Terror, Taxes Threaten U.S. Workers Abroad

For some U.S. citizens working overseas, the threat of the tax man could be even scarier than the threat of terrorism, and could soon have thousands packing for home.

Mounting terrorist threats and the possible end of a tax benefit for U.S. workers living overseas are conspiring to make life abroad more difficult for them, and could also make more and more U.S. companies replace Americans with local hires, a trend that has already begun in many industries.

The recent terrorist attacks in Saudi Arabia where nine Americans were killed, along with the outbreak of the SARS virus, have made many Americans who have considered working overseas nervous about the prospect, and some who are already working abroad more than a little wary.

"I have clients sitting in Greece who are too scared to fly even into neighboring Italy," says Andrea Elliott, an attorney for Global Visa Solutions, a Newport Beach, Calif.-based company that gets visas and work permits for multinational companies.

"They've become a target just by virtue of having a U.S. passport," she says.

Joe Gorman, chief of the Ann Arbor, Mich., Fire Department, recently returned to the United States in mid-April after serving as a contractor for 18 months in Saudi Arabia to Vinnell Corp., the Northrop Grumman subsidiary that lost nine employees in last week's terrorist attacks in Riyadh, Saudi Arabia.

Gorman, who returned to pursue his current opportunity, says despite being well-paid, many of his former colleagues are considering following in his footsteps.

"There's real doubt in some people's minds whether they're going to be able to continue," he says.

Thomas Webber, a franchise developer who lives in Jeddah, Saudi Arabia, and has been in the country for 21 years, says the recent developments won't send him back to the United States, but he is being more careful about security by checking his car and varying the routes he takes to and from work.

"Eight months ago I would have told anyone that Saudi Arabia is the safest place to come as an American," he says. "I still enjoy it but you have to be so careful today."

The End of Tax Breaks?

But perhaps even more than security fears, a proposal to repeal a tax break that American citizens working overseas currently enjoy may make many who would otherwise work overseas decide to stay home instead.

A plan to repeal section 911 of the tax code — which allows U.S. citizens to exclude up to $80,000 from their earned income from U.S. taxes — is among the items included in a tax-cut bill recently passed by the Senate Finance Committee. Repealing the loophole would contribute an estimated $32 billion to the U.S. Treasury over 10 years, say experts.

Without this exemption, some Americans working abroad could be taxed twice, because they may have to pay taxes in their host country as well. Since many U.S. multinational corporations pay taxes for their employees when they work overseas, this could prompt some companies to keep American workers at home.

"The concern is that fewer Americans will be going abroad because their take home pay will be diminished from one year to the next," says David Hamod, a Washington, D.C.-based consultant for American companies working overseas. "Couple that with facing terrorism, and it could be a serious disincentive."

Lower-paid workers like teachers, who often don't enjoy the perks and benefits of U.S. corporate executives when they live and work overseas, say they would be especially hard hit.

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