Hold on to your hats expats! We’ve got 23 things to know about US expat taxes in 2023? From tax requirements to treaties, child benefits, and more – it’s that time of year to break open your income slips and bank statements! The IRS has officially opened up tax season 2022, and we have everything you need to know to prepare for it.
Here are 23 things expats need to know about US taxes in 2023:
1. Your tax filing obligation starts with your US Passport
If you take a look inside your US passport, you’re going to see a blurb about US taxes.
“All US citizens working and residing abroad are required to file and report on their worldwide income. Consult IRS Publication 54, “Tax Guide for US Citizens and Resident Aliens Abroad.”IRS
This US passport line may have been something you didn’t know while living abroad as an American. While it may be a shock to some, filing and reporting worldwide income to the IRS is only a necessity if you reach the tax filing requirement (see number 4 below).
2. The US taxes its citizens regardless of where they live
The US and Eritrea are the only countries that tax their citizens no matter where they are in the world. Therefore, the rules for filing income, gift tax returns, estate, and paying estimated taxes are the same whether you live abroad or in the United States.
So, your worldwide income will always be subject to US income tax, no matter where you live. Fortunately, US citizens abroad receive tax benefits and an automatic 2-month extension to file their tax returns without penalties. However, if you owe US taxes – which many expats usually do not – the deadline will be different (see below).
3. Expats most likely don’t owe US taxes
One of the most common questions we receive is, “do expats have to pay US taxes?”
You may be relieved that many expats usually don’t owe taxes to the IRS when living abroad. This reason comes down to a few tax benefits and exclusions that prevent Americans from double taxation on foreign income and owing unnecessary fees.
Some of these mechanisms are:
- The Foreign Earned Income Exclusion (FEIE)
- The Foreign Housing Exclusion
- The Foreign Tax Credit (FTC)
- Tax Treaty Benefits
- The Child Tax Credit and Additional Child Tax Credit
Generally, US expats can offset foreign-earned income with the above exclusions and credits. We’ll share more on each of those below.
However, if you do owe tax because your worldwide gross income is more than what the tax exclusions and credits can cover, you’ll need to pay your taxes by April 18th, 2023. If you don’t pay your taxes by then, interest will be charged daily until you settle your IRS bill.
4. You only need to file a US tax return if you meet the requirements
The 2023 tax filing requirements for Americans abroad depend on your filing status and worldwide gross income from the 2022 tax year. Therefore, you must file a US tax return for tax season 2022 (in 2023) if your gross income from worldwide sources is at least the amount shown in the following table for people under 65 years old:
|Filing Status:||2022 Worldwide gross income amount:|
|Married Filing Jointly||$25,900|
|Married Filing Separately*||$5|
|Head of Household||$19,400|
*A note on Married Filing Separately: This status applies if you are married to a non-US spouse and don’t want them to be on your tax return. Additionally, it also applies if you are not living with them at the end of 2022 due to separation or divorce. If you have a qualifying dependent, you may qualify as Head of Household.
5. US expats get an automated 2-month extension to file
You can see it as a perk that American expats get additional time to file a US tax return yearly.
The IRS allows expats an automatic 2-month extension to file, which gives you time until June 15th to do your tax return. This extension deadline also applies to resident aliens residing abroad and individuals in the military or on duty outside the US.
Expats can avoid scary penalties by filing by the June 15th deadline. However, if you want more time to file, you can file a free tax extension form via the MyExpatTaxes software. This extension gives you until October 15th (October 16th in 2023) to file your US tax return.
6. You can still receive stimulus checks if you haven’t received the first one
Stimulus checks have given Americans economic relief during this unprecedented pandemic. The first check was $1200, and the second was $600 for eligible citizens.
Expats can qualify for receiving stimulus checks by being a US citizen/Green card holder, have a Social Security number, and filed a 2019/2020 tax return. Plus you’ll need to have adjusted gross income up to $75,000 for individuals, $112,500 for the head of household filers, and $150,000 for married couples filing joint returns. If your AGI is above those thresholds, you’ll have a reduced stimulus check.
If you didn’t qualify for the first stimulus check, you might be able to in 2021. The value of each check comes from calculating previous years of tax returns. So, your earlier tax returns can be re-evaluated based on 2020 income, which our tax software can calculate.
