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Individual US Tax Returns for Americans Living Abroad

Individual US Tax Returns for Americans Living Abroad

There is a common misconception that US citizens and green card holders living and working abroad (ex-pats) are no longer subject to US taxes and aren’t required to file US federal returns. This can be a very costly mistake, leading to paying back taxes owed and severe penalties and interest accrued since the taxes should have been filed.

IRS Filing Threshold

Unlike almost all other countries, the US taxes its citizens and green card holders on their worldwide income, even if earned abroad. This means that as an American ex-pat living abroad, you are subject to the same tax rules as Americans living in the US. You still have a US tax obligation and you must continue to file a US federal return and pay taxes if your worldwide income exceeds the annual minimum filing threshold for your filing status, as follows:

  • Single filers: $12,400
  • Married Filing Jointly filers: $24,800
  • Married Filing Separately filers: $5
  • Head of Household filers: $18,650
  • Self-Employed filers: $400

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Even if you never set foot in the US during the year and earned all of your income abroad, you still must file a US return and pay taxes on your US taxable income if your income exceeds the minimum filing threshold. And this includes not only your wage or self-employment income but also interest, dividends, capital gains and rental income, regardless of where the income was sourced—US or foreign.

Other Filing Requirements

It is also important to know that the IRS requires you to report all of your foreign financial accounts and assets if they exceed a certain threshold amount. The penalties for failing to do that are severe—up to $10,000 per year, even if you are unaware of the filing requirement. Finally, please be aware that you may still have a requirement to file a state tax return, depending on which state you lived in before moving overseas and how extensively you keep ties to your home state while you are abroad.

A significant complication for US ex-pats living and working abroad is the potential risk of getting doubly taxed on their earned income – both by the US and their country of residence. This is particularly true for ex-pats who live continuously on a long-term basis in a certain foreign country and qualify to be taxed as residents by that country. Fortunately, the US has several provisions to help US ex-pats avoid double taxation of their foreign earned income: the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC).

Foreign Earned Income Exclusion (FEIE)

FEIE is a US provision that allows eligible taxpayers to exclude a certain amount of their foreign-earned income from US taxation. For tax year 2023, the exclusion limit was $120,000 per qualifying individual. Utilizing the FEIE can significantly reduce or even eliminate U.S. tax liability for many expatriates

Foreign Tax Credit (FTC)

To the extent that ex-pats have not already had their foreign earned income excluded via the FEIE, they may be able to reduce their US tax liability further by claiming a credit for their foreign taxes paid or accrued on certain types of income, including earned income and passive income.

2024 US Tax Filing Deadlines and Extensions

The standard deadline for filing US tax returns is April 15th. However, for Americans living abroad, an automatic extension is granted, allowing them until June 15th to file their returns. For the 2023 US tax return, which needs to be submitted in 2024, the US tax deadline for Americans in the US is on April 15, 2024. Meanwhile, Americans living abroad have an automatic two-month extension allowing them to submit the 2023 US tax return until June 17, 2024.

If further time is needed beyond the automatic extension, US expats can request an additional extension. This additional extension is obtained by filing IRS Form 4868, “Application for Automatic Extension of Time To File US Individual Income Tax Return.” This form grants an additional extension of up to four months, moving the filing deadline to October 15th.

However, it’s important to remember that this extension only applies to the filing of the tax return itself. Any tax liability must still be paid by the original April 15th deadline to avoid penalties and interest.

IRS Form 4868 - Extension to file US tax returns
Source: IRS.gov

Important Reminder for Americans Living Abroad this 2024

Understanding and managing US tax obligations while living abroad is essential for American expatriates. By staying informed about residency status, filing deadlines, available exclusions and credits, and reporting requirements, expats can navigate the tax landscape with confidence. Seeking professional advice can further enhance compliance and help optimize tax outcomes, ensuring financial peace of mind for those living far from home.

Here at Universal Tax Professionals, our team of CPAs and IRS Enrolled Agents specialize in providing a wide range of US expat tax services. We are ready to handle all of your US filing obligations and help minimize your worldwide tax burden, no matter where in the world you are.