If you’re a US citizen living abroad, taxes might seem like a no-brainer. That is, until you start researching it. Even if you’ve been living overseas for years, you might be surprised to learn that the IRS expects tax returns from US citizens who earn over a certain amount of money, regardless of where they live.
So, you might ask, why do I have to pay US taxes if I live abroad? Read on to find out about your taxes as an American living overseas.
Key Takeaways
Regardless of where you reside, if you are a US Person, you are required to file a US federal tax return and pay US taxes on your worldwide income.
The only option to avoid submitting a US tax return and paying US taxes abroad under current US tax legislation is to renounce your US citizenship.
If US citizens fail to file US taxes while living abroad, they may incur fines, interest charges, or possibly legal repercussions.
Do American Citizens Living Abroad Have to Pay Taxes?
Yes. The United States is one of only a few countries that taxes its citizens no matter where they live in the world. If you are an American living abroad, you must file a US federal tax return and pay US taxes on your worldwide income no matter where you live at that time. In other words, you are subject to the same rules regarding income taxation as people living stateside.
Citizenship-Based Taxation: Why Americans Living Abroad Still Pay US Taxes
The United States takes a rare approach to taxing individual income. Most countries use one of two tax systems: territorial-based and residence-based taxation.
In a territorial-based taxation system, the country taxes individuals only on income from sources earned inside that country’s borders.
Under residence-based taxation, the country taxes local residents on all income earned from both local and foreign sources. (For nonresidents in these countries, only income earned locally is taxed, similar to the territorial-based system.)
The US, however, is one of three countries that impose citizenship-based taxation. (The other countries are Eritrea and North Korea.) Under this system, citizens are always taxed on their worldwide income regardless of where they live.
Take Note
Some countries have no income tax at all, such as Bahrain, Monaco, and the Bahamas. Many expats choose to move to these tax-free countries to reduce their annual tax bill.
In the US tax system, foreign income is taxed at the same marginal rate as any income earned inside the country.
This means that as an American living abroad, you will need to file a US federal tax return this year if your total income in 2022—regardless of where the income was earned (and in what currency)—exceeds any of the following minimum thresholds:
For citizens filing as single:
$12,950 if under age 65
$14,700 if age 65 or older
For citizens filing as married filing jointly:
$25,900 if both spouses are under age 65
$27,300 if one spouse is under age 65 and one is age 65 or older
$28,700 if both spouses are age 65 or older
For citizens filing as married filing separately: $5 (No, that’s not a typo! It really is $5.)
For citizens filing as self-employed: $400
For citizens filing as head of household:
$19,400 if under age 65
$21,150 if age 65 or older
For citizens filing as a qualifying surviving spouse with a dependent child:
$25,900 if under age 65
$27,300 if age 65 or older
Even if you have not lived in the US at any point during the year and have earned all of your income in a foreign territory, the IRS still expects you to file a tax return.
Depending on where you lived before moving overseas, you may also be required to file a state tax return. This can further complicate your annual tax obligations. If you’re unsure of whether you should file a state tax return, consult an expat tax professional.
How Can I Avoid Paying US Taxes Abroad?
Based on the current US tax laws, the only way to avoid filing a US tax return and paying US taxes abroad is to renounce your US citizenship. Renouncing your US citizenship is a serious and permanent decision that should not be taken lightly. Before considering this option, learn about all the requirements and implications of citizenship renunciation .
But as long as you are a US citizen or green card holder, you must file a tax return annually and pay the associated taxes while living abroad. However, it is possible to avoid double taxation and reduce your US tax bill using special tax credits, deductions, and exclusions available to Americans living abroad.
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Learn where the best tax havens are, common traps, and ways to save money on your US expat taxes.
How to Avoid Double Taxation on Foreign Income
One issue that arises under a citizenship-based taxation system is that an individual could theoretically be doubly taxed on their income earned—both by their country of current residence and the US. This scenario is especially relevant for an American living abroad full-time who may qualify as a resident in other local tax systems.
To help avoid this negative consequence, the US tax code contains a provision called the Foreign Earned Income Exclusion (FEIE). Under the 2022 FEIE, expats are permitted to exclude $112,000 of income earned abroad from their US tax obligation.
Another provision to help avoid double taxation is the Foreign Tax Credit. This gives Americans a dollar-for-dollar tax credit for the taxes they’ve paid or owe to a foreign government. What makes this provision complex, however, is that it applies to only certain types of income, and there are unique considerations related to each foreign country.
