Dual Citizenship Taxes for U.S. Expats (2024)

FAQs

Dual Citizenship Taxes for U.S. Expats? ›

The most common question dual citizens ask is whether they have to pay taxes to both countries if they don't live in the U.S. The answer is, it's possible. As it turns out, as long as you are a citizen or resident alien of the United States, you must file U.S. taxes if you meet the filing thresholds.

U.S. taxes are based on citizenship, not country of residence. That means it doesn't matter where you call home, if you're considered a U.S. citizen, you have a tax obligation. Your expat tax filing requirement doesn't change even if you're paid by a foreign employer overseas.

Foreign Earned Income Exclusion for Dual American Citizens

To qualify for the Foreign Earned Income Exclusion, your annual income maximum for the 2020 taxable year is $107,600. Additionally, you must establish that you are living abroad.

The Foreign Earned Income Exclusion (FEIE, using IRS Form 2555) allows you to exclude a certain amount of your FOREIGN EARNED income from US tax. For tax year 2022 (filing in 2023) the exclusion amount is $112,000.

Further, expatriated individuals will be subject to U.S. tax on their worldwide income for any of the 10 years following expatriation in which they are present in the U.S. for more than 30 days, or 60 days in the case of individuals working in the U.S. for an unrelated employer.

Elect S Corporation Tax Status

Another effective way to avoid being double taxed is by applying for an S corp tax status. The IRS grants certain companies S corp tax status since the two entities have the same advantages of limited liability.

However, you may qualify to exclude your foreign earnings from income up to an amount that is adjusted annually for inflation ($107,600 for 2020, $108,700 for 2021, $112,000 for 2022, and $120,000 for 2023). In addition, you can exclude or deduct certain foreign housing amounts.

Dual citizens, along with all other "United States persons", must file a Report of Foreign Bank Accounts, also known as an FBAR, if the aggregate value of their foreign financial accounts exceeds $10,000 at any time during the year.

The Foreign Earned Income Exclusion (FEIE) is a US tax benefit that allows you to exclude from taxation a certain amount of foreign-earned income over $100,000. The maximum foreign-earned income exclusion for the 2022 tax year is $112,000.

Do expats have to pay U.S. taxes? ›

While virtually all expats are required to file a US tax return, most Americans do not owe US expat taxes. The US has put several necessary deductions, exclusions, and credits in place to ensure Americans living abroad aren't taxed twice on the same income.

Some American expats who work abroad may also need to pay US social security and Medicare taxes on their earned income, especially if they are self-employed or work for a US-based employer. For the 2022 tax year, the rate for expat employees is 7.65%. For self-employed expats, however, the total is double, at 15.3%.

The answer is yes— If you're living abroad, you might not realize that you're still considered a resident of your home state and are subject to paying state taxes. This includes income tax, property tax, and sales tax.

Expats are more likely to face an IRS tax audit than Americans living in the US. By avoiding common IRS red flags, you can reduce your chances of being audited.

The United States may be one of two countries to enforce citizen-based taxation. However, most countries already tax foreign income. The US tax laws for citizens living abroad are essentially the same for those living in America. Expats file the same Form 1040 and are subject to the same US federal income tax rates.

Expatriation is the process of relinquishing U.S. status. It includes both U.S. Citizens and Green Card Holders (aka Legal Permanent Residents) who meet the definition of a Long-Term Resident (LTR). The baseline perspective is that formal expatriation rules apply to US Citizens and Lawful Permanent Residents.

Drawbacks of being a dual citizen include the potential for double taxation, the long and expensive process for obtaining dual citizenship, and the fact that you become bound by the laws of two nations.

But for expats, double taxation typically refers to having their income taxed by the US as well as the country they've made their home in. The US is one of only two countries in the world with citizenship-based taxation. (The other is Eritrea.)

The major drawbacks of dual nationality are the potential of double taxation and getting bound by the laws of the two countries. Furthermore, becoming a dual US citizen can be a long and expensive process, especially if you don't have an immigration lawyer to guide you.

If you are a resident of both the United States and another country under each country's tax laws, you are a dual resident taxpayer. If you are a dual resident taxpayer, you can still claim the benefits under an income tax treaty.

Why am I getting double taxed? ›

Most commonly, double taxation happens when a company earns a profit in the form of dividends. The company pays the taxes on its annual profits first. Then, after the company pays its dividends to shareholders, shareholders pay a second tax.

Yes, you read that right—if you are an expat enjoying retirement abroad, U.S. taxes may still be a reality. Regardless where in the world you live, you are still responsible for your U.S. tax obligations if you are still a U.S. citizen.

In general, U.S. social security and Medicare taxes continue to apply to wages for services you perform as an employee outside of the United States if one of the following applies: You are working for an American employer which includes: The U.S. Government or any of its instrumentalities.

Yes, eventually the IRS will find your foreign bank account. When they do, hopefully your foreign bank accounts with balances over $10,000 have been reported annually to the IRS on a FBAR “foreign bank account report” (Form 114).

Since foreign accounts are taxable, the IRS and U.S. Treasury have a very rigid process for declaring overseas assets. Any American citizen with foreign bank accounts totaling more than $10,000 in aggregate, or at any time during the calendar year, is required to report such accounts to the Treasury Department.

Per the Bank Secrecy Act, every year you must report certain foreign financial accounts, such as bank accounts, brokerage accounts and mutual funds, to the Treasury Department and keep certain records of those accounts.

The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year. A U.S. person is: A citizen or resident of the United States, or • Any domestic legal entity such as a partnership, corporation, estate or trust.

