US persons living and working in Switzerland: do they still need to pay US tax?
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US persons living and working in Switzerland: do they still need to pay US tax?

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As a U.S. Citizen, U.S. National or Green Card Holder, you are required to continuously file a tax return in the U.S. (federal and state if qualified) and report your worldwide income even when you are living and working in Switzerland. The good news is that the tax treaty between Switzerland and the United States provides relief to avoid double taxation.

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Deadline for US federal tax return is 15 June

When living abroad, you are granted an automatic 2-month extension to file the U.S. federal tax return, making the deadline 15 June. You also have the option of requesting an additional extension until October 15 or December 15 as the final deadline. But the extension of the filing deadline does not change the payment deadline. Any outstanding U.S. tax liability is due by April 15. Late interest and penalties are charged due to failure to pay on time. Therefore, it is important that you file and pay your U.S. taxes on time!

In the past you may have filed your U.S. taxes yourself using online platforms such as Turbotax or H&R Block. As an expat in Switzerland we recommended you get help from a tax professional to prepare your tax returns as the U.S. expatriate regulation are complex and you want to make sure that you consider all applicable rules to avoid a potential double taxation. Additionally, you may also be subject to additional reporting requirements in case you are holding non-US financial assets which is often the case, as you will most likely open at least one Swiss bank account.


Tax credits and exclusions

There are several possibilities to reduce your U.S. tax liability. As a qualifying U.S. Citizen, U.S. National or Green Card Holder living and working in Switzerland, you may claim a Foreign Earned Income Ex-clusion (up to $107,600 in 2020 and $108,700 in 2021) and, in certain situations, a Foreign Housing Ex-clusion to lower your U.S. tax liability. Alternatively, you may also claim a Foreign Tax Credit for in-come taxes paid in Switzerland to offset the U.S. tax liability. In certain cases, it is even beneficial to claim both the Foreign Earned Income Exclusion and the Foreign Tax Credit. However, in this case, the applicable Foreign Tax Credit is restricted to income that is not excluded by the Foreign Earned In-come Exclusion.


Additional reporting requirements

You may be required to complete additional forms with the U.S. authorities. The most common addi-tional tax form is the FinCEN Form 114 (FBAR). This form must be filed if you hold one or more foreign financial accounts with an aggregate value of $10,000 or more at any time during the year.

Another common form is Form 8938. This form must be completed if you hold specified foreign assets that exceed $200,000 on the last day of the year or $300,000 at any point during the year for single filing and $400,000 on the last day of the year or $600,000 at any point during the year for married filing joint.


Key differences between U.S. and Swiss tax law

Although the U.S. and Swiss tax system are similarly structured, there are some key differences that you should consider when preparing your U.S. tax return.

As an example, Swiss employer pension contributions are considered additional income for U.S. tax purposes, whereas in Switzerland they are considered tax-free income. Additionally, Swiss employee pension contributions (regular and pension buy-backs) and employee social security contributions are tax deductible for Swiss tax purposes, whereas these contributions do not qualify as tax deductions on your U.S. tax return.

Another key difference is that capital gains from the disposal of securities are usually tax-exempt in Switzerland but are considered taxable income for U.S. tax purposes. U.S. tax rates differ based on the securities holding period and tax brackets.

So, you can see that the taxable basis for Swiss and U.S. tax purposes may differ substantially due to the many differences that exist between U.S. and Swiss tax law and therefore it is not that simple to compare the tax rates between the two countries without understanding the different tax treatments.


Do you have any U.S. tax related questions?

You probably do and don't worry - you don't have to figure it out all on your own. Professional tax support is just a click away: 

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«When you move to Switzerland, you may have a lot of questions and concerns relating to your personal tax, social security and pension situation. The Exactio team can support you with these complex matters and work with you in a personal and flexible manner. My name is Karin and I'll be your first contact at Exactio for any tax, social security, pension and payroll related questions.»

Karin Verheijen
Exactio team



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