EPIC Guide

Money and Taxes Supplement for US-Affiliated Persons 🗽

The United States has always been and will always be a bit special compared to the rest of the world. Finances are no exception.

This page is only relevant to US citizens and persons considered “US persons” for financial purposes. While I have tried my best to research the information below, I do not guarantee that any of it is accurate. Do not consider this page official financial advice. If you need tax or financial advice, particularly if your finances are anything beyond dead simple, consult a professional financial advisor well-versed in US/Swiss international personal finances, because boy can things get complicated real fast.

Most of this page was written in 2023 by Shardul Chiplunkar, an American with bank, credit card, and investment accounts in the US, and a Swiss bank account after moving to EPFL. “I”, “me”, etc. refer to Shardul. Thanks to Clément Pit-Claudel, Kyle Matoba, Sepehr Elahi, Solal Pirelli, Kirill Nikitin, and others for helpful comments.

Table of contents

• Who is financially a “US person”?
• The TL;DR: practical information
  • Banking
  • Credit cards
  • Investing in Switzerland
    • Pillar 3a retirement savings
  • Taxes
    • US federal taxes
    • US state taxes
    • US taxes for nonresident aliens
    • Swiss taxes
  • Internships in the US for non-citizens
• The full context
  • Banking
  • Credit cards
  • Investing in Switzerland
  • Sources and further reading
  • Glossary of abbreviations

Who is financially a “US person”?

The exact answer depends on which agency and regulation you’re asking about. But generally, all US citizens irrespective of residence are US persons; anyone who the IRS considers a resident in a given year due to substantial physical presence in the US (that phrase has a technical meaning) is a US person; anyone who, even if not physically present in the US, would for other reasons be considered a US tax resident, such as lawful permanent residents (a.k.a. green card holders) or the spouses of US tax residents under certain conditions, is a US person; and some other people are US persons for reasons that I’ve given up on trying to precisely understand, such as connections to US territories.

The common case: if you’re reading this, you’re probably moving to EPFL from the US in the middle of a financial year, which makes you a US person for at least that year. If you’re a US citizen or green card holder, you will be a US person in the following years too.

The second common case: you are a US person in the past financial year because you did an internship in the US, but you have no other ties to the US. In that case, only § US taxes for nonresident aliens is relevant to you.

The TL;DR: practical information

Many pieces of advice below are simply stated without explanation. See § The full context for the explanations.

Banking

Although there was some turmoil with US persons’ accounts at Swiss financial institutions in the previous decade, many institutions are now taking US persons as clients with some extra paperwork. They differ in how much complexity they are willing to handle and able to give you good advice about (e.g., tax obligations on shares of EU companies held in your Swiss brokerage account). For banking in particular (as opposed to other financial services that I don’t know much about), the large, international banks, like UBS and Credit Suisse, are generally better at this than the smaller, local ones.

Note that Swiss bank accounts typically have monthly maintenance fees that they are less likely to waive for you than in the US (where waivers for being a student, having a minimum daily balance, etc. are common). But it doesn’t hurt to ask for a waiver when opening your account.

Note that you may have to report the maximum balance of this account when filing your US federal taxes. See § US federal taxes. Your bank may send you a “Tax Disclosure Statement” or similar saying that they disclosed your end-of-year balance to the IRS, but this is not the maximum balance, it is just for your information.

Personal note from Shardul: I personally have had a good experience with UBS. I had to make an appointment with presumably their ‘special’ banker at their main branch in Lausanne (Place Saint-François). It took around 40 minutes, and they gave me free coffee, and I had a chance to sit down with the banker and ask questions 1-on-1. Beyond their usual account-opening forms, I had to fill out a W-9 (which is standard for many US accounts, and has the sole purpose of collecting your SSN/TIN) and a waiver of my privacy rights so that they can share information about my accounts with the IRS. The banker actually apologized for it.

Credit cards

Due to various financial regulations, credit cards in Switzerland (and the EU) do not offer users much in the way of rewards or cashback like US credit cards do, and you will consequently notice much less marketing and usage of credit cards.¹ Getting a credit card in Switzerland is hardly worth the effort—if they are even willing to give you one. The basic, no-fee, 0.2% cashback card that UBS offers to existing customers is granted if the customer either:

• demonstrates an employment contact valid for at least two years, which an EPFL PhD student cannot do, because our contracts are renewed yearly; or
• makes a ‘locked’ deposit equal to the credit limit on the card that can be withdrawn only when the card is closed. (What’s the point, then?)