The United States also has tax treaties with most countries worldwide that help prevent double taxation for its citizens. These treaties set out how much income can be taxed by each country and determine which country has the right to tax specific types of income.
What Happens If US Citizens Don’t File Their Taxes While Living Abroad?
US citizens who don’t file US taxes while living abroad may face penalties, interest costs, or even criminal charges. The IRS charges penalties for both late filing and late payments. If your lack of filing is willful—meaning you knowingly avoided your US tax requirements while living abroad—then more serious legal consequences may apply.
Failure to File Penalty: 5% of the unpaid taxes for each month the tax return is late, up to 25%
Failure to Pay Penalty: 0.5% of the unpaid taxes for each month the tax payment is late, up to 25%
Over 60 Days Late: The maximum for this penalty is 25% of your unpaid taxes
Fortunately, the IRS does offer a way for Americans abroad to get caught up penalty-free if they didn’t know they needed to file US taxes while living overseas. Regardless of how many years you’ve missed, the Streamlined Filing Compliance Procedures only require you to file the past three years of federal tax returns and the past six years of FBARs, making it a more straightforward, less expensive way to become compliant.
What Else Is Required for US Taxes Living Abroad?
When filing your US expat taxes, there are more items you’ll need to report in addition to your earned income. The IRS also requires that you disclose your foreign accounts and assets that cross a certain value threshold. Even your retirement contributions in foreign retirement accounts, which may seem tax-deferred, might be taxable!
Make sure to familiarize yourself with these additional tax requirements for US citizens living abroad:
Foreign Bank Account Reporting (FBAR)
Foreign Account Tax Compliance Act (FATCA)
Tax Rules for Passive Foreign Investment Companies
When it comes to filing US taxes while living abroad, it’s important to know everything you are required to report in your filing.
Moved Abroad Recently & Have Questions about Your US Expat Taxes?We’re Here to Help!
We hope this guide has helped you understand your tax obligations as an American living abroad. Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.
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Whether you need tax advice to prepare for a move abroad, to buy property or even retire, Greenback can help. Consults upfront can help avoid costly mistakes and stress later.
If you are an American living abroad, you must file a US federal tax return and pay US taxes on your worldwide income no matter where you live at that time. In other words, you are subject to the same rules regarding income taxation as people living stateside.
In general, yes — Americans must pay U.S. taxes on foreign income. The U.S. is one of only two countries in the world where taxes are based on citizenship, not place of residency. If you're considered a U.S. citizen or U.S. permanent resident, you pay income tax regardless where the income was earned.
If you meet the requirements and willfully fail to file an FBAR you can be fined up to the greater of $124,588 or 50% of the total balance in all your overseas accounts. 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.
As an American citizen, you're required to file a US tax return even if you're living abroad. And if you already owe income tax to a foreign government, you could end up paying twice on the same income. Here's what you need to know about US double taxation—and how to avoid it.
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.
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.
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.
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.
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.
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. Apply for a re-entry permit.
The only option to avoid submitting a US tax return and paying US taxes abroad under current US tax legislation is to renounce your US citizenship. If US citizens fail to file US taxes while living abroad, they may incur fines, interest charges, or possibly legal repercussions.
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.
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.
The failure to file penalty is the most expensive; you can be charged 5% of the amount you owe, with the fine increasing by an additional 5% each month (up to a maximum of 25% of your bill).
Most expats will not pay US taxes thanks to the benefits of Foreign Earned Income Exclusion and Foreign Tax Credit. However, expats must file taxes annually if their gross worldwide income exceeds the annual filing threshold. So even if you do not owe any taxes to the IRS, you still may need to file.
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).
Citizens: You only have to answer questions establishing your identity and citizenship (in addition to customs-related questions). Refusal to answer other questions may cause delay, but officials may not deny you entry into the U.S. if you have established your identity and citizenship.
U.S. immigration law assumes that a person admitted to the United States as an immigrant will live in the United States permanently. Remaining outside the United States for more than one year may result in a loss of Lawful Permanent Resident status.
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.
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.
Double taxation is a tax principle referring to income taxes paid twice on the same source of income. It can occur when income is taxed at both the corporate level and personal level. Double taxation also occurs in international trade or investment when the same income is taxed in two different countries.
