If the thought of US expat taxes has you feeling a bit overwhelmed, you're in the right place. We're here to shed light on the essential things you need to know about US taxes, while living overseas. So, grab a cup of your favorite coffee or tea, and let's dive into making expat taxes less intimidating and more approachable.
No US Income? You Still Might Need to File a Expat Tax Return
As a US citizen or green card holder living abroad, you're part of a unique group with a potential requirement to file US taxes, regardless of where you reside or where your income is earned. This responsibility might seem overwhelming at first glance, but there's no need for concern. We're here to simplify the process for you, ensuring you're well-informed and ready to meet your obligations with confidence.
Not Every US Expat Has to File Taxes
The IRS sets specific income thresholds that determine your need to file, based on your filing status, age, and the type of income you receive. If your global income exceeds these thresholds, you'll need to file. But here's the good news: filing doesn't always mean owing. Many expats qualify for deductions and credits that significantly reduce or even eliminate their US tax bill.
Automatic Extended Tax Filing Dates
As a US expat, you automatically receive a 2-month extension to file your expat tax return. This means you have until June 15th to submit your paperwork, rather than the April 15th deadline that applies within the US. This extension is designed to give you extra time to gather your documents and ensure your filing is accurate. Remember, this extension is automatic, but if you owe taxes, interest may accrue from the original April 15th deadline.
Expats Can Request Filing Extensions Up to December 15th
Expats, like everyone else, can extend their tax filing deadline to October 15th by submitting Form 4868. But there's an added bonus for those living abroad: a special extension to December 15th. This extra time is tailored for expats dealing with the complexities of filing from overseas, ensuring you don't rush through your tax return or miss claiming those crucial stimulus checks.
The First Two Stimulus Checks Cannot be Claimed After June 15th 2024
If you haven't received the first two COVID stimulus checks ($1,200 and $600), you need to claim them on your 2020 tax return by June 15th, 2024. For expats, the original due date for the 2020 tax returns was June 15th, 2021 and since the IRS has a three-year window to claim refunds or credits, June 15th, 2024, marks your last opportunity to file for these stimulus payments.
Expats Might be Eligible to Exclude Over $100K in Foreign Earned Income
Living abroad comes with its perks, and one of them is the foreign earned income exclusion. This tax benefit allows qualifying US expats to exclude over $100,000 of their foreign earned income from US taxes, potentially saving thousands of dollars each year. To qualify, you need to pass either the Physical Presence Test or the Bona Fide Residence Test.
The Foreign Tax Credit Prevents Double Taxation
Expats often face the concern of double taxation on their income. Utilizing the foreign tax credit prevents this by offering a dollar-for-dollar credit against taxes paid to a foreign country, directly reducing your US tax liability. This ensures that income taxed overseas isn't taxed again by the US. To benefit from the FTC, you'll need to file Form 1116, a straightforward process that can unlock significant tax savings and help you keep more of your earnings abroad.
Expats Can Claim the Child Tax Credit
US taxpayers can claim up to $1,500 in refundable child tax credits for each US citizen child under 17, even if they don't owe any US taxes. This means that even without owing taxes, expat families can get a financial boost, directly benefiting from US tax policies designed to support families with children.
Foreign Asset Reporting Requirements
If you have foreign bank accounts or financial assets, you may need to file an FBAR (Foreign Bank and Financial Accounts Report) or report under FATCA (Foreign Account Tax Compliance Act) on Form 8938. These requirements kick in if your foreign assets exceed certain thresholds. Proper reporting is crucial to avoid hefty penalties.
IRS Tax Forms Expats Should Be Familiar With
Here are the key tax forms every U.S. expat should be familiar with:
Form 2555: This form is for claiming the Foreign Earned Income Exclusion, allowing you to exclude a portion of your foreign earnings from U.S. taxes.
Form 1116: Use this to claim the Foreign Tax Credit, a way to offset taxes paid to your host country against your U.S. tax liability.
FBAR (FinCEN Form 114): If you have foreign bank accounts exceeding certain thresholds, you'll need to report them through the FBAR, separate from your tax return.
Form 8938: Required for reporting specified foreign financial assets if they exceed certain thresholds.
Form 8621: For those with investments in foreign mutual funds or Passive Foreign Investment Companies (PFICs), Form 8621 is required to report earnings and distributions. This form can be complex, reflecting the intricate tax rules surrounding PFICs.
Form 5471: Required for U.S. citizens who are officers, directors, or shareholders in certain foreign corporations, Form 5471 helps the IRS keep track of these foreign entities.
Form 3520: If you receive gifts or bequests from foreign individuals or estates exceeding certain amounts, or if you have transactions with foreign trusts, you'll need to file Form 3520.
Form 8833: This form is used to claim treaty benefits or to disclose certain treaty-based positions, ensuring you don't pay more tax than necessary under the terms of tax treaties between the U.S. and foreign countries.
Expats Can Catch Up on Late Taxes Without Penalties
For expats who haven't filed because they were unaware of their obligations, the IRS's streamlined filing compliance procedures offer a way to become compliant without facing penalties for late filing. This program is a fantastic opportunity to rectify past oversights and ensure you're in good standing moving forward.
How to File When Married to a Non-US Citizen
Expats married to non-resident aliens (NRAs) have two options: filing as "Married Filing Separately" or choosing "Married Filing Jointly" by making a special election to treat the NRA spouse as a US resident for tax purposes. The latter can offer access to better tax rates and credits but requires reporting the global income of both spouses. Deciding which path to take involves weighing the potential tax benefits against the responsibility of additional reporting.
Tax Treaties Can Lower Taxes
Tax treaties play a pivotal role for U.S. expats by potentially reducing taxes on certain income in both the United States and the host country. These agreements, established between the U.S. and many foreign countries, outline specific rules for which country has the right to tax various types of income. It's a complex area, and the specifics can vary widely between countries, so consulting with a tax professional who is well-versed in the treaties relevant to your situation is highly recommended.
Self-Employed Expats and Social Security Taxes
Self-employed expats are subject to US Social Security taxes if living in a country without a totalization agreement. Totalization agreements prevent double taxation on income for social security purposes, so countries that have these agreements are exempt from US Social Security taxes if they are paying into their home country's system, streamlining contributions towards future benefits.
State Tax Obligations for U.S. Expats
Living abroad doesn't necessarily free you from the responsibility of filing state taxes. Whether or not you need to file depends largely on the state where you maintained residency before moving abroad. Since tax laws vary significantly from one state to another, it's crucial to determine your specific obligations. To navigate these complex waters and ensure full compliance with state tax regulations, seeking advice from a tax professional specializing in expat affairs is highly recommended.
Retirement and Investment Abroad
US expats with foreign retirement plans or investment accounts face complex tax considerations. The U.S. doesn't treat all foreign investments the same as domestic ones, so it's crucial to understand the implications for your tax situation.
Need Help With Filing Your U.S. Taxes From Abroad?
At CPAs for Expats, we specialize in helping US expats stay compliant with their US taxes. Our low fees and 4.9/5 rating on independent review platforms attests to our commitment to excellence and client satisfaction. Contact us today, and let our tax experts simplify your life and taxes.
Article by Lewis Grunfeld, CPA
Lewis Grunfeld, CPA, is a renowned expert in international and U.S. expat taxation, with expertise spanning over ten years. He has successfully helped thousands of expats around the world navigate and comply with U.S. tax laws, and achieve significant tax savings. His work is driven by a strongly rooted passion for assisting the expatriate community through a wide range of tax challenges, ensuring tailored solutions for each unique situation.