If you are planning on moving back to the US from abroad, you may worry about how complicated it can be to handle your expat taxes. Especially since you don’t want to get double-taxed in your home country and in the US. It can also be headache trying to ensure that the IRS gets all the documents they need from you.
We’d bet that, since you’re reading this article, you’re considering moving back to the United States as an American expat. Or you might already be in the process of doing so. Before you hop on your plane, there are a few things you should know about your tax situation.
Responsibility for Foreign Earned Income
In the year that you move back to the US as an American abroad, it’s likely that you’re going to earn both domestic and foreign income. For instance, you might have a new US employer that takes care of your payroll taxes in the States. But then, you might still be collecting interest from a foreign bank account or earning income from a rental property in your previous country. This foreign income may still be taxed abroad.
However, if so, then you are still eligible to claim the Foreign Tax Credit. This credit can prevent you from having to pay tax on this income twice. In order to claim the Foreign Tax Credit, you’ll need to file Form 1116. This can be found within our software or through the IRS.
Employed in the USA
Then, let’s say you’re employed in your adopted country from January through May. Next, you move back – transitioning from an American living abroad to living in the United States. You become employed from June through December.
Since you were living abroad for a portion of the year, you may be eligible to claim either the Foreign Tax Credit or the Foreign Earned Income Exclusion for the few months of the year when you were working in a different country.
You can do this through the Physical Presence Test, however, this requires some careful planning to ensure you are abroad for a full 330 days in a qualifying 12 month period. We can help you determine this critical window since when you move mid-year, you are normally not eligible for the Bona Fide Residence Test.
Tax Filing and Payment Deadline Changes
The IRS automatically provides extensions for US expats to have to file or pay their taxes. However, keep in mind that once you move back into the United States (this also goes for Green Card Holders), you are once again responsible for filing and paying your taxes by the standard tax day.
In most years, tax day is April 15th, but in some circumstances (if Tax Day falls on a weekend or in extreme conditions such as the COVID-19 pandemic), this date might be altered.
US Employer Considerations when Moving Back to the US
Once you find a new employer after moving back to the US from abroad, the employer will be responsible for taking care of much of your taxes. However, they might not consider the fact that you had foreign earned income within the given year before you moved back to the US.
In this case, your employer may inadvertently fail to withhold enough taxes from your paychecks. Under-withholding on your employer’s part may cause an unforeseen tax liability when you go to file your first tax return since moving back to the US.
In order to make sure all your taxes are in order, be sure your employer is aware that you received foreign earned income earlier in the year. This knowledge will allow your employer to take out the proper amount of taxes from your paycheck. Furthermore, it’ll save you a lot of hassle when it comes to tax time.
FBAR and FATCA Responsibility
Another aspect of US expat taxes that you may have had to deal with when living abroad is known as FBAR, or the Foreign Bank Account Report. Any US citizen living abroad has to file an FBAR if they have more than $10,000 in qualifying foreign financial accounts.
It might seem contrary to the name, but the requirement to file an FBAR holds true whether you’re a US citizen abroad or live in the United States. This means that, if you maintain any foreign financial accounts and the balances exceed $10,000 at any point in the year, you still have to file an FBAR. Yes – even if you’re moving back to the US from abroad!
Filing the FBAR is part of the process US citizens abroad do when they file expat taxes. Therefore, this requirement holds true no matter how long you live in the US, as long as your foreign accounts exceed the threshold.
You may also find that you meet an additional requirement with your foreign assets. Depending on the total value of your foreign financial assets, you may have to report them on IRS Form 8938 when you file your taxes. US citizens who live abroad have to file Form 8938 if their total foreign assets exceed $200,000. But for those living in the United States, the threshold is much lower at just $50,000.
So, if you move back to the United States and you still maintain foreign assets totaling more than $50,000, you’ll need to file Form 8938. Plus, you’ll need to continue to file this form for every tax year as long as the threshold applies to you.
Need US Taxes from Abroad Support?
Moving back to the US from abroad can be an exciting journey. From this, MyExpatTaxes is here to walk you through the entire process of becoming tax compliant when you get back!
Whether you work with one of our talented staff or simply use our intuitive expat tax software to handle it yourself, we ensure you can take advantage of all tax benefits and file all the forms you need to. We guarantee our software will save you tons of time, headache, and money.
Check out our newest reviews:
Great experience, very helpful and always available to answer questions and help you thru the process. Thanks again for all of your help.
Pamela, expat in Netherlands.
I’ve used the MyExpatTaxes basic package for the past two tax years to submit my US taxes and FBAR. I have found the platform extremely intuitive and user friendly (for example, automatically converting from local currency to USD based on posted IRS conversion factors for the year, walking you through the FBAR reporting process, etc.) and the price point is reasonable.
Austin, expat in Switzerland.
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Gerrie, expat in Austria.
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Tax deadline if you filed for an extension