If you are a US citizen living abroad you are still responsible for filing a US federal tax return.
Unlike nearly every other nation, the United States requires its citizens living abroad to disclose their global income and pay potential taxes. Additionally, American expats oftentimes have further tax filings besides Form 1040 compared to their domestic counterparts.
What Tax Systems Do Other Countries Have?
Most countries tax their residents’ international income, but do not require tax filings of their nationals who live elsewhere. If other nations began requiring their citizens to file and pay taxes like the US, you would have a situation for example where someone born in Germany who moved permanently to Australia would have to indefinitely submit income tax returns in both Australia and Germany.
There are other types of tax systems. Some nations only tax income that is earned within the borders of the country. A few countries have no income taxes at all. Many have a tax system based on where you live, such as most Western European countries, where you’ll be taxed on all of your global income while living in the country. But the United States is unique in that it taxes its citizens wherever in the world they live.
It is because this US tax system is different and the requirements oftentimes more complicated, that most American citizens living abroad choose to work with a tax preparer specializing in assisting US expats.
US Expats Federal Tax Return Filing
According to the US tax system, all income earned outside the nation is generally taxed at the same marginal rates as domestic income.The same goes for Green Card holders and US citizens residing overseas. For the 2021 tax year, a federal return is required for income that is higher than these minimum thresholds:
- $12,550 for filing as Single:
- $25,100 for filing jointly as a Married Couple:
- $18,800 for Head of Household
- $5 for a Married Couple filing separately
For instance, a typical American worker living in France who makes $50,000 a year would have to submit a US tax return – even if no US tax is ultimately owed. This US government reporting of your financial activities is a necessity to avoid penalties.
According to the State Department, about 10 million American citizens live abroad. As an American living abroad, you have till June 15th to submit your tax forms. If you weren’t aware of this and haven’t filed from abroad in previous years, the Streamlined Procedure amnesty will allow us to assist you in catching up.
The Double Taxation of American Citizens Abroad
The US tax system creates a potential issue in that expatriates can end up being taxed twice on the same income earned while residing in another nation, if you live in a foreign country and qualify as a taxpayer there, for example.
At Vista Expat Taxes, we help American citizens living abroad avoid paying taxes twice. The two most common ways to achieve this are by claiming the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC). The FEIE allows you to exclude up to the maximum foreign earned income exclusion level of $108,700 from US taxes in tax year 2021. The FTC reduces your US taxes by the amount of foreign income tax you pay.
Other Factors for US Expats
Additional forms may be required for reporting your global income and assets while filing a federal tax return while living outside of the United States.
Additional forms are often required for retired taxpayers who are 65 years old or older, such as the treaty disclosure form (Form 8833). For all Americans abroad, there are the previously mentioned Foreign Earned Income Exclusion (Form 2555), and the Foreign Tax Credit (Form 1116) forms. There may also be a requirement to file FinCEN Form 114 to report foreign accounts (also known as FBAR filing), and Form 8938 (FATCA filing) to report foreign financial assets, and Form 5471 or Form 8858 to report foreign corporations.
What To Do Now
Tax issues involving US citizens living outside of the United States can be hard to grasp. However, it’s essential to keep up with your US tax obligations. As a result, we can help you address issues like:
- What is the tax rate for American Expats?
- How do I submit my US taxes when residing abroad?
- What is the deadline for US Expats to file and pay their taxes?
- How to pay US taxes as an Expat?
- How do I report my self-employment activities?
- Do I still have a connection to a former US State of residence, and thus have state filing requirements still?
If you have any more concerns regarding filing US taxes or US citizens overseas, we are here to help, so please Get in Touch.