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An Intro Guide to US Expat Taxes

  • Jotika Teli, CPA
    • Man working outdoors with exotic background.

    Relocating to another country is a great way to enjoy new experiences, but your obligations as a taxpayer are different if you’re an expat.

    Whether you’re moving to another country to work or live as a retiree, you may still have to file a tax return. Understanding your responsibilities when you move to another country can help you avoid problems down the road.

    Let’s take a closer look at taxation for expats and the filing requirements you have to follow if you’re an expat.

    Who’s considered an expat?

    An expat — or expatriate — is someone who leaves their country to live or work in another country. Some expats leave the country for work, but you don’t have to work in another country to be considered an expat.

    For many people, relocating to another country can be a way of finding more lucrative job opportunities. Some people move to another branch of the company they’re already working for, while others move to another country to start with a new employer.

    With all the popular destinations around the world, more people are also moving to other countries to retire. If you move to another country as a retiree, you’re also considered an expat and may be required to pay federal taxes.

    Are all expats required to pay taxes?

    As a US citizen, you generally have to follow the same filing requirements whether you live in the US or abroad. Depending on where you’ve been living in the US, you may also have to pay both state and federal taxes.

    If you’re an expat, you only have to file federal taxes if your income exceeds a certain amount. Income thresholds based on your age and filing status for 2024 (filing in 2022) are:

    Some expats also have to pay self-employment taxes. If you’re self-employed and you earned over $400 in a year, you’ll have to file a tax return.

    Expats don’t have to pay state income taxes as residents of:

    *Only interest and dividend taxes

    State filing requirements are based on the state you live in. The states that have no income tax for expats include:

    Additionally, New Hampshire only taxes US expats on interest and dividends.

    Whether or not you have to pay state taxes also depends on your income. You may have to file a state tax return if you’ve earned income originating from that state. You may also need to file a part-year resident state return if you moved out of the country in the middle of a tax year.

    Understanding state tax filing requirements can be tough, especially if you’re new to living abroad. Consider hiring an experienced tax expert who can help you navigate your tax obligations as an expat.

    Do you have to file a return for foreign income?

    Foreign income is any income you receive as a result of work you perform in another country, and you may have foreign tax obligations too.

    As an expat working in another country, you’re eligible for the foreign-earned income exclusion on your US income tax return. This allows you to exclude a limited amount of your foreign-earned income from your total income.

    For 2023, the foreign-earned income exclusion limit was $120,000, and in 2024, it’s $126,500 per person. If you and your spouse are both working expats, you can exclude up to the exclusion amount. Your exclusion can’t exceed your total foreign income.

    Keep in mind that you can only use the foreign-earned income exclusion to exclude income from the year it was earned. The limit also changes each year, so the actual exclusion you can claim may vary.

    You can choose the foreign-earned income exclusion by completing Form 2555 and claiming the exclusion. To claim your exclusion, you must file a return by the due date, by the extended due date,, or on a return amending a timely filed return.

    Are there penalties if you don’t file taxes as an expat?

    Your tax responsibilities are a little different as an expat. Some expats may not have to pay US taxes, but you still need to make sure you’re filing your taxes and keeping up with your obligations if you’re living abroad.

    As an expat, you’re required to file Form 8854, Initial and Annual Expatriation Statement. This form is your way of letting the IRS know that you’re relocating to another country as an expat.

    If you don’t file Form 8854 along with your federal tax return when it’s due, you can face a large tax penalty. Expats who don’t file Form 8854 can face a non-compliance penalty of up to $10,000.

    You’re still considered a US citizen if you don’t file Form 8854 along with your taxes, which means you’re also subject to standard taxation rules.

    There are also penalties if you don’t file and pay your taxes on time. If you don’t file your tax return, the penalty is 5% of the taxes you owe for each month you haven’t filed — with a limit of 25% of the total taxes you owe.

    If you’re planning to move overseas, talk to a tax professional to make sure you understand your obligations and what’s considered taxable income.

    When are expat taxes due?

    The due date for expat taxes depends on whether you use the calendar year or fiscal year. If you file on a calendar-year basis, your federal tax return is due on April 15 each year — the same day as a standard tax return.

    If you use a fiscal year to file, your due date is based on when your fiscal year ends. Tax due dates may be moved back a few days if they land on a weekend or holiday. For example, your taxes aren’t due until April 17 if April 15 falls on a Saturday.  You also allowed an automatic 2-month extension to file your return without requesting an extension, which pushes the due date of your tax return filing to June 15th.

    If you can’t file by the June 15th extended day, you can request an extension to October 15th to file and pay.  You will need to pay interest on any taxes not paid by the regular due date of your tax return.. 

    Just like US citizens, expats can be penalized for failing to file or pay taxes by the due date. The amount you owe in penalties is based on your total income, so you’re at risk for larger penalties if you’re in a higher tax bracket.

    How to file taxes as a US expat

    Your tax responsibilities are a little different as a US expat. You still have to file a standard tax return, but there may be some slight differences involved.

    You can start by filling out Form 1040 just like you do if you’re a regular citizen. Make sure you report any income you receive throughout the year, but keep in mind that you can claim the foreign-earned income exclusion.

     

    If you’re getting paid in US dollars, you can report the amount you earn on your tax return. If you’re getting paid in a foreign currency, you need to convert that currency to US dollars before you fill out your tax return. Check foreign currency and currency exchange rates to ensure you’re converting properly.

    If you claim the foreign earned income exclusion, you need to fill out Form 2555 in addition to your 1040.  Form 2555 will be attached to your 1040 when you file your tax return.

    Forms that might be needed

    Other forms you might need will depend on your individual situation and will vary based upon the type of income you receive and the deductions you claim..

    You have your choice between the standard or itemized deduction. If you choose the itemized deduction, you have to file Schedule A (Form 1040). This form allows you to claim each individual itemized deduction.

    If you claim the standard deduction, you don’t have to file any additional forms.

    You may also need to file a Report of Foreign Bank and Financial Accounts (FBAR) or Foreign Account Tax Compliance Act (FATCA) Form 8938 if you have assets or investments in a foreign country. If you have foreign assets or investments, it may be better to get help from a tax professional when it’s time to file.

    If you’re claiming the foreign earned income exclusion, make sure you file Form 2555 along with your tax return. The IRS provides Form 2555 instructions if you need help completing the form.

    No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed.

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