However, if you have a US-issued credit card with no foreign transaction fees but good rewards and some amount of liquid money in the US that you want to transfer to Switzerland anyway, then it’s a great idea to use that card (and pay it off with said liquid money) for everyday purchases in Switzerland. You’re essentially earning US-level cashback on the USD-CHF transfer which you would otherwise have to pay a financial institution for, and credit cards usually have better exchange rates than banks. But the card issuer and network aren’t making much money from fees nor advertizing revenue off of you. So you’re eating into the profits of Big Banking! Go you! At least until they close your card because they notice you’ve permanently moved out of the country.

Personal note from Shardul: I actually did the above with a Wells Fargo Autograph card, which is a Visa Signature card that gives 1% cashback on all purchases, plus 2% on travel, dining, and streaming subscriptions, plus $200 if you spend $1,000 in the first 3 months, which I did by booking my tickets to Switzerland and buying a bike after I got here. They haven’t closed it yet!

Investing in Switzerland

(This section applies only to US citizens and tax residents.)

Don’t. Invest in the US instead. See § Swiss taxes for how to report your investments. Note that you ordinarily have to be in the US to open a US investment account but then leaving afterwards is no problem. You don’t need a US bank account to fund a US investment account if you can get the latter to draw from a ‘virtual US account’ provided by services like Wise and Revolut.

Pillar 3a retirement savings

Don’t. Invest in an IRA in the US instead, but make sure you don’t contribute more than your taxable income. Pillar 3a (and Pillar 2) has interactions with both US and Swiss taxes, so see § Taxes for more.

Taxes

I used to tell a joke about enjoying doing my taxes as if it was an elaborate board game but I recently found out that xkcd stole it.

US federal taxes

The US imposes tax obligations on US persons on their income from anywhere in the world, regardless of their residence. The US also imposes social security contribution obligations. Isn’t that just lovely? Isn’t America just such a unique country?

However, the US in its infinite benevolence provides you relief from these obligations in several ways:

• You can take a foreign tax credit for foreign tax you have already paid, or you can exclude certain foreign earned income from your taxable income. (You may still owe the US some taxes after these reductions.)

  The foreign earned income exclusion is $120k for 2023. There are some eligibility conditions, notably that your tax home must have been outside the US for the whole tax year. You need to file Schedule 1 to Form 1040 and Form 2555 to claim it. This will let you exclude your entire PhD student salary from your taxable income. EPFL’s contributions to your Pillar 2 account will still be part of your taxable income. The amount you can contribute to an IRA is limited to the smaller of your taxable income and the general limit ($6k).

  The foreign tax credit does not have the full-year condition. For 2022, you need to file Schedule 3 to Form 1040 and Form 1116 to claim it.

• Due to US-Swiss tax treaties, typically only one of the two countries can tax you on interest, dividends, pensions, estates, etc. Figuring out which country(s) for which types of income at which rates is best left to a professional for anything beyond the simplest cases.

• Due to US-Swiss totalization agreements, typically every income source will owe social security contributions to only one of the two countries. Swiss Pillar 1 is seen as equivalent to Social Security, but Swiss Pillar 2 has no privileged status. See § Pillar 2 below.

The US imposes two additional reporting requirements for foreign assets. One comes from the IRS and is called Form 8938. If you are living in Switzerland on a PhD student’s salary then you will probably be below the minimum amount of assets that would require you to file this, but it is worth checking anyway. The other comes from FinCEN (the Financial Crimes Enforcement Network—a rather scary name) and is called the FBAR. There is a good chance you will have to file this one. Penalties for not filing these when you are required to, or providing incorrect information, are quite severe, especially from FinCEN. (I imagine their agents must be chasing mafiosi during the week, and relaxing on the weekends by investigating PhD students abroad…) Luckily, the official IRS documentation for these requirements is helpful and not too difficult to follow.

The IRS also benevolently grants you an automatic two-month extension to file and pay your taxes because you are incurring the hardship of living abroad, so until June 15 (or the closest following business day) in normal cases. This is useful if, e.g., you haven’t received your TOU forms before April 15 (see § Swiss taxes). You must attach a statement to your return explaining why you qualify for the extension. Alternatively, all US taxpayers, regardless of residence, can get an automatic six-month extension to file with Form 4868, but not to pay. This means that you have to prepay an estimated amount of tax along with that form and that the IRS will charge interest on underpaid taxes starting from the regular deadline.

