When you’re moving to Ireland from the United States, you’ve got to settle into a new home and job – and adjust to a whole new way of paying taxes. It also means understanding the tax implications of living and working between two different countries.
Even if you’re living and working in Ireland, if you’re still a United States citizen you may have tax filing obligations back home while also being part of the Irish tax system. That means you have two sets of tax rules to deal with.
This post explains how Irish tax residency works, what your United States filing requirements look like while living abroad, and how the US-Ireland tax treaty helps prevent the same income from being taxed twice. It can also help reduce the risk of tax disputes between the two systems.
How is Irish Tax Residency Determined?
The first thing to understand is whether you are considered an Irish resident for tax purposes. If you are, then you’re obligated to report your income under the Irish tax system.
Irish tax residency is based mainly on the number of days you spend in the country during the tax year.
You are generally considered tax resident in Ireland if:
- You spend 183 days or more in Ireland in a single tax year, or
- You spend 280 days or more across two consecutive tax years, with at least 30 days in Ireland in each year
Note: In Ireland, taxes are paid to Revenue Irish Tax and Customs, with the Irish tax year running from 1 January to 31 December.
If you meet either of these thresholds, you’re typically taxed in Ireland on your worldwide income. If you do not meet the residency test, you are usually taxed only on Irish-sourced income – such as salary from work done in Ireland.
But, your domicile status may also affect how certain foreign income is taxed. Domicile generally refers to the country you consider your permanent home, even if you are currently living abroad. Many Americans born abroad, currently living in Ireland are considered non-domiciled, which can affect how some foreign income is taxed.
US Tax Obligations for Americans Living in Ireland
One of the biggest surprises for many Americans moving abroad is that the United States taxes its citizens regardless of where they live. This means that even if you are fully settled and paying tax in Ireland, you will usually still need to file a US tax return each year with the US tax authorities.
Along with income tax returns, US citizens living abroad may also have foreign financial reporting obligations.
For example, if the total value of your non-US financial accounts exceeds certain thresholds, you may need to file forms such as the FBAR (FinCEN Form 114) or FATCA reporting (Form 8938) with the US tax authorities.
Understanding these obligations early can help you stay compliant in both countries and avoid expensive penalties. Working with a qualified US tax adviser is a worthwhile investment.
How Does the US-Ireland Tax Treaty Help Prevent Double Taxation?
When you’re living and working between two countries, a common concern is whether the same income could be taxed twice. The US-Ireland tax treaty was created to address exactly this issue by coordinating how income is taxed between the two countries.
The treaty sets out rules that determine which country has the primary right to tax certain types of income. In many cases, income is taxed in the country where the work is performed or where the individual is resident.
There are several provisions designed to prevent double taxation, including:
- The Foreign Tax Credit (FTC) which allows you to offset tax paid in one country with income tax paid in the other.
- The Foreign Earned Income Exclusion (FEIE) which allows qualifying taxpayers to exclude a portion of foreign-earned income from US tax (this is a US specific relief provided for under US domestic tax law).
The treaty also includes tie-breaker rules.
These rules help determine residency if a person is considered tax resident in both countries at the same time. These rules look at factors like where you have a permanent home, where your personal and economic ties are strongest, and where you spend most of your time.
In the end, these rules and credits work together to avoid double taxation.
How Different Types of Income Are Taxed
The US-Ireland tax treaty (and other available tax reliefs) help ensure that the same income is not taxed twice. But the tax treatment often depends on the type of income involved.
Employment Income
Salary is usually taxed in the country where the work is performed. If you work in Ireland, your income will typically be subject to Irish income tax. If you also report the income in the US, you should be able to claim a Foreign Tax Credit for tax already paid in Ireland.
Business Profits
Generally taxed in the country where the business activities take place. For example, if a US citizen runs a business that operates from Ireland, the profits are typically taxed in Ireland. The US may still require reporting, but tax credits usually apply.
Rental Income
This is usually taxed in the country where the property is located. If you own a US property while living in Ireland, the rental income is usually taxable in the US. If you’re an Irish tax resident, it may also need to be reported in Ireland, with relief available to prevent double taxation.
Investment Income
Dividends are often taxable in both countries. For example, dividends from US stocks may be subject to US withholding tax, but they may also need to be reported in Ireland if you are an Irish tax resident. Tax credits are typically available to avoid being taxed twice. Interest is usually taxable in the jurisdiction you reside (N.B. This is not always the outcome for US citizens!)
Pensions
Often taxed in the country where the recipient resides, although the exact treatment can depend on the type of pension and residency status. Because pension taxation can vary, professional advice is often recommended.
Understanding how each type of income is treated can help make sure you remain compliant in both countries while making full use of available tax reliefs.
Still Unsure How Your US and Irish Taxes Work? We Can Help
Understanding tax rules across two countries isn’t easy for any expat in Ireland. Even with the US-Ireland tax treaty in place, it’s not always clear what you need to file or where your income should be taxed. Additionally there often needs to be a considered process to ensure that the preparation of your Irish income tax return aligns with your US return. The due dates for filing the returns differ (April in the US, October in Ireland).
The Expat Taxes team can provide clear tax advice to help you understand your residency status, your Irish tax filing obligations, and how the tax treaty applies to your situation. We’ll help make sure you’re meeting the rules in both countries while avoiding double taxation.
If you’d like clear guidance on your Irish tax obligations as a US citizen or greencard holder, book a consultation with Expat Taxes today.
DISCLAIMER: The material in this article is for general information purposes only and does not constitute legal or US/Irish taxation advice. Legal, financial, investment and taxation advice should be sought before acting or refraining from acting. All information and taxation rules are subject to change without notice. Expat Taxes Limited and RemitEase Limited (hereafter ‘the parties’) accept no liability for any action taken based on the information in this article or any of the articles in our blog series. The parties do not provide financial planning, investment, or mortgage advice; this article is provided only for general information. We are not authorised/licensed to provide financial advice, and this article should not be considered to constitute advice of this type in any respect.