Overseas Mail Forwarding Services

The most convenient way to maintain a functional U.S. address while living abroad is to use a virtual mailbox service that you can activate online. This service scans, holds, and offers mail forwarding services for a few dollars per month.

Generally, to meet the physical presence test, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period including some part of the year at issue. You can count days you spent abroad for any reason, so long as your tax home is in a foreign country.

If you meet the requirements and fail to file FATCA Form 8938 you can be fined from $10,000 up to $50,000 if you don't act timely.

Do US expats pay Medicare tax? ›

If a foreign employer employs you, you will generally NOT be required to pay into US Social Security. If you are self-employed, you will generally be required to pay a self-employment tax, which covers the Social Security and Medicare taxes you would generally split with a US employer.

The penalty for not filing your tax return is 5% of the amount of tax shown on the return for each month you have not filed, up to 25% of your tax owing. If you fail to pay, the IRS imposes a ½ percent penalty for each month that the amount remains unpaid, up to 25% of your total tax owing.

Absences of more than 365 consecutive days

You must apply for a re-entry permit (Form I-131) before you leave the United States, or your permanent residence status will be considered abandoned. A re-entry permit enables you to be abroad for up to two years.

What triggers an IRS audit? A lot of audit notices the IRS sends are automatically triggered if, for instance, your W-2 income tax form indicates you earned more than what you reported on your return, said Erin Collins, National Taxpayer Advocate at the Taxpayer Advocate Service division of the IRS.

The IRS audited 3.8 out of every 1,000 returns, or 0.38%, during the fiscal year 2022, down from 0.41% in 2021, according to a recent report from Syracuse University's Transactional Records Access Clearinghouse. While IRS audits have been rare, experts say certain moves are more likely to trigger an exam.

If you are a U.S. citizen, you may receive your Social Security payments outside the U.S. as long as you are eligible for them.

You may lose your U.S. citizenship in specific cases, including if you: Run for public office in a foreign country (under certain conditions) Enter military service in a foreign country (under certain conditions) Apply for citizenship in a foreign country with the intention of giving up U.S. citizenship.

If you earned Social Security benefits, you can visit or live in most foreign countries and still receive payments. Look up the country on the SSA Payments Abroad Screening Tool to be sure you can receive your payments.

If you are a resident of both the United States and another country under each country's tax laws, you are a dual resident taxpayer. If you are a dual resident taxpayer, you can still claim the benefits under an income tax treaty.

How do taxes work for US expats? ›

Some American expats who work abroad may also need to pay US social security and Medicare taxes on their earned income, especially if they are self-employed or work for a US-based employer. For the 2022 tax year, the rate for expat employees is 7.65%. For self-employed expats, however, the total is double, at 15.3%.

Eritrea is notable as the only country in the world, besides the United States, to tax its citizens on the basis of their citizenship. Yep, Eritrea and the United States are the only nations on planet earth to have citizenship-based taxation. If you're a US citizen living abroad, you're still on the hook to Uncle Sam.

Do US Citizens Have to Pay Taxes on Foreign Property? All US citizens must file a yearly tax return regardless of where they live in the world. When filing your return, you must report your worldwide income. This includes any gain or loss from selling a foreign property and rental income.

Being a dual citizen means that a person is considered a citizen/national of two countries at the same time, and is subject to both country's tax laws. Something to remember is that each country has its own laws dictating who qualifies as a citizen.

For example, depending on the local country laws, taxpayers could be considered to be doing business if they are merely soliciting sales. Some notable examples of countries for which the U.S. does not currently have an income tax treaty include Brazil, Argentina, Chile, Vietnam and Singapore.

If you're an expat and you qualify for a Foreign Earned Income Exclusion from your U.S. taxes, you can exclude up to $108,700 or even more if you incurred housing costs in 2021. (Exclusion is adjusted annually for inflation). For your 2022 tax filing, the maximum exclusion is $112,000 of foreign earned income.

Most expats were only eligible for $1,400. Meaning for tax year 2022, the $1,500 maximum is actually an increase in benefits. There can be even more US tax credits and refunds available to US citizens living abroad, depending on your situation.

Expatriation is the process of relinquishing U.S. status. It includes both U.S. Citizens and Green Card Holders (aka Legal Permanent Residents) who meet the definition of a Long-Term Resident (LTR). The baseline perspective is that formal expatriation rules apply to US Citizens and Lawful Permanent Residents.

Most American Expats Do Not Owe US Taxes

While virtually all expats are required to file a US tax return, most Americans do not owe US expat taxes. The US has put several necessary deductions, exclusions, and credits in place to ensure Americans living abroad aren't taxed twice on the same income.

Who Must Pay the Exit Tax? Not everyone who leaves the US is required to pay an exit tax. Only US citizens and long-term residents the IRS considers “covered expatriates” are subject to this tax if they renounce their citizenship. The US exit tax is a tax on your worldwide assets.

How much is US exit tax? ›

How is the exit tax calculated? The American exit tax is calculated by applying a special tax rate to your unrealized capital gains. The tax rate is currently 23.8%.

At present, there are 14 tax-free countries around the world. These include Antigua and Barbuda, St. Kitts and Nevis, the United Arab Emirates, Vanuatu, Brunei, Bahrain, the Bahamas, Bermuda, the Cayman Islands, Monaco, Kuwait, Qatar, Somalia, and Western Sahara.

Yes, you must report foreign properties on your U.S. tax return just like you would report any owned U.S. property. To do that, you first need to know what type of ownership you have because it affects what tax forms you must file.

Owning Foreign Real Estate as an Individual

United States citizens should note that they must file Form 8938 if they have significant assets outside of the United States, yet foreign real estate is not required to be reported.