In today’s post, I’m going to discuss the tax implications of sending money overseas from the US. I answer the question do I pay taxes on money sent overseas?
In a previous post, I discussed the tax consequences of receiving a gift from overseas, so today’s post will close the loop on this subject.
In these two posts, I’m only touching on sending and receiving money. In an upcoming post, I’ll address estate gifting and issues to keep in mind.
Immigrants on work visas and other Foreign-born families in the US send a lot of money overseas.
In early 2022, the world bank report on remittances estimated that $630 billion dollars were going to be sent to low and middle-income countries. A big chunk of this is coming from the US.
This is more than the GDP of some countries. In a future post, I’ll address ways of sending money.
Why Immigrants Send Money Overseas
A lot of immigrants and other foreign-born families move to the US for a better economic life. That includes supporting families left back home in their day-to-day lives.
It typically extends to helping with necessities or big-ticket items like college, medical expenses, weddings, etc.
I have talked to a lot of foreign-born individuals, who tell me that they are the retirement plans for their parents back home, which means ongoing financial support.
Others are here on short-term assignments, and so they want to send that money overseas. In this case, since they are not gifting it, but are probably sending it to their own accounts, the gifting issues may not apply to them.
Gifting and US Taxes
Generally gifting is a taxable event. According to IRS regulations on gifting, the donor is usually responsible for paying gift taxes.
By the way, IRS defines a gift as a “transfer to an individual directly or indirectly where full consideration measured in money’s worth is not received”.
Essentially, they are trying to differentiate this from a sale or exchange of services.
Gift Tax Exemptions
But there are some exemptions, where you as the donor do not have to pay any gift taxes. This assumes that you are a US citizen or resident.
You can gift an individual up to the annual exclusion tax-free. In 2023, this amount is $17,000. So, you can give somebody that much without worrying about having to pay taxes. This means that a couple can gift an individual up to $34,000 this year, and not pay taxes.
Medical and tuition expenses – there is no limit on this amount if it’s paid directly to the institution.
Gifts to your spouse – there is one exception to this rule, that I’ll address later.
Gifts to some political and social welfare organizations
Gifts to Overseas Families is a Taxable Event
So, based on the above, giving money to somebody overseas is a taxable, reportable event by a US tax resident i.e., citizen or permanent resident.
What this means is if you end up gifting more than 17k to an individual in 2023 you need to report it. This is done via form 709, but it doesn’t mean you’ll pay the tax.
IRS has a lifetime exemption for the total amount you can gift in your life before you pay the gift taxes. In 2023, this number is $12.92 million.
How the Gift is Treated by the Donee’s Country
It’s important to understand how the gift will be treated by the country where the donee lives. In some cases, receiving the money is a taxable or reportable event.
The majority of countries in Europe levy inheritance or gift taxes. Examples of some of these countries are Italy, the UK, Portugal, Spain, etc. I’ll be working on a separate post for inheritance and estate taxes.
Other countries like Sweden have no gift taxes. So, if the donee is in Sweden, they don’t have to worry about this, as an example.
Domicile, Residency, and Gifting
You can be a resident for income tax, but a nonresident for gift purposes, which will have different tax implications.
For gift purposes, a resident is an individual who has domicile in the US at the time of the gift.
Domicile in this case means the permanent place where you live and where you intend to stay indefinitely.
If the individual is a non-US citizen, nonresident, and does not have domicile in the US, then the gift tax does not apply to money being sent overseas.
I’m limiting my post to sending money out of the country, but in a future post, I’ll address gifting where the property is in the US or even outside. For example, a nonresident individual gifting investment accounts in the US.
I’ll also address gifting real property outside the US by either residents or nonresidents as defined by the tax code.
Gift Tax Treaties
The US has signed estate and gift tax treaties with about 15 different countries. The treaties will help mitigate some of the US estate or gifting taxes. More to come in the estate post.