Additionally, if you are a non-filer and usually don’t need to file a tax return, the IRS closed its Non-Filer portal last November. This means, to receive future stimulus checks, you’ll need to file a tax return, which you can do easily through us.
Expats can also claim the full $1200 stimulus check by claiming the Recovery Rebate Credit. This credit can either lower the amount of US expat taxes you owe or increase your tax refund amount.
7. It’s no longer complicated to file US expat taxes
We understand there are expat tax software companies out there claiming you can file taxes in 10 minutes (which is impossible). Or they don’t have some of the most important documents you need, such as the FBAR.
We want to trust your gut, make sure reviews from customers are authentic, and do research to choose the best option for your US taxes.
The reality is, we’re the number one most trusted and accurate US tax software for expats. Our top-rated reviews on Facebook, Google, and Trustpilot show it. We built this software for expats because the CEO is an expat and knows exactly how frustrating the US expat taxes process is.
TurboTax, for example, is a tax software built for US taxpayers living and working in America. They do not offer the FBAR, which is an extremely important form for expats if they have had over $10,000 or more total in all of their foreign financial accounts at any one time during the year. Penalties for not filing are high.
We designed a US tax software for expats that includes all the tax forms needed to file a base US tax return. For more complicated tax situations, expats can upgrade to higher support levels – but we’ve never turned down an expat because of how complicated their situation is. We always built a solution in our software to accommodate all expat tax profiles.
8. You can extend your tax filing duty for free for October 15th
As we’ve said in number 5, you can file for a free extension via MyExpatTaxes for free. This extension is only if you cannot meet the June 15 tax filing deadline and need more time.
You are not obligated to file your tax return with MyExpatTaxes, yet using our software to file the extension allows you to notify the IRS you want to file for the October 15th deadline. In 2023, this deadline is October 16th, giving you a little extra time.
In the How to File a US Tax Extension Abroad for Free blog, we walk you through exactly how to apply for an extension. We offer some tips to set up an account with us and give us consent to file this extension on your behalf. Then, based on the info you provide us, some of your information will already be filled out on our software – so you may not have to do too much work.
Then, once you submit your consent for us to file your tax extension, we’ll do a few last checks and email you if we need anything else. It’s that easy. Then, once the IRS accepts your extension, we’ll notify you!
9. There are many US tax forms expats need to fill out every year
As a US American expat, you don’t just need to file out Form 1040, the Income Tax Return. Living abroad means filing an additional form or two because you have to take foreign-sourced income into account. In fact, there are several tax forms expats should be aware of.
- Form 1040 – US Individual Income Tax Return +
- Form 1040, Schedule 1 (For Foreign Earned Income Exclusion)
- Form 1040, Schedule 2 & Schedule 3 (For Foreign Tax Credit)
- Schedule A – Itemized Deductions
- Schedule B – Interest and Ordinary Dividends
- Schedule C – Business Income
- Schedule D / Form 8949 – Capital Gains Income
- Form 2555 – Foreign Earned Income
- Form 1116 – Foreign Tax Credit
- Form 8812 – Additional Child Tax Credit (For US Tax Refunds for Families Abroad)
- Form 8833 – Treaty-Based Return Position Disclosure (For Tax Treaty Benefits)
- Form 4868 – Application for Automatic Extension of Time To File US Individual Income Tax (If you need the extra time!)
- (FBAR) – FinCEN Form 114 – Report of Foreign Bank and Financial Accounts
- Form 8938 – Report of Foreign Bank and Financial Accounts / FATCA
These forms won’t be intimidating if you use the MyExpatTaxes software, which helps you fill them quickly, step by step, in understandable language.
10 & 11. There are two US expat tax benefits to take advantage of (FEIE and FTC)
Double taxation is one of the most critical aspects of an expat’s tax case. The IRS has made an effort to create tax treaties with certain countries worldwide to stop US citizens abroad from getting double taxed.
Additionally, the IRS provides expat tax benefits that limit or completely eradicate double taxation from your tax return:
The Foreign Earned Income Exclusion
Known as the FEIE, expats can exclude up to $112,000 of foreign earned income from their 2022 US expat taxes. You will need to convert your foreign currency into USD when reporting it on Form 2555 (or better yet – use MyExpatTaxes!).
