Filing Taxes as a US Citizen Living Abroad

file taxes living abroad

In this age of technology, the world is more connected than ever which has created tons of new job opportunities, including living and working abroad. Telecommuting has spiked in the last ten years which means that more Americans are working abroad than ever. Even if income is earned in a foreign country, those workers still have obligations to the IRS.

Here, we’ll take a look at what your tax implications are if you are an American worker living and earning income abroad.

Do I have to pay taxes on money earned overseas?

In short, yes. Whether you’re an active on-duty member of the military living on a non-American base or are a freelance photographer capturing picturesque landscapes around the world, people working abroad are still required to file living abroad taxes although their deadlines are extended.

There are certain tax breaks for American workers in foreign countries – which can significantly affect filing tax returns – but, regardless, the IRS needs this information on file.

When do I have to file?

By default, American workers in foreign countries get a two-month extension for filing their taxes, giving them until June to file. An additional two-month extension, until October, can be requested by submitting 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 any unpaid taxes will begin to accrue interest from the original April deadline although late fees won’t be applied until whichever deadline you qualify for.

What if my income is in a different currency?

When working in another country, it’s not uncommon to receive payments in the local currency. The IRS, however, needs to know how much you made in USD. Many people use the yearly average exchange rate to calculate this amount in dollars but they can also calculate each payment based on the exchange rate for that given day.

Can I Take Advantage of any Tax Breaks?

Working abroad qualifies you for the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit.

Foreign Earned Income Exclusion

The FEIE allows workers to deduct their foreign-earned income over a certain amount, exempting them from US taxes. In 2017, this amount was $102,100. So let’s say you make $120,000 – you would find the difference between the two and that’s what the US can tax ($17,900).

One thing to be aware of is that the tax rate is dependent on the total income amount ($120,000), meaning that a significantly larger percentage of taxes will be withheld than, say, a person living in Texas that made $17,900.

Foreign Tax Credit

The foreign tax credit is in place to prevent foreign workers from being taxed twice for the same income. Under this provision, workers can deduct taxes paid to foreign governments from their American tax returns using IRS Form 1116.

How TaxSlayer can help file US taxes on foreign income

Keeping up with tax laws, deadlines and forms can be overwhelming, and are much less exciting than traveling and learning new cultures so lean on TaxSlayer to do this for you. TaxSlayer will remind you of any upcoming deadlines and walk you step-by-step through all of the forms that you need to complete in order to get back to enjoying your life, wherever that may be. Get started on filing your US citizen living abroad taxes today!

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