Tax Implications When Forced Home to the U.S. From Abroad
Living and working abroad can be a great experience, but it does not always end the way we want. Due to circumstances beyond their control, some people may be forced to return home to the U.S. suddenly. This can be difficult for numerous reasons, including paying taxes.
If you are a U.S. citizen, you may be taxed in the U.S. on your worldwide income. This means that no matter where you earn income, it is subject to taxation by the United States government. If you work and live abroad, you might also be liable for taxes in a foreign country. Being forced to return home does not automatically relieve you of your tax obligations overseas. You might have to pay taxes in the other country depending on whether you were a tax resident. This is often based on how long you lived and worked in that particular country. If you owe taxes in both countries, an attorney can help you utilize certain exemptions, credits, or tax exclusions.
For help figuring out your tax situation, call our tax accountants at US Tax Help at (541) 362-9127.
How Do I Pay Taxes When Forced to Return Home to the U.S. From Another Country
As the old saying goes, nothing is certain in life but death and taxes. If you are a citizen of the United States but live and work in a foreign country, you might have multiple tax obligations to work out. Of course, as a U.S. citizen, you may owe U.S. taxes. Living abroad, you likely only have to pay federal taxes since you do not reside in any state. You might also need to pay taxes in the country where you live and work. Your tax obligations might change if you are suddenly forced home to the U.S.
In the United States, you are taxed on your worldwide income. This means that any income you earn in any country might be taxed in the United States as long as you are a citizen or resident. Other countries have similar laws, and you might also owe taxes in the country where you live if you are considered a tax resident.
There might be various ways that a country determines whether residents are tax residents, and these criteria may vary between nations. Generally, the length of time you live in a country factors heavily into determining whether you owe taxes in that country. If you are forced home very suddenly and your time abroad is cut short, you might not qualify as a tax resident, depending on how long you were living abroad.
To determine if you were a tax resident in the other country where you were living before being forced home to the U.S., talk to an attorney. Our tax accountants can help you review the other country’s tax rules and laws and determine your tax obligations. If you owe taxes in both countries, we can help you avoid double taxation by taking advantage of exemptions or exclusions.
How Do I Know I Have to Pay Foreign Taxes if I Am Forced Home to the U.S. From Abroad
It can be tricky to understand whether you are obligated to pay taxes in a foreign country. As discussed above, if you were working in a foreign country before you were forced to return home to the U.S., there is a chance that you are considered a tax resident of that country. If that is the case, you might have tax obligations in that country. An attorney can help you go over the relevant country’s laws on tax residency.
Below are two methods the United States uses to determine if people working and living abroad may take advantage of certain tax exemptions and exclusions on foreign-earned income. Meeting these requirements might not automatically mean you are a tax resident in a foreign country, but it might give us a good idea of where you stand.
Physical Presence Test
One method is the physical presence test. As the name implies, this test is based on the amount of time a taxpayer was physically living in a foreign country. In the United States, you might satisfy this test if you lived in a foreign country for at least 330 full calendar days during any 12 consecutive month period. The exact time frame required in other countries may vary, and you should talk to a lawyer.
Remember, this is a test the United States uses to determine if people qualify for certain tax exemptions or credits on foreign-earned income. It might differ from the laws in the foreign country in court cases used to determine tax residency. However, many countries have similar laws that hold that if you live there long enough, you must pay taxes.
Bona Fide Residence Test
The United States also employs the bona fide residency test. Using this test, the government will determine if someone is a bona fide resident of a foreign country based on their intent to stay. This test adds an extra consideration to the situation. While physical presence in a foreign country may be considered, it is not the sole determining factor. You must also have the intention to remain living and working abroad to be considered a bona fide resident of that country.
Again, this test is used in the United States for U.S. tax exemptions and exclusions. Passing this test does not necessarily mean you are a tax resident in the country where you work and live. However, your country might have similar tests and rules. If you move to a country and intend to live and work there, you might be considered a tax resident.
Call US Tax Help to Talk About Potential Tax Implications for Your Specific Situation
Call our tax accountants at US Tax Help at (541) 362-9127 to discuss your tax situation and determine if you must pay taxes in two countries if you were forced to return to the United States.