One of the most common questions for Americans living abroad is whether they need to file a US tax return if their income falls below the Foreign Earned Income Exclusion (FEIE) limit. For the 2024 tax year, the FEIE allows eligible American expats to exclude up to $126,500 of foreign earned income from US taxation. However, filing an American expat tax return involves more than just comparing your income to the FEIE limit; other factors such as the IRS filing thresholds and additional reporting requirements also come into play.
Even if your income is below the FEIE limit, you may still need to file a US tax return if it exceeds the IRS filing threshold based on your filing status. While having income below the FEIE often means you won’t owe US taxes, reporting is crucial to claim the exclusion and comply with US laws. For help with expat tax preparation and ensuring all filing requirements are met, Universal Tax Professionals is just a call or email away.
Understanding the Foreign Earned Income Exclusion (FEIE)
The Foreign Earned Income Exclusion is a tax benefit that allows US citizens and resident aliens living abroad to exclude a certain amount of their foreign-earned income from US taxes. To qualify, you must meet specific requirements:
- Tax Home Test: Your tax home must be in a foreign country.
- Physical Presence Test: You must be physically present in a foreign country or countries for at least 330 full days during a 12-month period.
- Bona Fide Residence Test: You must be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year beginning January 1st and have an established abode in that country.
Filing Requirements for US Expats
The United States taxes its citizens and resident aliens on their worldwide income, regardless of where they live. Therefore, even if your income is below the FEIE limit, you may still be required to file a US tax return. The requirement to file a tax return depends on several factors, including:
Filing Status: Your filing status (single, married filing jointly, married filing separately, etc.) determines your filing threshold.
- Age: The filing threshold also varies based on your age (under or over 65).
- Types of Income: Other types of income, such as unearned income (interest, dividends, etc.), can affect your filing requirement.
- Self-Employment Income: If you have self-employment income, you may be required to file a tax return even if your income is below the FEIE limit.
- Additional Filing Requirements: Other forms, such as the Foreign Bank Account Report (FBAR) or Form 8938 for reporting foreign assets, can trigger filing requirements.
Filing Thresholds for 2024
For the 2024 tax year, the general filing thresholds for most taxpayers are as follows:
- Single: $14,600
- Married Filing Jointly: $29,200
- Married Filing Separately: $5 (married expats filing separately from a non-US spouse must file if they earn more than $5)
- Head of Household: $21,900
- Self-Employment: $400 or more in net earnings
If your total income, including both foreign earned and unearned income, exceeds the threshold for your filing status, you must file a US tax return.
When you must file even if below the FEIE Limit:
There are situations where you may need to file a tax return even if your income is below the FEIE limit:
- Self-Employment Income: If you have more than $400 in net self-employment income, you are required to file a tax return and may owe self-employment tax.
- Unearned Income: Interest, dividends, capital gains, and rental income count toward your gross income and can trigger a filing requirement.
- Reporting Requirements: Filing may be necessary to report foreign accounts (FBAR) or assets (Form 8938) even if no tax is owed.
- Claiming Exclusions and Credits: You must file a tax return to claim the FEIE, the Foreign Housing Exclusion, or the Foreign Tax Credit (FTC).
Practical Considerations
- Overseas Tax Obligations: Even if you do not need to file a US tax return, you may still have tax obligations in your host country.
- Compliance and Penalties: Failing to file when required can result in penalties, interest, and potential legal issues. Filing ensures you are compliant with US tax laws.
- Streamlined Filing: If you discover you should have been filing in past years, the Streamlined Filing Compliance Procedures may help you catch up without facing significant penalties.
In many cases, Americans living abroad must file a US tax return even if their income is below the FEIE limit. Filing ensures that you are compliant with US tax laws and allows you to claim valuable exclusions and credits. Understanding your filing requirements and seeking professional advice can help you navigate the complexities of US taxes while living overseas.
