US Expat Taxes: A Guide to Filing in 2024
Are you an American living abroad or planning a move overseas? If so, it’s important to understand the tax obligations that come with living outside the US. Filing taxes as an expat can be complex, but this guide will simplify the process for you by covering the key points you need to know.
Expat Tax Filing Requirements
Do Expats Need to File US Taxes?
Yes, all US citizens, regardless of where they live, are required to file a US federal tax return if their income exceeds the minimum filing threshold. Your specific threshold depends on your filing status (single, married, etc.), and even if you’re below the threshold, you may still want to file to claim refunds or credits.
Do Expats Pay US Taxes?
While most expats must file a tax return, the good news is that many don’t end up owing US taxes. Several tax credits and deductions are available to help reduce or eliminate the possibility of being taxed twice on the same income.
What About State Taxes?
State tax requirements vary depending on where you lived before moving abroad. Some states make it difficult to sever ties, while others make it easier. You may need to file a state tax return if you:
- Maintain a mailing address in the state
- Have a current driver’s license or voter registration there
- Own property or have a business in the state
If you earn income from within a state, such as rental income, you may still need to file a state tax return even after moving abroad.
How to Save on Your Expat Taxes
Foreign Earned Income Exclusion (FEIE)
The Foreign Earned Income Exclusion (FEIE) allows you to exclude up to a certain amount of foreign income from US taxation. For the 2023 tax year, the exclusion is $120,000 per individual, which can increase if both you and your spouse qualify.
To claim the FEIE, you must pass either the:
- Physical presence test (spending 330 days in a foreign country during a 12-month period), or
- Bona fide residence test (being a resident of another country for a full tax year with no immediate plans to return to the US).
You can claim the FEIE by filing Form 2555.
Foreign Tax Credit (FTC)
The Foreign Tax Credit (FTC) is a dollar-for-dollar credit for foreign taxes paid. If you pay more in foreign taxes than you would owe in US taxes, the credit can reduce your US tax liability, potentially to zero. You can claim the FTC by filing Form 1116.
Foreign Housing Exclusion
Expats can also reduce their US taxes with the Foreign Housing Exclusion, which allows you to deduct housing expenses such as rent, utilities, and insurance. This exclusion is only available to those claiming the FEIE and is filed using Form 2555.
Child Tax Credit
Expats with qualifying dependents may claim the Child Tax Credit, which offers a credit of up to $2,000 per child. Up to $1,500 of this credit is refundable for those who meet the income limits. However, you cannot claim the credit if you exclude all of your income using the FEIE.
Tax Treaties
The US has tax treaties with many countries to help prevent double taxation. While these treaties won’t fully eliminate US tax obligations, they provide options to reduce taxes for expats by clarifying which country has the right to tax specific income.
Filing Taxes as an Expat
Automatic Extension to June 15
Expats automatically receive a two-month extension for filing their US tax returns, moving the deadline to June 15. However, any taxes owed must still be paid by April 15 to avoid penalties and interest. You can request a further extension to October 15 by filing Form 4868 or Form 2350.
Penalties for Failing to File
If you owe taxes and fail to file, penalties will apply. Additionally, failure to file could lead to passport revocation or even criminal charges. It’s crucial to stay compliant and file on time to avoid severe penalties.
Streamlined Filing Compliance Procedures
If you’ve fallen behind on filing your US taxes, the IRS offers an amnesty program called the Streamlined Filing Compliance Procedures. This program allows expats to catch up on taxes without facing penalties, provided you can prove that your failure to file was non-willful.
Additional Reporting Requirements for Expats
Foreign Bank Account Report (FBAR)
If the combined balance of all your foreign accounts exceeds $10,000 at any point during the year, you must file FinCEN Form 114 (FBAR). This requirement applies even if the accounts only exceed the threshold for a single day. The FBAR deadline is the same as the tax return deadline, but you receive an automatic extension to October 15.
FATCA Reporting
Expats may also need to file a FATCA report (Form 8938) if they hold foreign financial assets exceeding certain thresholds. The thresholds vary depending on your filing status and residency.
Social Security and Retirement
Collecting Social Security Abroad
Most expats can still receive Social Security benefits while living abroad. However, certain countries—such as North Korea and Cuba—don’t allow US citizens to receive payments while residing there. Payments can resume when you relocate to an eligible country.
Totalization Agreements
The US has totalization agreements with 28 countries, preventing you from paying into two social security systems at once. These agreements also allow you to combine your contributions from different countries to qualify for benefits.
Special Circumstances and Tax Situations
Foreign Real Estate
When buying or selling foreign property, the tax rules are similar to those in the US:
- You don’t need to report the purchase of foreign property.
- You must report and may be taxed on any capital gains from selling foreign property.
Self-Employment Taxes
Self-employed expats are required to pay US self-employment taxes, which replace Social Security and Medicare taxes. However, you can still reduce your US tax bill using the FEIE or FTC.
Next Steps for Filing US Expat Taxes
To stay compliant and minimize your US tax burden as an expat:
- Understand your filing requirements.
- Keep track of your time abroad and income.
- If necessary, use the Streamlined Filing Compliance Procedures to catch up on overdue taxes.
- File your federal tax return and any other required forms annually.
Many expats choose to work with a tax professional to ensure they meet all requirements and maximize their savings. If you need assistance with your US expat taxes, consider consulting with an expat tax specialist to guide you through the process.
