The U.S. Treasury Department created a ripple in the fabric of the financial universe Jan. 1 by terminating the U.S. tax treaty with Hungary.
The move eliminated an agreement that's been helping to simplify and reduce taxes for individuals and companies with ties both to Hungary and the United States since 1979.
The Biden administration canceled the agreement because of concerns about Hungary's opposition to a global minimum tax rate, over the objections of Rep. Kevin Brady, R-Texas, and two other Republican members of Congress.
What it means: Clients may need extra attention if they earn income outside the United States, have assets outside the United States, have children studying outside the United States or dream about retiring overseas.
That could be a lot of people.
Tax treaties: The United States has negotiated dozens of tax treaties to help people and companies with cross-border lives manage their finances.
The number of people directly affected by the tax treaty with Hungary is not available, but all of the treaties combined may affect about 1.5% of U.S. citizens and about 14% of the people living in the United States.
The United States is home to about 45 million people born outside the country, and the Association of Americans Resident Overseas estimates that at least 5.4 million Americans live abroad.
The most recent Internal Revenue Service international tax return figures available, for 2016, show that about 482,000 taxpayers used Internal Revenue Service Form 2555: Sources of Income, Deductions, Tax Items, and Foreign-Earned Income and Exclusions that year to report non-U.S. income and take advantage of an exclusion for foreign-earned income
What advisors should know: Here are four other things that agents and advisors who work with individual clients should know about the termination of the tax treaty with Hungary.
1. Tax treaties are usually separate from the agreements that govern Social Security benefits and public retirement benefits programs in other countries.
Totalization agreements govern how the U.S. government and other governments treat workers who have ties to two or more countries.
The U.S. totalization agreement with Hungary is still in effect, meaning that the end of the tax treaty with Hungary will not affect workers' ability to earn and collect Social Security benefits in the United States or equivalent benefits in Hungary.
The Social Security Administration notes that the totalization agreement with Hungary covers unemployment insurance and health insurance as well as retirement benefits.
2. The termination of the U.S. treaty with Hungary could affect clients with ties to Hungary who earn dividends, interest or real estate rentals in the United States.