To be eligible for the FEIE, expats can use the Physical Presence Test or Bona Fide Residence Test:
- Physical Presence Test: You were outside of the US for 330 full days in a consecutive 12 month period, beginning or ending in the tax year.
- Bona Fide Residence test: You were a registered resident and subject to local taxes in your host/foreign country for a full calendar year.
Foreign Tax Credit
The FTC is a dollar-for-dollar tax reduction from the IRS that goes towards your foreign earned income. You can avoid double taxation using the FTC by:
- Checking whether your income is passive or falls into another foreign tax credit category
- identifying which income is foreign sourced
- Keeping records of all unused foreign tax credit for next year.
- Calculating the maximum foreign tax credit amount you can claim on your tax return through Form 1116
Plus, you can look at your country’s tax treaty to determine whether your US-sourced income from business trips could be considered foreign income.
12. American expat parents can receive tax credits even if they don’t pay taxes
Expat families can save money with their US taxes through the Child Tax Credit. So, regardless of where a US citizen’s family lives or works, the US provides financial assistance in tax refunds and credits.
For each qualifying child – under the age of 18 and has a valid Social Security Number – a $1,500 tax credit can be claimed. This credit can go towards any US taxes that are owed. Otherwise, if families don’t owe tax, then this money becomes refundable. If you lived within the US for more than half of 2022, then you can claim an even higher refundable Child Tax Credit.
Essentially, families can get money back even if they don’t pay US income taxes. Our professional human support team will help figure out if you can get this refundable credit!
13. Expats may need to file US state taxes
US citizens living abroad may have to file state taxes. The truth is, you’re not automatically excluded from paying taxes if you’re living abroad.
Generally, Americans abroad only need to file a state tax return along with their federal tax return if:
- They are considered domiciled (having a permanent home) in that state
- Have lived in the state for a part of the tax year (January 1st-December 31st)
- They have earned money working in the state – even if temporarily
Most importantly, you will need to review your state’s filing requirements since all US states have their laws. You’ll be able to tell if you need to file state taxes by walking through our software. Otherwise, we suggest you contact one of our friendly support team professionals!
14. You may need to file an FBAR
The Foreign Bank Account Report is a form every US expat may need to file. If you have had at least $10,000 max total in all foreign financial accounts at any one time during the tax year, you need to file the FBAR.
Therefore, whether you have a foreign bank account, like savings, checking, or investments, you’ll need to file the FBAR. Additionally, you need to file if you have signatory authority over a foreign financial account (e.g., shared bank account with a spouse).
You must check your bank account statements monthly to see whether you need to file an FBAR or not. Plus, you’ll need to convert your foreign money into USD since it’s part of the FBAR reporting requirements.
You can file the FBAR easily through the MyExpatTaxes software in as fast as 15 minutes. If you are not sure you need to file one, you should be safe because penalties can range in the thousands!
15. You Might Have to File an FBAR even if you don’t need to file a US Tax Return
Yup! Even if you don’t qualify to file a US tax return, you still have to conform with FBAR obligations. Luckily, filing an FBAR online is fast, easy, and affordable with MyExpatTaxes latest product – stand alone FBAR filing. Now you can file your FBAR even if you don’t have to file a US tax return. Best of all, it’s all online.
16. Amending previous tax returns is possible
The amended tax return expats can use to amend their tax return is Form 1040-X. This form allows you to file an amended tax return of up to 3 years after the date you first filed. Or, if you paid taxes, you can file it within two years from the date you paid your taxes.
Furthermore, amending a tax return can put you on the list to be audited by the IRS. Therefore, we give expats checks to make sure they add in the correct information, and if something doesn’t seem right, they can contact us.
17. Don’t miss the deadlines, or you may get penalties
The 2023 tax deadlines and extensions include June 15th as the filing deadline and October 16th as the expats’ extension deadline.
