Working from anywhere, even in another country, is possible in today’s increasingly digital world. While some people move to countries like Hungary for job opportunities, others are “digital nomads” who move for fun while maintaining a remote job in the United States. While living this kind of life can be exciting, it can also be complicated when it comes to taxes.
If you are a U.S. expat living in Hungary, you should seriously consider talking to our tax professionals about how to file your taxes, both in the U.S. and Hungary. You might have tax obligations in both countries and be taxed twice on your income, depending on the situation. Our team can help you work to minimize your tax obligations and avoid paying double taxes on your income. We can also help you comply with reporting requirements for things like foreign assets and accounts that must be disclosed to the IRS.
Contact our tax CPAs for American expatriates living in Hungary at US Tax Help by calling (541) 362-9127.
How US Expats Living in Hungary Pay Their Taxes
Taxes are inevitable and inescapable. Even people who leave the United States to live and work in a place like Hungary are still obligated to pay their U.S. taxes if they are still citizens. While paying taxes is nothing new, you might also have certain tax obligations in Hungary. In short, you might have to pay taxes in two countries, which could turn into a very expensive way of living.
Taxes in the United States
U.S. citizens are taxed on their worldwide income, not just income derived from the United States. This means that if you are a U.S. citizen living and working in Hungary and earning income from Hungarian sources, you must still pay income taxes in the United States. This might come as a surprise to some, but leaving U.S. soil does not absolve you of your tax obligations.
If you are unsure of how to pay your U.S. taxes while living in Hungary, you might have more time to figure things out than you realize. Expats living abroad may have an automatic 2-month extension for their taxes, giving them additional time to get things together.
You might also have to disclose information about your assets in Hungary to the IRS. Do you have accounts with Hungarian banks? Do you own property in Hungary? Do you have interests or holdings in Hungarian assets? If the answer is yes, talk to a tax professional about what you need to disclose and whether it affects your tax obligations in the United States.
Taxes in Hungary
In addition to your U.S. tax requirements, you must consider whether you also have tax requirements to fulfill in Hungary. You might not be a Hungarian citizen, but living and working there might make you a legal tax resident. If that is the case, you are responsible for filing Hungarian taxes in addition to U.S. taxes.
The first hurdle to jump is determining whether you are considered a tax resident of Hungary. You might need to consider multiple factors to determine the answer to this question. How long have you lived in Hungary? What is your job in Hungary? Do you have strong social connections or connections with your community in Hungary? People who have been living in Hungary for a longer period, own property, have jobs, and are tied to Hungarian communities are more likely to be considered tax residents.
Also, consider any legal paperwork or documentation you might have received since living in Hungary. If you qualify as a tax resident, your employer in Hungary might have given you documentation to that effect. It should also be noted that in Hungary, personal income is taxed at a flat rate of 15%. The same income may also be taxed by the United States.
How US Expats in Hungary Can Reduce Their Tax Obligations
Paying taxes on the same income twice is not exactly ideal. To protect your income, you may take advantage of certain tax breaks, credits, or exclusions to reduce your taxable income in the United States. Exactly which tax breaks you can claim and which work best for your situation depends on your unique circumstances.
Foreign Tax Credit
If you have already paid or accrued foreign taxes in Hungary, a foreign tax credit might help you reduce your taxable income in the United States. The foreign tax credit may be taken as a tax deduction on Form 1040. In short, the money you have already paid toward your Hungarian taxes may be subtracted from your U.S. taxes. For example, if you owe the Hungarian government $1,000 in taxes, you may take a $1,000 deduction on your U.S. taxes as a foreign tax credit. The more money you pay in foreign taxes, the less you should pay in American taxes. This might be a good option if you pay high taxes in Hungary.
Foreign-Earned Income Exclusion
If you live in Hungary because you have a job there, you might instead want to explore the foreign-earned income exclusion. Some people working overseas work for American-based companies, but their job requires them to work in a foreign market. Their income is technically derived from the United States, not Hungary. However, if you move to Hungary and get a job with a Hungarian business or company, your income is foreign-earned and may be excluded from your U.S. taxes, at least to a certain extent. As of 2024, you may exclude up to $126,500 of foreign-earned income from your U.S. taxes. This might allow many to exclude their entire income or close to it.
Disclosing Financial Information to the IRS as a US Expat in Hungary
When meeting with a tax professional to discuss your domestic and foreign tax obligations, you should discuss whether you must report or disclose any foreign financial holdings or interests to the IRS. The IRS does not always tax these holdings, but they might still need to be reported. Failing to report certain holdings, accounts, or assets could lead to penalties.
First, you should ask whether you must submit a Report of Foreign Bank and Financial Accounts (FBAR). Such reporting is required as part of the Bank Secrecy Act and prevents people from hiding money in offshore accounts. You are required to submit FBAR reports only if you have accounts or hold interest in assets located outside the United States and those accounts or assets were valued at more than $10,000 at any time during the calendar year.
Call Our Tax Accountants for Assistance with Your Taxes Now
Contact our tax CPAs for American expatriates living in Hungary at US Tax Help by calling (541) 362-9127.