Taxes are complicated enough when you live domestically in the United States. If you move abroad to teach or live in another country, your taxes might change in more ways than one.
When you move abroad to teach in a foreign country, prepare yourself for your tax filing requirements. Even if you stay abroad for a full tax year or longer, you will have to submit an annual tax return to the IRS. Furthermore, you might gain new filing responsibilities if you accrue significant foreign financial assets while living overseas. Satisfying all filing requirements is crucial; otherwise, the IRS might levy serious financial penalties against you. Depending on how long you teach and live abroad, you might qualify for new exclusions and credits that let you reduce your taxable income and, in some cases, totally eliminate it.
Call (541) 362-9127 to learn more about what the tax CPAs for American expatriates at US Tax Help can do for you.
What Teachers Working Abroad Need to Know About US Taxes
If you move abroad to teach, whether for the short or long term, you must report your foreign income to the IRS. In addition to still filing an annual tax return, you may have new filing requirements to satisfy, which our tax CPAs for American expatriates can identify and assist with to avoid unnecessary penalties.
Continued Filing Requirements
If you relocate abroad temporarily to teach, for example, for a semester or two, you must report your income earned during that time to the IRS. The IRS taxes filers based on their worldwide incomes, so any income earned while teaching abroad might be taxable. Suppose you move abroad and stay longer, like several years, decades, or permanently. In that case, you may still have to file an annual tax return with the IRS, reporting all income from foreign or domestic sources.
If you do not file Form 1040 or the appropriate variant by Tax Day or before the automatic two-month filing extension for expats is up, the IRS could financially penalize you. If you need more time to prepare and file your taxes, our tax accountants can help you apply for a separate six-month extension. If the IRS extends your filing deadline, that will not stop interest accruing on unpaid tax. Expats who move abroad to teach for many years and are unaware of their filing requirements could fall seriously delinquent. When that happens, expats might lose their U.S. passports.
New Filing Requirements
Depending on how long you live and teach abroad as an American citizen, you might accrue foreign financial assets or build up your savings in a foreign bank account. This could put you over the reporting thresholds for certain international information returns, like Form 8938 or a Report of Foreign Bank and Financial Accounts (FBAR).
Form 8938 may not be necessary for expat teachers only working abroad temporarily, as it is required for filers with substantial foreign financial assets. That said, our tax accountants can assess your assets and finances in their entirety to determine whether or not you must file Form 8938. Even if you do not have to file Form 8938 for the first few years you teach abroad, your assets might grow as time passes, changing your filing requirements. Neglecting to file Form 8938 typically leads to financial penalties.
An FBAR is necessary for any American taxpayer with more than $10,000 across foreign bank and financial accounts at any given time. Teachers who temporarily relocate abroad and transfer some of their savings to a foreign bank account for that period might have an FBAR filing liability for that year. If you do not file an FBAR when mandatory, you could be fined $100,000 or half the contents of your foreign bank accounts. For non-willful FBAR violations, the penalty is less severe.
Available Exclusions and Credits
It is important to minimize your tax liability by using all possible exclusions and credits, especially if you live abroad. Otherwise, your income might be subject to double taxation.
The most attractive exclusions to expat teachers are typically the foreign tax credit (FTC) and foreign earned income exclusion (FEIE). Many countries tax residents, while the U.S. taxes all citizens, no matter where they live. By claiming the FTC, you can count all income taxes paid to the foreign country you live and teach in toward your U.S. tax liability. We can calculate your foreign tax credit using IRS Form 1116.
Then there is the FEIE, which lets some expats fully erase their taxable incomes. In 2024, the FEIE amount for eligible taxpayers is $1265,000 per person. If your foreign income is the same as the threshold or lower, you may have no taxable income in the United States. The FEIE includes the foreign housing exclusion, which lets expats deduct the cost of certain housing expenses from their taxable incomes.
There is a catch, however. To qualify for the FTC or the FEIE, expats must pass the bona fide residence or physical presence test. While the passing criteria for each test differ, expats typically have to live in a foreign country for about a year and maintain residency there to get the FTC or the FEIE.
The educator expense deduction is available to all American teachers, no matter where they live. So, if you move abroad to teach in a foreign country, you can deduct up to $300 in qualifying expenses paid for using your foreign income. This includes any classroom supplies you bought during the course of the tax year.
Our tax accountants will consider all other possible deductions and exclusions when planning your tax returns, such as your income, marital status, dependents, and other financial and personal information, which might qualify you for additional perks.
Call Our Tax Accountants for Help with Expat Taxes Today
Call (541) 362-9127 for more about the tax CPAs for American expatriates at US Tax Help.