Filing Taxes as a U.S. Citizen Living Abroad

file taxes living abroad

The rules for filing income taxes are generally the same for all American citizens and resident aliens, no matter where in the world you live. That’s because the U.S. filing requirement is based on citizenship—not place of residence. This article takes a look at the tax implications if you live and/or earn income abroad. 

I’m a U.S. citizen but I live in another country. Do I have to file taxes in America?

Yes, American citizens and resident aliens living abroad are still required to file U.S. taxes. When you file taxes as an expat, the main difference is the type of forms you have to fill out.

When do expats have to file U.S. taxes? 

By default, American workers in foreign countries get a two-month extension for filing their taxes. The IRS deadline for American citizens in America is typically April 15. So, with the two-month extension for citizens abroad, your taxes in a typical year would be due on June 15.  

If you need even more time, you can request an additional two-month extension. You’ll need to submit IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. One thing to be aware of here is that an extension to file a return does not also mean an extension to pay. If you owe taxes, you must pay your bill by your original deadline to avoid interest and late fees.  

Do I have to pay taxes to the U.S. for income I earned overseas?

Many American expats don’t end up owing taxes to the IRS. This is because the U.S. has “tax treaties” (agreements) with several foreign countries that prevent your income from being taxed twice (once by the country where you live and again by the U.S.).

It’s important to note that even though you may not have to pay U.S. taxes, you’ll still need to file a federal income tax return to report your earnings. 

There are some important tax breaks for expats to help you avoid double taxation. Here are two of them:

The Foreign Tax Credit

The Foreign Tax Credit can be used to lower your tax liability for income you earned from a foreign country. The credit is equal to the amount of foreign tax you paid or the “foreign tax credit limit,” whichever is less. Learn more about the Foreign Tax Credit for American Expats. 

The Foreign Tax Credit is usually calculated using IRS Form 1116. See how to find Form 1116 in TaxSlayer.  

The Foreign Earned Income Exclusion (FEIE)

The FEIE allows American citizens and resident aliens who live abroad full-time to deduct their foreign-earned income up to a certain amount ($103,900 for 2018, $105,900 for 2019, $107,600 for 2020, and $108,700 for 2021). This amount is exempt from U.S. taxes. Here’s how it works: 

Say you live in Madrid and your employer is also based in Spain. In 2021, you earned the equivalent of $120,000. According to the FEIE, you can exclude up to $108,700 of that income on your U.S. taxes. That means that only $11,300 of your foreign-earned income will be subject to federal income tax. 

$120,000 – $108-700 = $11,300  

The IRS has rules about who can and can’t claim the exclusion. For example, it only applies if you live and work in a foreign country and your employment is indefinite (not just temporary or short-term). Another rule says that if your tax home is still here in the United States, you will not be able to claim this exclusion. 

If you do qualify for the FEIE, you’ll use Form 2555 to calculate the exclusion when you file your return. See how to find Form 2555 in TaxSlayer. 

Can I qualify for the Foreign Income Exclusion if I live in the U.S.?

To claim the FEIE, you must pass either the Bona Fide Residency test or the Physical Presence Test. See the complete IRS rules and requirements.

How do I report my income if it’s in a different currency?

The IRS needs to know how much you made in USD. Many people use the yearly average exchange rate to calculate this amount in dollars but you can also calculate each payment based on the exchange rate for that given day. 

Do I have to file state taxes as an expat, and if so, where?

Each state has its own tax laws, and the state you used to live in may still consider you a resident or non-resident filer. Check the Department of Revenue in your former state to understand your requirement. 

Filing expat taxes with TaxSlayer

TaxSlayer Classic includes all the forms you need to file your individual income taxes, including foreign income tax forms like the IRS Form 2555 and 1116. For additional support from a tax expert with experience in expat tax filing, choose TaxSlayer Premium as your filing option. If you’re self-employed, use TaxSlayer Self-Employed and receive additional support with your situation. 

This article is up to date for tax year 2021 (returns filed in 2022).

This article is intended to provide general information to the public and does not provide personalized tax, investment, legal, or business advice. You should seek the assistance of a professional for advice on taxes, investments, and any other financial, legal, or business matter pertinent to your individual situation.

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