Expat Taxes FAQs

/ Expat Tax, Ingleton Partners, US Tax

Here are some frequently asked questions to help you get to grips with expat taxes and how to remain compliant. Remember, if you’re unsure of your obligations, always check with a qualified tax advisor.

Do I have to file US taxes if living abroad?

If you are a U.S. citizen, lawful permanent resident (greencard holder) or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or living abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside.

What happens if you don’t file taxes while living abroad?

As a U.S. citizen or green card holder living abroad, is there a penalty for not filing taxes? Yes. Just like any U.S. resident, if you’re an American living abroad and fail to file your U.S. or state taxes, you may receive a penalty for not filing tax and information returns on time, even if you do not owe taxes to the IRS or state government.

How much tax do US citizens living abroad pay?

If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is adjusted annually for inflation.

The Foreign Earned Income Exclusion (FEIE) allows qualified taxpayers to exclude from taxable income up to $105,900 of earned income in 2019 subject to requirements.

Any other income not covered by the exclusion will generally be taxed at rates up to 37% on income and special rates up to 20% on long term gains and qualified dividends. There is also a net investment income tax of 3.8% that applies to investment income. Foreign tax credit may be available to offset these taxes.

Do dual citizens pay taxes in both countries?

If you are a dual citizen living abroad, you might owe taxes both to the United States and to the country where the income was earned. Income tax treaties are in effect, however, between the United States and many other countries that reduce or eliminate a U.S. citizen’s tax liability in the United States. As US person it is important to make sure your local country taxes are reported correctly in order to get a foreign tax credit.

How do I file taxes as a US citizen living abroad?

If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside. You need to file a tax return and potentially a report of foreign bank and financial accounts (FBAR) and we recommend using a tax adviser to do this.

What happens if you don’t report foreign income?

If the IRS finds that you willfully failed to disclose overseas bank or financial accounts, you could owe a civil penalty of 50% of your total balance or $100,000, whichever is greater, for every year you failed to file an FBAR form. In the most serious cases the IRS may consider criminal penalty. The IRS state the minimum penalties for failure to file an FBAR are $10,000 per omission.

Additional penalties may be applied to a corrected tax return including, accuracy penalty, late payment penalty and interest.

Do retired expats pay taxes?

Leaving the United States does not exempt U.S. citizens from their U.S. tax obligations. While some retirees may not owe any U.S. income tax while living abroad, they must still file a return annually with the IRS. The bottom line is that you may still be taxed on income regardless of where it is earned.

Do expats pay state income tax?

As an American expat, you may also still owe state taxes. Many states will also allow the foreign earned income exclusion, which can affect your taxable income. Consulting with an expat tax expert can help you determine if you are still required to file a state income tax return or not.

Do I have to pay Social Security tax as an expat?

If an individual is working for an American company, both the employer and employee are usually required to continue to make US Social Security contributions, at least for a period of time. The length of that period generally depends on the country in which you are working and the Social Security Agreement between the two. In the UK, a US expat on assignment from a US employer may be able to stay under US Social Security contributions for up to 5 years.

For self-employed entrepreneurs, whether they are required to pay self-employment tax on net income earned, paying into US Social Security, is very much dependent on the foreign country in which you reside. For example, a US citizen self-employed in the UK will generally pay UK National Insurance where as a US citizen self-employed in Italy may have to pay into US Social Security.

Do I need to declare income earned overseas?

Whether working abroad or in the U.S., you must file a U.S. tax return if you meet the filing threshold which is generally equivalent to the standard deduction for your applicable filing status. You may be able to reduce your taxable income to zero by claiming the Foreign Earned Income Exclusion. This only applies to certain earned income which does not include investment income or pension income.

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