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US Citizens Living Abroad And Taxes – A Quick Expat Tax Guide

Updated: May 16, 2022

There are some common misunderstandings about U.S. Tax and Americans living abroad. In this article, we will discuss a few of them.

Do US citizens living abroad have to file US taxes?

Yes. If you are a U.S. citizen or resident alien living abroad, you are subject to tax on your worldwide income similar to those in the states.

If you earned more than the threshold amount for your filing status and your age (in 2019, the amount is $12,200 if your filing status is single and under 65 years old) or more than $400 of self-employment income, then you are required to file a U.S. income tax return Form 1040, whether or not you live abroad.

If you are required to file, then your worldwide income is subject to U.S. income tax, regardless of where you reside.

A state income tax return may be required based on your state residency status and/or your state source income.

If you are a nonresident alien, you are usually subject to U.S. income tax only on U.S. source income.

I make under the maximum foreign earned income exclusion amount, do I still need to file?

Yes. The foreign earned income exclusion, Form 2555, is an election and if you do not file, then it doesn't apply. Therefore, you have to submit a tax return form 1040 and attach form 2555, in order to exclude your income to lower or completely eliminate your tax liability.

"If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside." The Internal Revenue Service

The tax treaties prevent double taxation. If I am paying higher tax rates in a foreign country, Do I still need to file?

Yes. In order to benefit from the tax treaty the US has with a foreign country, you must fill out and submit a US tax return, form 1040. Attach to your tax return form 1116 to claim a credit for foreign taxes paid against your U.S. tax liability.

The U.S. tax treaties with over 65 countries do not prevent the majority of US citizens living abroad from having to file US taxes unless exceptions apply. Students, teachers, and Americans working in research and development may be exempted from filing or paying US taxes. However, this exception depends on the treaty.

The totalization agreements the United States has with 30 countries (as of September 15, 2019) may prevent the double taxation. According to the United States Social Security Administration, the "International Social Security agreements, often called "Totalization agreements," have two main purposes. First, they eliminate dual Social Security taxation, the situation that occurs when a worker from one country works in another country and is required to pay Social Security taxes to both countries on the same earnings. Second, the agreements help fill gaps in benefit protection for workers who have divided their careers between the United States and another country."

Will I be Subject to Double Taxation?

Certain Americans living abroad required to file a US tax return may be subject to double taxation due to many reasons. If there is no income tax treaty or totalization agreement between the U.S. and a foreign country that imposes income and social taxes on worldwide income to its residents for tax purposes, then double taxation may occur.

How to avoid double taxation? The most common IRS tax provisions are the IRC section 901 and the IRC section 911.

Under section 911, you may exclude up to your first $105,900 on your 2019 tax return (inflation-adjusted annually) of your foreign earned income from your US income by filing form 2555.

Under Section 901, you may take a U.S. tax credit for foreign tax paid or accrued against your U.S. liability on form 1116.

You must, however, file a US tax return and attach one or both forms to alleviate double taxation.

Under certain circumstances, you may enjoy zero tax income liability if you are employed in and you are a bona fide resident in one of the few countries that do not levy an income tax.

Additional Filing Requirements

Although not an income tax, FBAR Form Fincen 114 and FATCA Form 8938 are two additional foreign financial assets reports that Americans living abroad must be aware of. Steep penalties may be imposed for failure to file these disclosure requirements should you meet the minimum filing threshold amounts and should you not submit the required forms on time.