Pillar 2

For US tax purposes, your Pillar 2 account is considered part of a nonexempt employee trust. Your contributions (Cotisations CP on your paystubs) are part of your income. In fact, your employer’s contributions² (Cotisations CP EMP) to Pillar 2 are also considered part of your income and should be reported as such. The eventual distribution from Pillar 2, minus the amount already taxed when you contributed it, will be taxed in the US (assuming no Swiss tax liability at that point). You need to report the total value of your Pillar 2 with your foreign assets. Your employer’s contributions cannot be excluded as part of the foreign earned income exclusion, if you are claiming it.

US state taxes

Don’t forget to file a state tax return for the year in which you leave the US. State taxes are typically friendlier than federal taxes and will only tax your income sourced from that state, but may not necessarily honor federal tax treaties and totalization agreements, if the situation ever arises.

For many states, you will file a part-year resident or equivalent return, and you won’t have to file in future years if you don’t have income from that state. For some “sticky” states (notoriously including California), however, it isn’t so simple. Their residency rules may require you to “prove” to the state that you are no longer a resident by showing that your primary home, driver’s license, bank account, voter registration, etc. is no longer in that state. Absent such proof, you will be taxed as a resident and will have to figure out the state’s tax rules about foreign income.

US taxes for nonresident aliens

This section will likely apply to you if you worked temporarily in the US. If you are not a US citizen (“alien”) and not a US tax resident (“nonresident”, which does not mean the same thing as in plain English), the following is true:

• You have to file US federal and state tax returns for only that year. The federal return form will likely be 1040-NR.
• You will end up paying some US federal and state income tax. You will probably get a refund out of the taxes originally deducted at source.
• You will not pay Swiss income tax on the same income, but it will count towards determining your tax rate. It should be reported under “Revenus d’activités lucratives et rentes imposables dans un autre État” (“Income from gainful activities and pensions taxable in another state”).
• You are not exempt from Social Security contributions if you were on an H1-B visa, but you are exempt / should be able to get them back if you were on an F-1 or J-1 visa. Ideally they should not have been deducted to begin with.
• The foreign asset reporting requirements described above don’t apply to you.

If you are being considered a US tax resident but are on a student visa and want to claim you are a nonresident, file Form 8843.

Swiss taxes

The Money page covers the basics. In particular, without a Pillar 3a, the tax deducted at source (l’impôt à la source) in a regular year is probably less than what you would have to pay if you filled out the Taxation ordinaire ultérieure (TOU) form, so requesting a TOU if you don’t have to is not worth it. In the year that you move to Switzerland and hence have Swiss income for only part of the year, you may think that your total income falls below the minimum³ for taxation and you could get a tax refund by filing a TOU. Although this is true, note that a TOU election cannot be undone, and you will end up paying more tax in following years as mentioned before. However, if you will be required to file a TOU in following years anyway (see next paragraph), it may be worth it to get the first year’s taxes back.

Note that you are required to file a TOU under certain circumstances, one of which is if you have any income not subject to source withholding, such as investment returns. Like the elective TOU, this TOU remains applicable for future years even if the obligatory conditions are no longer applicable (which makes no sense to me). Then there are two relevant annexes to the standard tax return:

1. Annex 1, État des titres et autres placements de capitaux, or Statement of securities and other capital investments. Most of it will be blank except for the number(s) copied over from the annex(es) below. (Except if you have Swiss investments, of course, which you shouldn’t.)

2. Annex DA-1, Demande d’imputation d’impôts étrangers prélevés à la source pour dividendes et intérêts étrangers échus en 20XX, or Request for imputation of foreign taxes already levied at the source on foreign dividends and interest issued in 20XX (replace with actual year). Here I believe you can report any US taxes withheld on your investments in the US. If the tax administration accepts this, then they will refund you that amount from the Swiss taxes you paid/will pay on the same income to avoid double taxation. The income will still count towards your total income for the purposes of determining tax rates.

   What I’m not sure about is if you have foreign investments held in the US, and your US broker pays the relevant foreign taxes for you, and reports the amount so that you can use it as foreign tax credit in your US returns. Can you report this amount in DA-1? Morally I feel you should be able to, to avoid double taxation, but I can’t be sure about the legal answer.

