Tax Tips for U.S. Americans Abroad
Filing your US taxes as an American living and working in America is already hard enough. Filing your US taxes from abroad can be almost impossible. Here is everything you need to know about your US Expat Taxes to make sure you are tax compliant and not double taxed. Or you can just use the one and only tax software optimized for US expat taxes here.
1. Do US Expats need to file their income taxes?
Whether you are living in the United States, or abroad as a US citizen, you will need to file income taxes and report your worldwide income every year if you earn over the income tax reporting threshold. US Green Card Holders are also subject to the same filing law.
2. When are taxes due for expats?
Typically, the tax deadline in the US is April 15th every year. However, June 15th is when taxes are due for expats. The IRS gives all filers who are abroad on April 15th an automatic extension of 2 months to file.
Income taxes due will accrue interest from April 15th onwards. There is also an additional expat
3. Will I owe the IRS tax if I am a US expat?
It is not common that expats will pay US taxes on their foreign income. There are three main methods to prevent paying US taxes as an expat:
- Foreign Earned Income Exclusion: Exclude up to the maximum foreign earned income exclusion (FEI
E) threshold of $105,900 from US taxation
- Foreign Tax Credit: Use paid foreign income tax as a credit against your US tax bill
- Tax Treaty Benefits: Use the US Tax Treaty with your host country to exempt income from US taxation
4. Can I get a tax refund if I don’t pay taxes in the US?
Expats can get a tax refund even if they do not live, work or pay income taxes in the US. This tax refund is typically the refundable portion of the Child Tax Credit, called the Additional Child Tax Credit.
5. Which tax forms does an expat need to file on their federal tax return?
The common US expat tax forms to include with your tax return are:
- Form 1040 – U.S. Individual Income Tax Return and
- Schedule 1 (For Foreign Earned Income Exclusion)
- Schedule 2 & Schedule 3 (For Foreign Tax Credit)
- Schedule 6 (To Report your Foreign Address)
- Schedule A – Itemized Deductions
- Schedule B – Interest and Ordinary Dividends
- Form 8965 – Health Coverage Exemptions
- Form 2555 – Foreign Earned Income
- Form 1116 – Foreign Tax Credit
- Form 8812 – Additional Child Tax Credit
- Form 8833 – Treaty-Based Return Position Disclosure
- Form 4868 – Application for Automatic Extension of Time To File U.S. Individual Income Tax
- Form 8938 (FATCA) – https://www.irs.gov/pub/irs-pdf/f8938.pdf
- (FBAR) – Report of Foreign Bank and Financial Accounts
6. Is there a reduced US citizen living abroad tax rate?
There is no special US expat tax rate. US Citizens and Green Card Holders are subject to the same US tax rates as their counterparts working in America.
7. Can I claim the Foreign Earned Income Exclusion?
The 2019 maximum foreign earned income exclusion amount has increased to $105,900. This means that you can exclude up to this amount of foreign earned income from US taxation if you pass either of the FEIE tests:
- Physical Presence Test: To pass the Physical Presence Test, you will need be outside of the US for 330 full days in a consecutive 12 month period, that begins or ends in the tax year.
- Bona Fide Resident Test: To pass the Bona Fide Rest Test, you will need to be a resident in a foreign country and be subject to local income taxes for at least a full tax year.
8. How often can I travel to the US before I owe taxes?
Traveling to the US too much can cause expats to fail the physical presence test and therefore not be able to claim the foreign earned income exclusion. Therefore, those who cannot pass the Bona Fide Resident or use the Foreign Tax Credit approach because they do not pay income taxes to their host country (i.e. employees of international organizations) should generally limit US travel to less than 35 days in a tax year.
9. How do I calculate the foreign tax credit?
As an expat, you can become a tax resident in the country where you are living. This means that you will have to pay income tax in that foreign country. You should claim your foreign income tax bill to the IRS to avoid US expat double taxation.
Calculate the foreign tax credit by:
- Identify which income is foreign sourced
- Figure out if your income is general, passive or falls into another foreign tax credit category
- Use Form 1116 to calculate the maximum amount of foreign tax credit you can claim on your federal tax return
- Keep records of any unused foreign tax credit for a future tax year
10. Is the foreign earned income exclusion (F
EIE) or foreign tax credit (FTC) better?
The best expat tax benefit is determined after taking a look at your entire tax profile. Generally, if you have
- Minimal US income, using FEIE for your foreign earned income might help you lower your total income to under the standard deduction, thus resulting in $0 US tax
- More than $105,900 in income, using FTC may result in a lower amount of taxes owed based on income than using FEIE
- US children with valid social security numbers, FTC may help you claim the refundable Additional Child Tax Credit. This tax refund cannot be claimed when expats are using the FEIE approach.
11. Can Americans abroad get the Additional Child Tax Credit?
American parents abroad can get up to $2,000 tax credit to claim for each of their dependent children under the age of 17, who have valid US Social Security Numbers (not ITINs). However, if you end up not owing US taxes like many expats, then $1,400 of this $2,000 credit is refundable.
Like many other countries, the US will provide financial assistance to parents in the form of tax credits and refunds, regardless of where they live and work.
So if you have a qualifying child you might be able to get money back even if you don’t pay any income taxes to the US, MyExpatTaxes will quickly figure out if you can get this refundable credit of up to $1,400 per child per year.
12. When do I need to use a Tax Treaty on my expat tax return?
Expats should look at the US Tax Treaty with their host country when they have other types of income such as social security benefits, pension income, etc. Our tax software uses the tax treaties and Form 8833 to identify if your income can be exempt from US taxation.
