If you’re a US citizen or a resident alien living abroad, you may be wondering whether you still need to pay US taxes while living overseas. The short answer is: Yes, US expat taxpayers are still required to file US taxes, even when living abroad. However, the specifics of your tax obligations can depend on various factors, such as your income and filing status.
Filing US taxes as an expat can be confusing, but with the right support, the process becomes much more manageable. At Universal Tax Professionals, we specialize in expat tax preparation and have helped thousands of Americans living abroad fulfill their US tax obligations. Our team understands the unique challenges expats face and is just a call or email away to assist you.
US income taxation is Citizenship-based – US Citizens and Resident Aliens are taxed on worldwide income
Under US tax law, US citizens and resident aliens (green card holders) living abroad are subject to US federal income taxation on their worldwide income, irrespective of where the income was earned – so income earned abroad by US expats is subject to US federal taxation, just as income earned by US taxpayers within the US is.
The United States is one of only two countries in the world which uses a taxation system based on citizenship, as opposed to two other, much more common systems – territorial-based and residence-based taxation.
As a US expat living abroad, you will likely have a US tax filing obligation if you have personal income such as wages, salary, commissions, pension distributions or alimony payments; investment income such as interest, dividends or capital gains; or income from rental property – even if all of the income was from foreign sources, and is also taxed by a foreign country. The same is true even for a US citizen or resident alien who has never even set foot in the US.
You may also have US tax filing obligations even if you don’t have any income, but are married to someone who did have income.
Also, expats need to keep in mind that they may also have an annual requirement to file an FBAR on FinCEN Form 114, Report of Foreign Bank and Financial Reports. An FBAR report must be filed with the US Department of the Treasury if a US person, at any point during the year, had a combined highest balance of more than $10,000 in all of his or her foreign bank and other foreign financial accounts, including investment, pension and insurance accounts.
Just the same as US taxpayers living in the US, you will need to file your US federal tax return on Form 1040 a for the previous tax year, provided that your income was above a certain threshold, which varies depending on a taxpayer’s filing status. The filing thresholds are exactly the same as for US taxpayers living and working in the US.
US Tax Return Filing Thresholds for 2023 (Filing in 2024)
| Filing Status | Under 65 years old | 65 years old or older |
| Single (unmarried) | $13,850 | $15,700 |
| Married Filing Jointly (MFJ) | $27,700 | $30,700 (both spouse must be 65 or older |
| Married Filing Separately (MFS) | $5 | $5 |
| Head of Household (HOH) | $20,800 | $22,650 |
| Surviving Spouse (Widow/Widower) | $27,700 | $29,200 |
These filing thresholds correspond to the standard deduction amount for each filing category. Please note that US expats with non-US spouses are normally considered to have a filing status of married filing separately, with a very low filing threshold of only $5.
Do US Citizens living abroad get taxed twice?
US citizens living abroad often wonder if they will face double taxation—once by the country where they reside and again by the US government. The short answer is that while it is possible to be taxed twice on the same income, there are provisions within US tax law designed to prevent or minimize this double taxation for expats.
Foreign Earned Income Exclusion (FEIE)
The Foreign Earned Income Exclusion (FEIE), claimed on Form 2555, is one of the primary mechanisms for US expats to avoid double taxation. The FEIE allows qualifying taxpayers to exclude a certain amount of foreign-earned income from US taxation. For example, for tax year 2023, US expats could exclude up to $120,000 of foreign-earned income. To qualify for this exclusion, you must meet certain requirements, such as being a US citizen or resident alien who has lived abroad for at least one calendar year.
However, it’s important to note that the FEIE only applies to foreign-earned income, not other types of income such as interest, dividends, capital gains, or pensions.
Foreign Tax Credit (FTC)
Another way to mitigate double taxation is through the Foreign Tax Credit (FTC), claimed on Form 1116. If your foreign income is taxed by the country where you live, you can claim a credit for those foreign taxes on your US tax return. This allows you to offset your US tax liability dollar-for-dollar, reducing or eliminating the amount of tax owed to the US government.
It’s important to remember that the FTC cannot be claimed on foreign taxes paid on income that is excluded under the FEIE. Essentially, you can’t use both the FEIE and the FTC to exclude or credit the same income.
Do US Citizens have to pay US taxes on foreign property?
Yes, US citizens living abroad must report and pay taxes on income earned from foreign property, just as they would for property located in the US. This includes rental income from foreign properties, which is taxable by the US government. Even if your foreign property is subject to taxes in the country where you reside, you are still required to report that income to the IRS.
Do US Citizens living abroad pay social security taxes?
US expats may also be required to pay Social Security taxes, especially if they are self-employed. If you are self-employed while living abroad, you must continue to pay Social Security taxes on your income, just as you would if you were living in the US. However, if you work for a foreign employer, the situation may vary depending on whether the country you live in has a Social Security agreement (known as a “Totalization Agreement“) with the US.
Countries with such agreements often allow you to pay into the foreign social security system instead of the US system. If no agreement exists, you may still be required to pay US Social Security taxes on your foreign-earned income.
I’m able to claim the FEIE and FTC on my tax return, and as a result, I owe no US tax – Do I still need to file a US tax return?
Even if you claim the FEIE and FTC, reducing your US tax liability to zero, you still must file a US tax return. The IRS requires all US citizens and resident aliens to file annually, even if no tax is owed. Failure to file could result in penalties and interest on unpaid taxes, so it’s crucial to ensure that you file your US tax return correctly and on time, even if your tax liability is zero.
Have any additional questions? Contact Universal Tax Professionals today, and we will be happy to help you out with anything you need.