   Update (2023): Shardul tried this but it was not accepted, because the amount being claimed was under 100 CHF, so the question remains moot.

Annex R-US 164, Demande en remboursement de la retenue supplémentaire d’impôt USA, or Request for refund of US supplemental withholding tax, is for US investments made through Swiss brokers, who automatically withhold some tax as a compliance measure. This should not apply to you.

Lastly, two points worth clarifying. One, that the Canton of Vaud’s tax return filing deadline is March 15, a month before your US federal tax return is due, although Vaud is known to unofficially grant automatic extensions until June. Two, that the cantons collect the federal, cantonal, and communal taxes in Switzerland, so you only have to file one return. Good luck!

Internships in the US for non-citizens

If there is any possibility you might live in the US in the future, open an account at a US bank soon after you arrive for your internship. Many banks offer basic checking accounts with zero fees if you meet some relatively easy criteria, so don’t pay unless you really have to. Some banks will require you to have a social security number, but if you are being paid for your internship, your employer should provide you with one anyway for tax purposes. (First Tech FCU didn’t require an SSN to open an account but did for online banking as of 2017. It gets a special mention here as a credit union with membership open to employees of several major tech companies.) There are many benefits to having a US bank account:

1. Opening one if you’re not in the US (and especially if you’re not a US citizen) is very tricky, but once you have one, you can hold on to it without issue regardless of your residency, and as mentioned there are often no fees. So you should consider opening one even if you think the chance that you’ll move to the US later is slim.

2. For longer-term leases, landlords often want cashier’s checks for the deposit and first-month rent, which are easier to obtain if you have a local bank account.

3. Banks often make it easier to apply for and get a credit card with the bank if you also have an account at the bank. Credit cards are important if you are going to live in the US! Above all, to build a credit history, which is essential for both renting and buying (on mortgage) a place to live. This marvellous financial system is further expounded upon in Credit cards and Credit cards (longer).

4. Of course, you need some sort of US account to receive payments, notably your salary and your eventual tax refund from the IRS. Bank accounts are the canonical solution. On the other hand, in recent times, services like Revolut and Wise have started providing ‘virtual’ US account details that also allow you to receive these payments.

Speaking of taxes, US taxes for nonresident aliens probably applies to you for the year(s) in which you did an internship in the US.

The full context

Banking

The US passed the Foreign Account Tax Compliance Act (FATCA) in 2010 to try to reduce tax evasion and money laundering by US citizens holding foreign financial accounts. One important aspect of FATCA is that it requires foreign financial institutions (FFIs) to report to the US Internal Revenue Service (IRS) certain information about accounts and assets held by US persons, or face a 30% withholding tax on all US-sourced payments of income. This was basically the IRS strong-arming FFIs into collecting taxpayer identification information from US-affiliated account holders and complying with the IRS’ reporting requirements. Most FFIs complied rather than risk losing US business. Not so with the Swiss.

Swiss banking secrecy laws made it downright illegal for banks to share the sort of information about their banking relationships that the IRS was asking them to share. And beyond the law, FATCA was antithetical to the Swiss culture of privacy, and many in Switzerland did not see why they should compromise their values in deference to the IRS, especially when the banking establishment in Switzerland is centuries older than even the concept of the United States of America.

So the gut instinct of some Swiss banks was simply to terminate US accounts and not open any new ones because they didn’t think the regulatory hassle was worth it. Many US citizens were, understandably, very upset by this. This is the time period and incident that sets off alarms in the collective memory of the Swiss when you speak of US citizens and banking. Thankfully, that era of turmoil has passed, and many Swiss FFIs have done the required registration with the IRS, and are taking US clients with some extra paperwork.

Credit cards

America runs on Dunkin’ debt. In a sense, all economies have always run on debt, but it’s very visible in America: you have to take a student loan to go to college, your societal standing is determined by your credit score, Congress has to keep increasing the federal debt limit, the Fed sets an interest rate on inter-bank loans that wreaks havoc with global monetary policy, … and of course, everyone pays for everything by credit card.