183 days during the 3-year period that includes the current year and the 2 years immediately preceding the current year. To satisfy the 183-day requirement, count: All of the days you were present in the current year, One-third of the days you were present in the first year before the current year, and.
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.
You are a tax resident if you were physically present in the U.S. for 31 days of the current year and 183 days in the last three years, including the days present in the current year, 1/3 of the days from the previous year, and 1/6 of the days from the first year.
However, U.S. citizens who live and work abroad may be considered tax residents of another country if they meet certain criteria, such as spending a certain number of days in that country or having a permanent home there.
Depending on where you move to or travel to, you may not enjoy the standard of service that you've grown accustomed to from the U.S. postal service. You may need a U.S. mailing address to keep some other U.S. services If you want to keep your U.S. bank account, you'll still need to maintain a U.S. address.
An applicant applying for naturalization under INA 316, which requires 5 years of continuous residence, must then wait at least 4 years and 1 day after returning to the United States (whenever 364 days or less of the absence remains within the statutory period), to have the requisite continuous residence to apply for ...
If you leave the U.S., we will stop your benefits the month after the sixth calendar month in a row that you are outside the country. You can make visits to the United States for specific periods of time, depending on how long you've been outside, to continue receiving your benefits.
Does the United States allow dual citizenship? Yes, the U.S. allows dual citizenship by default. The government does not require naturalized U.S. citizens to give up their citizenship in their country of origin.
To the meet non-residency requirement, you need to certify that you haven't been a resident of the U.S. for the last three years. Or, you must follow the 330-day rule, which means you have physically lived outside the U.S. for at least 330 days during one or more of the previous 3 tax years.
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%.
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.
Do I still need to file a U.S. tax return? Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.
IRS computers are connected into all other government (Federal and State) systems, which means they have access to DMV, Unemployment, voter registration, and Social Security records. If you give your current address to any government agency, the IRS can access it.
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 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.
TurboTax. TurboTax is designed specifically for US taxpayers living and working in America. This means that their support for US Expats is limited because they are “Tax Prep USA Support.” So questions like “how to pay us taxes from abroad” may be tricky for TurboTax to answer.
Do US Expats Pay State Taxes? 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.
If you meet the requirements and willfully fail to file an FBAR you can be fined up to the greater of $124,588 or 50% of the total balance in all your overseas accounts. 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.
When a business is organized as a pass-through entity, profits flow directly to the owner or owners. In turn, these are not taxed at the corporate level and again at the personal level. Instead, the owners will pay taxes at their personal rate, but double taxation is avoided.
Even if you retire in a country without a US tax treaty, there are still methods for avoiding double taxation. The most common is the Foreign Earned Income Exclusion (FEIE). If you qualify for the FEIE, you can exclude a certain amount of foreign-source income from US taxation.
While yes, U.S. citizens file a yearly tax return even if they live abroad, U.S. expats don't usually end up owing anything. While there is no overarching tax exemption for U.S. citizens living abroad, there are a variety of mechanisms in place to prevent Americans from being double taxed on foreign-earned income.
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.
The Foreign Account Tax Compliance Act (FATCA) requires foreign banks to report account numbers, balances, names, addresses, and identification numbers of account holders to the IRS.
Key Takeaways. Bermuda, Monaco, the Bahamas, and the United Arab Emirates (UAE) are four countries that do not have personal income taxes. If you renounce your U.S. citizenship, you may end up paying a tax penalty called an expatriation tax.
Filing the 1040 is generally due each year on April 15th (April 18th in 2023) with an automatic extension to June 15th for Americans residing abroad, but if any taxes are due, interest is calculated starting April 15th up to payment date. You can request an additional extension by filing Form 4868.
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. Apply for a re-entry permit.
Do US expats living in the UK also have to file US taxes? Yes, due to the US's citizenship-based taxation system, all US citizens and permanent residents must report their worldwide income.
183 days during the 3-year period that includes the current year and the 2 years immediately preceding the current year. To satisfy the 183-day requirement, count: All of the days you were present in the current year,One-third of the days you were present in the first year before the current year, and.
U.S. immigration law assumes that a person admitted to the United States as an immigrant will live in the United States permanently. Remaining outside the United States for more than one year may result in a loss of Lawful Permanent Resident status.
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%.
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.
Americans who receive financial gifts from foreign loved ones won't have to pay taxes on the transfer. However, if you yourself sent funds to an American while abroad, you might. Recipients of foreign inheritances typically don't have a tax liability in the United States.
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