Do You Get Double Taxed in The US If You Work in a Different Country?
United States expats who are residing in other countries may wonder: “Will I get taxed twice while living in another county?” The answer is: it depends. If you are a United States citizen, the IRS wants you to pay taxes regardless of where in the world you live. Luckily, expats can benefit from the Foreign Earned Income Exemption, which can prevent them from having to pay taxes on income that they earn in other countries. Continue reading if you’d like to learn more about how you can qualify for the Foreign Earned Income Exemption and how U.S. Tax Help can help you prepare and file your taxes if you’re a U.S. expat living abroad.
Filing Taxes with the IRS While Living in Another Country
United States citizens who work in other countries do not get double taxed if they qualify for the Foreign-Earned Income Exemption. Expats should note that United States taxes are based on citizenship, not the physical location of the taxpayer. Therefore, the taxpaying citizens will have to pay taxes on income that is earned outside of the United States. While understanding taxes on foreign-earned income can be slightly complicated, there are some advantages to earning income in another country. Many other countries offer tax rates that are more forgiving than those in the United States. Many expats might qualify for exemptions, exclusions, credits, and deductions; the most useful of which is the Foreign-Earned Income Exemption (FEIE).
The Foreign-Earned Income Exemption
United States citizens who live abroad can exempt themselves from paying taxes on the income they earn in other countries if they qualify for the Foreign-Earned Income Exemption, allowing them to avoid double taxation.
Qualifying for the Foreign-Earned Income Exemption
Taxpayers qualify for this exemption if they pass the bona fide resident test or the physical presence test. Taxpayers pass the bona fide residence test if they reside in a country for the entirety of a tax year (from January 1 to December 31). They can pass the physical presence test if they live in a foreign country for a full 330 days within one 12-month period, either consecutively or nonconsecutively.
Exclusions Included in the Foreign-Earned Income Exemption
Taxpayers who qualify for the Foreign-Earned Income Exemption can exclude their foreign-earned income from being taxed, up to a limit. The cap on the amount that is taxed adjusts each year to match the rate of inflation. For the tax year 2019, taxpayers can exclude foreign-earned income up to $105,900. Income above $105,900 will be taxed on the amount that exceeds it.
What Happens If You Don’t Qualify for the Foreign Earned Income Exemption
If a taxpayer doesn’t qualify for the Foreign-Earned Income Exemption, they’ll have to file taxes as they regularly would. Taxpayers who lapse in payment, however, can participate in a tax amnesty program called the Streamlined Foreign Offshore Procedures. This program allows United States citizens to pay their previously unpaid taxes with a marginal risk of penalty. Taxpayers are eligible for the Streamlined Foreign Offshore Procedures if: they are a United States citizen, a United States green card holder who has not lived in the United States in the prior three years in which a tax return due date has passed (or have not been in the United States for more than 330 full days), or a green card holder who has not passed the physical presence test.
Other Tax Requirements for US Citizens Living Abroad
United States expats must file federal income tax returns with the IRS, but they may have to file other forms depending on their assets and the financial accounts they hold. Expats should note that they might have to file the Report of Foreign Bank and Financial Accounts (also known as the FBAR) and the Foreign Account Tax Compliance Act (also known as the FATCA).
Report of Foreign Bank and Financial Accounts (FBAR)
Citizens of the United States (as well as corporations, LLCs, partnerships, estates, and trusts) must file an FBAR while living overseas if they have a stake in or authority over one or multiple foreign accounts that, when combined, have a value of $10,000 or more at any given point during the year that is being taxed. FBARs can be filed using FinCEN Form 114, and it must be filed with the Financial Crimes Enforcement Network. They do not need to be filed for financial accounts that are owned by government entities or international financial institutions, maintained by the United States military’s banking facilities, held in an IRA or retirement plan.
Taxpayers who file FBARs should note that they should keep records of their accounts for five years following the date that they file. Their records should include information about the name attached to the account, the account number, the bank that maintains the account and its address, the type of account, and the maximum value of the account during the tax year.
Foreign Account Tax Compliance Act (FATCA)
United States citizens who hold financial assets in countries besides the United States must report them to the IRS using Form 8938. Single taxpayers must report foreign financial assets if they are worth either $300,000 at any point in the year or $200,00 at the end of the year. The thresholds are twice as much for married taxpayers filing jointly.
The Foreign Account Tax Compliance Act (FATCA) requires some U.S. taxpayers who hold financial assets outside of the United States to report foreign financial assets to the IRS. Taxpayers can use Form 8938 to do so. Single taxpayers living abroad must file Form 8938 if they have financial assets outside of the United States that are worth either $200,000 at the close of the year or $300,000 at any given point during the year. The thresholds for filing Form 8938 are doubled for married taxpayers. FATCA also requires some financial institutions (banks, investment entities, brokers, and some insurance companies) to report information about their financial accounts to the IRS.
Tax Specialists Helping Expats Avoid Double Taxation
You don’t have to figure out your tax obligations on your own if you’re a United States citizen living in another county. The international tax accountants from U.S. Tax Help are available to guide clients through the U.S. tax code. To learn more about how the international tax accountants from U.S. Tax Help can help you avoid double taxation while living in a different country, call (541) 362-9127 today.