 0%, 15%, or 20% plus 3.8% net investment income tax (depending on income level). If you move to the US and sell that same Apple stock, you could owe ~$60k of taxes and end up with only ~$690k. It can be beneficial to consider selling assets with built in gains before moving and becoming subject to capital gain taxation.
Unlike the vast majority of countries, the US imposes worldwide taxation on US tax residents. Meaning, if you are a US citizen, green card holder, or meet the substantial presence test, you would generally owe tax on worldwide income whether that be an investment sale in Hong Kong, rental property income in Italy, or CPF interest in Singapore.
If you become a green card holder, this worldwide tax continues when you move from the US in the future. Green card holders are treated the same as US citizens for taxation purposes unless you formally abandon your green card. Before relocating, you should examine your income producing assets and determine options to mitigate worldwide tax.
Along with filing a federal tax return, and potentially state or city returns, there are other reporting requirements to become familiar with including FBAR, Form 8938, and Form 3520 related to financial assets abroad. If you own a foreign business, Form 5471 is also relevant.
Speaking with a cross-border specialist before moving can help prepare you to successfully meet these reporting requirements.
Some foreign investments like non-US mutual funds, life insurance policies, and pension plans are considered Passive Foreign Investment Companies (PFICs). In the US, these can be taxed punitively and have costly reporting requirements.
Reviewing your assets with a cross-border wealth planner can help identify PFICs which you may want to potentially liquidate before moving.
Bonus – Cost of Living, Credit History, & Retirement Savings
In addition to the above tax implications, it is also important to consider:
- Cost of Living – How does the cost of the city you are moving to differ from where you are coming from? Is it more? Less? This should be taken into account when thinking about the move and salary required.
- Credit History – Will you buy a home or car in the US? Do you need a credit card? Typically, immigrants do not have US credit history. This can lead to problems when trying to get a loan for a home or car, rent an apartment, or obtain a credit card. You can establish credit after arrival in the US, but it is best to take steps before moving. Think about opening an account with a US financial institution or one with a US presence.
- Retirement Savings – Taxable Investment Accounts, 401(k)s and Roth 401(k)s have different tax implications in the US and potentially in the country you intend on living in long-term. When choosing an account type to save in, it is important take a bird’s eye view of what will be most tax efficient in the long-run.
There are many advantages to moving to the US. However, it is essential to work with professionals who can ensure you immigrate to the US in the most tax efficient manner.
For more information on how to successfully navigate a transition to the US, please reach out to one of our wealth planners.
This material is intended for educational and informational purposes only. It is not intended to provide specific advice or recommendations for any individual. Additionally, you should consult with your Financial Advisor, Tax Advisor, or Attorney on your specific situation. The views expressed in the material are that of the author and do not necessarily reflect those of any market, regulatory body, State or Federal Agency, or Association. All efforts have been made to report or share true and accurate information. However, the information may become materially outdated or otherwise rendered incorrect due to subsequent new research or other changes, without notice. The author nor the firm are able to always verify the content from third-party sources. For additional information about the firm, please visit the MAS Website at https://www.mas.gov.sg/ and the SEC Website at www.adviserinfo.sec.gov. For a copy of the firm's ADV Part 2 Brochure, please contact us at email@example.com.