Originally Posted by
iarapilot
I have a good tax comparison from a crew member for the equalization vs. doing it yourself.
I am glad people are working on some actual numbers for the tax equalization. I don't have all the answers either, but my research shows a few problems with those numbers.
First,the most you can pay in Hong Kong is 16%. The top tax rate is 17%, but you can not pay more than you would using the "standard rate" which is 16%. Here is the website for the Hong Kong equivalent to the IRS.
http://www.ird.gov.hk/eng/welcome.htm They actually have a calculator on the site that will let you try out some different scenarios.
Second, the US tax rate is not even close to 30% on your whole paycheck. These are from 2006, but you get the picture. At $123,100, your tax liability would be around $24000 not $36900. That is a $12900 swing right there.
Schedule Y-1 — Married Filing Jointly or Qualifying Widow(er)
If taxable income is over-- But not over-- The tax is: $0 $15,100 10% of the amount over $0 $15,100 $61,300 $1,510.00 plus 15% of the amount over 15,100 $61,300 $123,700 $8,440.00 plus 25% of the amount over 61,300 $123,700 $188,450 $24,040.00 plus 28% of the amount over 123,700 $188,450 $336,550 $42,170.00 plus 33% of the amount over 188,450 $336,550 no limit $91,043.00 plus 35% of the amount over 336,550
Third, you can't claim the foreign tax credit on the $82,400 exclusion that you take. The basic formula for the limit is as follows:
us tax liability * (foreign earned income - the exclusion)/all income
The foreign earned income is only what you would pay us tax on. With that formula the tax credit is pretty small for F/O's but get significantly larger for captains. I don't think there is a high end number where the credit stops. You just use the percentage of your tax liabilty. Using our numbers from above, 140,000 is foreign income, but we get our standard deduction of 10,300 so our foreign earned income is 129,700. Our formula would look like this
us tax liability * (129,700 - 82,400)/129,700
Which is
us tax liability * 0.36
You would only get a credit for 36% of your tax liability.
When you start factoring in all those factors the equation is much more in our favor. If this is really important to you, you might want to run your own numbers, but I came up with the pilots coming out ahead every time. The amount varied from 9,200 for an F/O to 5,800 for a captain.
Sorry about the long post. My numbers are in a spread sheet as well, if anyone is interested, I will try to put them up.