13. Do my expat children need to file a US tax return?
Minors have to file taxes when they start earning income that is over the IRS filing threshold for dependents listed out in the IRS publication 501 under the table “Filing Requirements for Dependents“.
14. Why do foreign banks ask for my US Social Security Number?
When you open a financial account overseas, the financial institution might be required to ask you for your US Social Security Number because of FATCA. If so, you should complete a Form W9 to provide them with your taxpayer ID.
15. What is FATCA and what FATCA forms do you need to file?
FATCA is the Foreign Account Tax Compliance Act. This federal law requires foreign financial institutions to report back the data of US account holders, while also requiring U.S. citizens to disclose this information themselves.
Form 8938 is required to report your specified foreign financial assets if the total value of all the specified foreign financial assets in which you have an interest is more than the appropriate reporting threshold (starting at $200,000 for US expats).
16. Do I need to file an FBAR?
The FBAR (or Foreign Bank Account Report) is basically a form that you as a US American abroad are required to fill out if you have a bank (or any other financial) account established overseas.
17. How do I calculate the maximum value in my foreign bank account?
Depending on the information your bank can provide, you can identify the maximum value of your bank account in the tax year from:
- Monthly or Weekly Account Balance Statements (use the max value)
- Transaction Report (calculate the running balance and find the max)
The maximum value in your foreign bank account is not always the same as the ending year balance!
18. When is the FBAR due?
The FBAR is due on April 15th every year to coincide with the tax date for Americans both inland and overseas. However, if you missed out on the filing date, there is no reason to stress.
The FBAR has an automatic extension to file until October 15th of that tax year.
19. Consequences for expats and
Accidental Americans for not filing taxes?
The US law is that all US Citizens must timely file their US taxes, with that being said, the IRS does provide reasonable options to those who are delinquent.
The Streamlined Filing Compliance Procedure is a US tax amnesty program that helps Americans abroad become tax compliant without any late filing penalties. Normally, the late filing penalties for more than 60 days past the due date is the lesser of 100% of the tax owed or between $205 to $215, per return depending on the tax year.
20. What happens if my bank gave me a FATCA letter?
It depends on the bank, however, most will ask you to provide them with your US Social Security Number and proof that you are tax compliant. If you don’t have a US Social Security Number, you will need to apply for one (application steps detailed here). If you have never filed your US taxes, look to see if you would be eligible to use the Streamlined Filing Compliance Procedure to become tax compliant.
21. How can I use the Streamlined Filing Compliance Procedure to reduce late filing penalties?
Eligibility for the Streamlined Filing Compliance Procedure includes being physically outside of the US for a minimum of 330 full days in a year for one of the prior tax years. If you meet the non-residency requirement for this.
22. Are there any IRS publications outlining US Tax Rules for Expats?
IRS Publication 54 “Tax Guide for U.S. Citizens and Resident Aliens Abroad” describes common questions concerning IRS expat tax laws.
23. How can I ask the IRS for a tax-filing extension?
In order to claim the extended expat filing extension until October 15th, you will need to file Form 4868 before the June deadline.
24. Can I amend prior expat tax returns to fix mistakes or get my due refund?
Expats can amend up prior tax returns in the three-year window to claim refunds. The three-year limit is within three years from the due date, including extensions of a timely filed tax return.
25. What happens if I renounce my US citizenship because of taxes?
It is generally advised not to state that tax avoidance is the reason why you are renouncing your US citizenship, as this may cause issues down the road. Most people who renounce for other reasons do not necessarily see restrictions on travel to the US, except that they are required to always obtain a Visa (or use ESTA) to re-enter the country. Keep in mind that renouncing your US Citizenship is irrevocable.
26. What is a covered expatriate and why do they have to pay an exit tax?
US expatriate tax provisions define a “covered expatriate” as someone who has:
- An average annual net income tax for prior 5 years of more than approximately $160,000
- $2 million or more in net worth on the date of expatriation
- NOT complied with all U.S. federal tax obligations for the prior 5 years
Covered expatriations have to pay an exit tax, which assumes all their assets are sold and any gain taxed.
27. Do Digital Nomads have to file and owe US taxes?
US Citizens and Green Card Holders have to file US taxes every year that they earn more than the filing threshold or make more than $400 in self-employment income. As a Digital Nomad, you will need to be especially careful of your travel back to the US since you can only use the Physical Presence Test to exclude foreign earned income from US taxes.
28. Do expats have to pay US Self-Employment Tax?
US self-employment tax is calculated against all self-employment income, no matter where you earned it. The only exception to this rule is if you can prove that you are covered under the social security tax system of another country, which has a valid Totalization Treaty with the US.
29. Do US expats have to file a state tax return?
US Expats have to file state tax returns along with the federal tax return if:
- They earned money while working in that state temporarily
- They lived in the state for part of the tax year
- They are still considered domiciled in that state
You will need to review your state’s filing requirements as all states have their own laws. Prevent paying state taxes as an expat using this guide.
30. Can I owe US state income tax?
Depending on the state, it may be possible that you owe US state tax as an expat, even though you do not owe any federal tax. This is due to the fact that not all states recognize the Foreign Earned Income Exclusion or Foreign Tax Credit expat benefits. You can read our state tax blogs for more information.
31. Does voting as an American citizen abroad impact my tax obligations?
Voting in a federal election as an American overseas should not impact your federal tax obligations. However, voting in state and local elections may indicate that you are still a resident of that state and intend to return, making you subject to state taxation.
32. What is an awesome firm for expat tax filing in the US?
MyExpatTaxes is the only tax software designed for US expats. We believe being tax compliant as an American Abroad should be easy, fast and affordable. We look to minimize your tax liability to $0 and if possible, get you a tax refund from abroad. Most users finish up in 30 minutes and can
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