If expats don’t meet the filing and/tax payment deadlines, penalties and fines can happen:
Common penalties include:
Failure to file – when you don’t file your tax return by the return due date, April 18th, or extended due date if an extension to file is requested and approved
Failure to pay – when you don’t pay the taxes reported on your return in full by the due date, April 18th. An extension to file doesn’t extend the time to pay
Failure to pay properly estimated tax – when you don’t pay enough taxes due for the year with your quarterly estimated tax payments, or through withholding, when required
Dishonored check – when your bank doesn’t honor your check or other form of paymentIRS
As you can see, it’s encouraged to pay and file US expat taxes on time to avoid these hefty finances.
18. Expats Need to Limit Travel to the US to 35 Days
If you want or have to file under the Foreign Earned Income Exclusion, expats may need to limit US travel to less than 35 days a year.
Traveling to the US too much can cause expats to fail the physical presence test and therefore not 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 should not be more than 35 days the US. If you can use the Foreign Tax Credit, then no such restrictions apply!
19. Expats can make up years of late taxes, penalty-free
As long as you are innocent, meaning you forgot or did not know you had to file US expat taxes while living abroad, you can apply for the Streamlined Procedure. The IRS creates this tax amnesty program to help Americans make up years of non-filing without penalties.
To be eligible for the Streamlined Procedure:
- You did not live in the US with a home for the last three years
- Were physically residing outside the US for more than 330 days
- Have not filed a US tax return in 3 years
- Have not filed amended or delinquent tax returns
- In the last six years did not file an FBAR
MyExpatTaxes offers the Streamlined Procedure for one-third of the price compared to other tax companies.
20. Renouncing US citizenship is difficult
Renouncing your US Citizenship is irrevocable. It is generally advised not to state that tax avoidance is why you are renouncing your US citizenship, as this may cause issues down the road. You also need to be tax compliant – having filed and paid all due US expat taxes before you can renounce citizenship.
Expats who want to renounce their US citizenship must do three things:
- Appear in person at a US Embassy or Consulate
- Sign an oath of renunciation
- Pay a fee of about $2,350.
Additionally, you’ll also need to give up your US passport.
23. Self-employed expats have different responsibilities
As a self-employed expat, you’ll need to pay a self-employment tax separately after calculating your net profit. Therefore, Social Security taxes and Medicare taxes will be for you, and the process will be similar to wage earners in the US who withhold from their pay.
Therefore, you’ll need to figure out your self-employment taxes by yourself or with a MyExpatTaxes professional. The 2022 self-employment tax rate is 15.3% on your net profit. The Schedule SE on Form 1040 can be used, which is found on our app.
Since you are your boss, you’ll need to figure out self-employment taxes by yourself. You can use the self-employment tax (SE tax) Schedule SE on Form 1040 or 1040-SR. Or better yet, our app. Furthermore, you also need to deduct your employer-equivalent portion of your self-employment tax.
Have a US business, but living abroad? In general, if you have a (single member, disregarded) US business, you will need to report your business income on Schedule C. From there, you can either look to use FEIE (2555) or FTC (1116) to reduce your US income taxes owed. Watch out for a self-employment tax of 15.3% on your net profit.
MyExpatTaxes will see if you are eligible to opt-out of that tax via the Totalization Treaty.
22. Biden’s presidency may impact expats
President Joe Biden proposed increasing income tax rates for top earners, increasing the Child Tax Credit amount.
We found that several of President Biden’s plans will reverse the Trump tax reform plan, for example:
- Raising the income tax from 37% to 39.6%
- A change in gift and estate tax taxes will increase from 40% to 45%
- The untaxed exemption limit reduces from $11.58 million to $35. Million
The above mainly impact high-income earners. Next year’s tax season, the top tax rate will be 37% for single taxpayers with incomes of more than $523,600 ($628,300 for married couples filing jointly).
Learn more about Biden’s Tax Plans for Expats.
23. MyExpatTaxes offers the Best US tax software for expats
Quoted by Yahoo Finance as the “leading, and most affordable, tax filing platform for American expats,” we at MyExpatTaxes help expats claim more refunds than any other tax provider. We are the first and most trusted US tax software company for expats and offer human tax expert support. To date, we have been serving more than a thousand customers from all over the world and are top-rated on Google, Facebook and Trustpilot.
We’d love for you to file your US expat taxes with us. Walk through our software free of charge and only pay when you’re convinced!