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Taxes in the United States for Americans living abroad may appear confusing, but they don't have to be if you grasp the basics. Here's all you need to know about US Expat Taxes so you can be tax compliant and avoid paying double.
If you make more than the income tax reporting level, you must submit income taxes and declare your worldwide income every year, whether you live in the United States or overseas as a US citizen. Green Card holders in the United States are also subject to the same filing requirements.
Every year, the deadline for filing and paying taxes in the United States is April 15th. Furthermore, April 15th is merely the deadline for Americans living abroad to pay their taxes.
Americans living overseas have until June 15 to file their US taxes. If you need additional time to file, you can use the MyExpatTaxes software to request a free extension.
It is unusual for expats to pay US taxes on their international earnings. As an expat, there are two major ways to avoid paying US taxes:
Exclude up to $108,700 in overseas earned income from US taxation using the foreign earned income exclusion (FEIE) threshold.
Credit for Foreign Taxes: You can deduct paid foreign income tax from your US tax bill.
Even if they do not live, work, or pay income taxes in the United States, expats might receive a tax refund. The refundable element of the Child Tax Credit, known as the Additional Child Tax Credit, is usually the source of this tax refund.
The following are some of the most frequent US expat tax forms to include with your tax return:
Schedule 1 (Foreign Earned Income Exclusion), Schedule 2 & Schedule 3 of Form 1040 - U.S. Individual Income Tax Return (For Foreign Tax Credit)
Itemized Deductions (Schedule A)
Interest and Ordinary Dividends (Schedule B)
Form 8812 – Additional Child Tax Credit Form 8833 – Treaty-Based Return Position Disclosure Form 8965 – Health Coverage Exemptions Form 2555 – Foreign Earned Income Form 1116 – Foreign Tax Credit
The maximum amount of foreign earned income exclusion has been raised to $108,700. If you pass either of the FEIE criteria, you can exempt up to this amount of foreign earned income from US taxation:
Physical Presence Test: To pass the Physical Presence Test, you must spend 330 full days abroad in the United States in a 12-month period that begins or ends during the tax year.
To pass the Bona Fide Resident Test, you must be a permanent resident of a foreign nation and have paid local income taxes for at least a complete tax year.
You can become a tax resident in the country where you live as an expat. This means you'll be required to pay income tax in that other country. To prevent double taxation in the United States, you should file a claim with the IRS for your foreign income tax obligation.
Calculate the international tax credit by using the following formula:
Determine which income is derived from a foreign source.
Determine whether your income is general, passive, or qualifies for another foreign tax credit.
Calculate the highest foreign tax credit you can claim on your federal tax return using Form 1116.
Keep track of any unused international tax credits in case you need them in the future.
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