What U.S. Taxes Do American Expats Have to Pay?

Though an American expat might understandably believe that leaving the country negates any tax obligation to the U.S. government, the reality is that the Internal Revenue Service will still expect a tax return (among other paperwork) on April 15, even if you live on the other side of the world. In fact, those moving overseas should expect an increase in the number of forms that they must file, especially if they have assets in foreign accounts or other entanglements that must be reported. So what taxes do American expats have to pay, and what forms must they submit? Keep reading as the accountants for U.S. expat tax return preparation at U.S. Tax Help shed some light on the topic.

Filing a Tax Return as an Expat

On a fundamental level, filing a tax return as a U.S. expatriate seems simple. Expats use the familiar Form 1040 when submitting their tax information to the IRS, a form that many taxpayers know well at this point. Any American is taxed on their worldwide income, so even if you earned most or all of your money in another country, the IRS will expect you to report it by April 15. However, one benefit of being an expat is that you are generally given an automatic two-month extension to file your tax return and pay any taxes due, pushing the effective expat deadline to June 15.

To qualify for this automatic extension, you must be a U.S. citizen or resident who both lives and works outside of the United States and Puerto Rico; servicemembers posted in another country are also eligible for the extension. One thing to note, however: interest on tax payments begins accruing on April 15, regardless of any extensions, so pushing your filing date back may wind up costing you a bit more than filing by the standard deadline.

For those who might struggle to meet the June 15 deadline, you can request an extension to October 15 instead by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This form must be sent in before the automatic extension passes. A qualified accountant for late filing of U.S. taxes as an expat can help you determine whether an extension is the right option.

Tax Breaks for Americans Living Overseas

Despite the innate complications of living in another country and filing taxes in the U.S., expats have a number of financial advantages in the form of deductions, exemptions, exclusions, and credits that can shrink – or even eliminate – their monetary obligation to the IRS. Of course, the requirements for eligibility can vary from one tax provision to the next, which can make it difficult to determine which of these benefits may apply from one taxpayer to the next.

One of the more common metrics the IRS uses to judge eligibility for these benefits is whether the person in question is truly an expat living abroad. To establish this, the government often relies on two specific tests, the bona fide residence test and the physical presence test.

  • The bona fide residence test requires that a U.S. citizen be a de facto resident of a foreign country for a period of at least one tax year. Determinations are made on a case-by-case basis and are largely informed by what you report on Form 2555, Foreign Earned Income.
  • The physical presence test simply requires that you be physically located outside of the U.S. for at least 330 days over a one-year period; the days do not need to be consecutive.

Assuming you pass either one of these, you may be eligible for several of the more popular expat tax breaks, including the foreign earned income exclusion, the foreign housing exclusion and deduction, and the foreign tax credit. Each of these can reduce your U.S. tax burden – the foreign earned income exclusion, for instance, allows you to subtract more than $100,000 from your taxable income – making them essential for any expat filing U.S. taxes. An international tax specialist can help ensure that you get all the tax breaks for which you qualify.

Reporting Requirements for U.S. Citizens Living Abroad

In addition to filing a tax return and the necessary paperwork for all your tax breaks, you may also have to report any foreign financial assets you have in another country. Two of the most important reporting thresholds to keep in mind as an expat are $10,000 and $200,000 (if single) or $400,000 (if married and filing jointly with your spouse).

The first number refers to the Report of Foreign Bank and Financial Accounts, also known as the FBAR. If you have an interest in or authority over one or more accounts worth more than $10,000 at any point during the year, you must electronically submit FinCEN Form 114 to the U.S. Treasury Department reporting that fact and any relevant details.

The second and third numbers are related to the Foreign Account Tax Compliance Act (FATCA), which requires U.S. taxpayers with financial assets above a certain amount to report those assets on Form 8938, Statement of Specified Foreign Financial Assets. As noted above, FATCA thresholds can vary based on whether you are married or single and whether you live in the U.S. or abroad. A skilled international tax specialist can help you meet any reporting requirements so you can avoid penalties and fees.

International Tax Experts Available for Consultations Anywhere in the World

If you or someone you know must file U.S. taxes from another country, it is important to be aware of all the many hoops an expat must jump through for the IRS. At U.S. Tax Help, we have decades of experience helping taxpayers meet their obligations from anywhere on the planet; whether you’re a self-employed expat living in Moscow or working for a multinational corporation in Buenos Aires, we can help sort out your tax situation. For more information or to set up a consultation, visit us online or call (541) 362-9127 today.