Does a US Citizen Living Abroad Have to Pay Taxes?
October 18, 2023 | Double Taxation | 4 minute read
Expat Tax Blog. Tax Tips for US Americans abroad.
All blogs are verified by IRS Enrolled Agents and CPAs
All blogs are verified by IRS Enrolled Agents and CPAsLiving abroad as a US citizen, unfortunately, does not disconnect you from your tax filing obligations. Filing a federal return is still an obligatory task you’ll have to face. Plus, the reality of a US citizen living abroad having to pay taxes is possible – but only if you meet certain requirements.
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Despite living on new land, separate from the United States, if you were born in the US and got a passport to prove it, you’ll need to report your worldwide income every year to the IRS. Living abroad and paying US taxes is going to be a thing for the rest of your life as long as you remain an American citizen!
Taxation Based on US Citizenship
If you haven’t been on Twitter, Facebook, Instagram, or on any other media platforms during tax season you may think there is not much drama based on citizen taxation. When in actuality, the United States and fellow country Eritrea take on a different approach to taxing their citizens.
Despite pretty much nearly every other country in the world not giving their citizens abroad the responsibility to report their worldwide income (and pay their taxes to their homeland government), the US does for Americans.
US taxes abroad is a real thing! The United States is the only country in the world that places the same tax regime for citizens on the homeland and abroad.
What if Other Countries Adopted the US tax Approach?
Other countries like Austria or France tax worldwide income on their residents, but not their citizens living elsewhere. If other countries adopted the approach of taxing or having their citizens around the world file and pay taxes, it would look like this:
Miranda was born in Panama at an American base to American parents. She would then have both US and Panamanian citizenship. If Panama adopted the same tax laws and requirements that the US has, Miranda would be an “Accidental Panamanian” and would need to file income tax returns for both the US and Panama.
This characteristic of how the US handles and works with taxes is for sure unique and is what separates MyExpatTaxes with other software like TurboTax or Tax Slayer. We specialize particularly with all aspects of taxes for an American abroad, whereas TurboTax or Tax Act are more for Americans in the US and does not offer all the forms expats would need to stay tax compliant.
Therefore, you can for sure guarantee MyExpatTaxes will provide the right help for American citizens abroad!
There are countries like Lebanon that tax individuals only on income from sources inside the country’s borders. Countries with no income tax like the United Arab Emirates are also very unique. Then, residence-based taxation like Germany tax local residents on all income earned from both foreign and local sources.
So, as you can see, the US stands apart with having citizenship-based taxation.
The Federal Tax Return for US Expats
If we look into the US tax system – any foreign-sourced income will be taxed at the same marginal rate as any other regular income being earned within the country.
Therefore, if you’re a US citizen living abroad, or a Green Card holder, you will need to file. Most specifically, for the 2023 tax season with a federal tax return, but if your total yearly income goes over the minimum thresholds:
- Filing as Single: $13,850
- Filing as Married Filing Jointly: $27,700
- Filing as Married Filing Separately: $5
- Head of Household: $20,800
So for example, let’s say you’re an American working for a company in Italy making about 13k a month. The IRS still needs you to file a tax return for them. This check-up of activity and finances from the US government is simply something that must be done.
USA Facts reported that nearly 165 million individual US tax were filed in 2022. From that large number, about approximately 8 million of these tax returns are taxpaying Americans living abroad. Hopefully, you are aware of how important it is to stay on top of your taxes to avoid penalties. Otherwise, we can help you catch up through the Streamlined Procedure. There is also an extension of time for US Americans abroad though! You can hand in their tax forms by June 15th.
US Citizens and Double Taxation
A problem that may come up within the US tax system is that an expat abroad could potentially be double taxed on income earned by the country they’re living in and the US. This could happen if you are working full-time in a foreign country and qualify as a resident in other local tax systems.
Therefore, what we do here at MyExpatTaxes is help US expats avoid double taxation as much as possible. We work with a US tax code that helps expats, which is the Foreign Earned Income Exclusion, or FEIE. In 2024, the FEIE excludes up to the maximum foreign earned income exclusion threshold of $120,000 from US taxation.
We help avoid the negative consequence of double taxation by using this form via our app. We also through our customers using the Foreign Tax Credit. This can help cut down on the stress and pain of double taxation for Americans who make income internationally. However, this credit applies only to specific forms of income, which is unique to each foreign country.
More to Consider for US Expats
For filing US taxes while living abroad and paying US taxes using a federal tax return, there will be some additional forms to use in report your worldwide earned income.
If you are a retiree, usually 65 or older, you will normally require additional attachments such as:
- Form 8833: Treaty Disclosure in addition
- Form 2555: Foreign Earned Income Exclusion
- Form 1116: Foreign Tax Credit.
We have a comprehensive Q&A guide where we answer your burning questions about expat tax. And we go more in-depth on the other forms you may need to file.
Plus, US citizen abroad tax topics can be difficult to understand. It’s important to stay up to date on your US tax duty. So, we try our best to provide you with informative tax guides that answer questions like:
- How to file taxes while living abroad?
- What is a US citizen living abroad tax rate?
- Does a US citizen living abroad have to pay taxes?
- What is the IRS deadline for US citizens living abroad?
- How to pay US taxes while living abroad?
Our dedicated and friendly customer service team can assist you with any other questions you may have about paying US taxes for American citizens abroad.