A brief technical digression about credit cards follows but I promise it’s worth it. Credit cards involve four transacting parties: the consumer (e.g. you), the issuer (e.g. Wells Fargo), the network (e.g. Visa), and the vendor (e.g. Starbucks). Visa convinces Starbucks to accept Visa cards because it will make it more convenient for you to buy coffee from Starbucks and hence more coffee will be bought. Visa also promises Starbucks that they will receive payments on a short timescale, even if you actually pay off your credit card bills on a long timescale or not at all. For these reasons, Starbucks pays⁴ Visa a portion of all sales made with Visa cards. This is called the interchange fee. Visa uses the proceeds from interchange fees to pay⁵ you cashback and other rewards.⁶

Visa and Wells Fargo make a lot of money when you pay Starbucks with a Visa card, and even more money when you don’t pay Wells Fargo the full balance back right away. Which is why it seems like everyone is hopping on one foot to sell you a credit card in the US, with offers like “3% cashback on all groceries” or “$200 cashback if you spend $1,000 in the first 3 months”. Because credit cards are so ubiquitous, Starbucks sets their prices to account for the interchange fees they will have to pay for the predictable portion of transactions that will happen via credit card. Thus it is sound financial advice in the US to get and use a credit card because if you don’t then you are just paying for cashback for those who do.⁷

So what about Europe? (Including Switzerland for this paragraph.) Well, EU financial regulators capped the interchange fee at 0.3% in 2015, citing a variety of reasons: the Single Market philosophy, leveling the playing field for innovation, fairness for retailers, the fact that rewards move money from the poor to the rich, etc. (not all of which I agree with). Compare that to US interchange fees which are typically in the 1–3% range. Consequently, credit card rewards programs are meager in Europe, and cashback if it exists is no more than 0.3% for cards without an annual fee. You will notice an accompanying striking lack of credit card marketing and much lower usage of credit cards.¹

Investing in Switzerland

Don’t. The main reason is that if you do, you will enter tax hell, both in the sense that you will be taxed at a very high rate on investment returns, and that your tax returns will become very complicated. This is due to laws about ownership interest in foreign companies and Passive Foreign Investment Companies (PFICs) which to understand you really need a professional tax advisor.

You could maybe try to get around this by only investing in US companies but then why not just invest from a US brokerage account instead? (If you don’t have one, you’ll have to open one before you leave, and leaving afterwards is no problem.) If you want to invest in the European market, you could buy shares (in USD) of ETFs composed of European companies, so that the broker handles the complicated foreign investment taxation while you technically only own shares of US ETFs. You could even think of these shares as being priced in CHF (the currency you originally converted from) so that their effective value, for you, doesn’t depend on the exchange rate. Needless to say, this is all very speculative and shaky advice, even more so than anything else on this page, and don’t blame me if you lose money.

There are also tax implications for Pillar 3a retirement savings. The standard advice for people living and working in Switzerland is to contribute to Pillar 3a retirement savings, because they grow in value as they are invested in the market and the returns are taxed at a preferential rate, much like IRAs in the US. But these are foreign investments, and as discussed above, US persons should stay away from foreign investments. If anyone starts to try selling you a Pillar 3a plan, tell them you’re a US citizen, and they will immediately leave you alone.

Sources and further reading

I will reiterate my disclaimer from before. While I have tried my best to research the information above, I do not guarantee that any of it is accurate. Do not consider this page official financial advice. If you need tax or financial advice, particularly if your finances are anything beyond dead simple, consult a professional financial advisor well-versed in US/Swiss international personal finances, because boy can things get complicated real fast.

• IRS: International individuals, FATCA, and Totalization agreements.

• Taxes and finances on ch.ch, the official “citizens’ portal” of the Swiss Confederation, cantons, and communes

• Swiss Federal Tax Administration: Withholding tax and Guide du future contribuable (The future taxpayer’s guide), the latter of which is one of the resources I found most helpful with its explanations apparently geared towards young adults, but is unfortunately not available in English

• US Social Security Administration: Totalization Agreement with Switzerland

• Swiss State Secretariat for International Finance: Double taxation agreements

• Canton of Vaud: Impôts pour les individus (Taxes for individuals) and Formulaires, directives, et barèmes (Forms, directives, and rate tables).

• Patrick McKenzie in Bits About Money, How credit cards make money

• EUR-Lex (EU law portal): Fees for card-based payments

• Mustachian Post, a blog by a finance geek living in Vaud (warning: not written with a US citizen audience in mind!)

Glossary of abbreviations