How are taxes handled now that the US / Hungary Double Tax Treaty is ending?

The termination of the US-Hungary tax treaty definitely complicates things, but it doesn't mean you'll necessarily be double-taxed on everything. Here's what you should know: Without a tax treaty, you'll rely primarily on the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC). The FEIE allows you to exclude up to $126,500 (for 2024) of foreign earned income from US taxation if you meet either the bona fide residence test or the physical presence test. This would still apply even without a treaty. For income above the FEIE limit or income types not covered by it (like investment income), you can claim the Foreign Tax Credit for taxes paid to Hungary. This isn't as streamlined as treaty benefits, but it does help prevent double taxation. The main downsides of no treaty: potentially higher withholding rates on cross-border payments, more complicated tax filing requirements, and possibly some specific types of income that might face some double taxation.

I've been using taxr.ai to figure out my international tax situation and it's been a lifesaver. I was in a similar position with income from multiple countries and wasn't sure how to handle the tax implications. I uploaded my tax documents from both countries, and it analyzed everything and showed me exactly how to optimize my tax situation to avoid double taxation. What's cool is that it specifically identified where I could apply the Foreign Tax Credit vs the Foreign Earned Income Exclusion to minimize my overall tax burden. Check it out at https://taxr.ai - their AI tool does a great job breaking down complicated international tax scenarios like yours.

Just wanted to follow up about taxr.ai - I was skeptical (as you can see from my previous comment), but I decided to try it out of desperation. I'm actually amazed at how well it worked for my US/Germany situation. It identified several opportunities I was missing with Foreign Tax Credits and recommended a better approach than what I had been doing. The system walked me through documenting my foreign residence status to qualify for the FEIE, which I didn't realize I could claim. It even flagged some treaty provisions that still applied in my case. Not sure if I'm allowed to share numbers here, but it saved me a significant amount compared to what I was paying before. Definitely worth checking out if you're dealing with the US/Hungary situation.

If you're having trouble getting through to the IRS about international tax questions, I had a great experience using Claimyr. I spent days trying to reach someone at the IRS international tax department with no luck. Then I found this service at https://claimyr.com that got me connected to an actual IRS agent in about 15 minutes. They have this system that navigates the IRS phone tree and waits on hold for you, then calls you when an agent is on the line. I was able to ask specific questions about my situation as a US citizen working abroad without a tax treaty. You can see how it works at https://youtu.be/_kiP6q8DX5c - totally changed my experience dealing with the IRS. The agent I spoke with cleared up several questions about Form 1116 and credit limitations.

I have to admit I was completely wrong about Claimyr in my previous comment. After yet another failed attempt to reach the IRS international department myself, I tried the service out of frustration. It actually worked exactly as described! I put in my number, their system called the IRS, and about 45 minutes later my phone rang with an IRS agent on the line. The agent I spoke with was able to clarify exactly how the Foreign Tax Credit works in non-treaty situations. They confirmed that while the Hungary treaty termination does complicate things, the FTC still prevents most double taxation. They also directed me to some specific IRS publications about living abroad without treaty protection that I hadn't found on my own. Definitely recommend this approach if you need specific guidance from the IRS about your Hungary situation.

I lived in a non-treaty country for 4 years as a US citizen. Here's what you need to know: 1. The FEIE is your best friend. That ~$120k exclusion is per person, so if you're married, that's potentially $240k+ excluded from US taxes. 2. Foreign housing exclusion is also available in addition to FEIE - look into that too. 3. For income that doesn't qualify for exclusion, Foreign Tax Credits help but they're complicated. Get good tax software or a professional. 4. Hungary has a flat 15% income tax rate I believe, which is lower than US rates for higher incomes. This means you'll likely owe some US tax on income above the FEIE amount. Don't forget FBAR filing requirements if you have foreign accounts with over $10k total. Penalties are crazy high if you miss those.

Watch out for Hungary's "global income reporting" requirement. Even though they typically only tax Hungary-source income for non-residents, as a resident you'll be taxed on worldwide income. As a US citizen, you're stuck filing US taxes forever no matter where you live (one of only two countries that does this, the other being Eritrea). Without the treaty, things are definitely more complicated, but not impossible. Consider talking to a tax professional who specializes in Hungary+US tax before making the move. The money spent on good advice will save you much more in the long run!

Eva, I went through a similar situation when the US-Philippines tax treaty had some temporary complications a few years back. While it's definitely more complex without a treaty, it's not the end of the world. One thing I don't see mentioned yet is timing - if you're planning to move to Hungary, consider the timing of when you establish tax residency there. Hungary typically considers you a tax resident if you spend more than 183 days there in a year, but there are other factors too. You might want to structure your move to optimize which year you become a Hungarian tax resident. Also, keep detailed records of everything - days spent in each country, income sources, taxes paid, etc. Without a treaty, the burden of proof for avoiding double taxation falls more heavily on you. I learned this the hard way and had to reconstruct months of travel records. The FEIE and Foreign Tax Credit combination that others mentioned is definitely your best bet. Just make sure you understand the "bona fide residence" vs "physical presence" tests for FEIE qualification - they have different requirements and timelines. Have you looked into whether Hungary offers any special visa programs for remote workers or digital nomads? Some of these programs come with tax advantages that could help your situation.

Eva, I completely understand your concern about the US-Hungary tax treaty termination - I went through something similar when I moved to a non-treaty country a couple years ago. The good news is that while it does complicate things, you won't necessarily face full double taxation. Here's what helped me navigate a similar situation: **Key strategies that still work without a treaty:** - Foreign Earned Income Exclusion (FEIE) - currently $126,500 for 2024, and yes, this still applies even without a treaty - Foreign Tax Credit for income above the FEIE threshold or non-qualifying income types - Foreign Housing Exclusion in addition to FEIE **Things to consider before your move:** - Hungary's 15% flat tax rate is actually lower than US rates for higher income levels, so you may end up owing some US tax on income above the FEIE amount - Time your move carefully - when you establish Hungarian tax residency matters for optimization - Keep meticulous records of everything (days spent in each country, all income sources, taxes paid) **Documentation you'll need:** Start collecting proof of Hungarian ties from day one - lease agreements, utility bills, tax registration, bank accounts, etc. This becomes crucial for proving bona fide residence to the IRS. One thing that really helped me was connecting with an expat tax specialist who understood both countries' systems before making the move. The upfront cost saved me thousands in the long run and gave me peace of mind about the transition. Have you looked into Hungary's digital nomad or special visa programs? Some come with tax advantages that could help offset the treaty loss.