7 Facts to Know About US Tax for Expats When Moving Back to the States

April 30, 2023

When you move abroad, there’s typically much to learn about the ins and outs of US tax for expats. But, what you may not realize is there are also intricacies to be aware of when moving back to the US after a stint overseas. Here are the facts about US tax for expats that you need to know when it comes time to head back home to the States.

Fact #1: You might get your foreign Social Security contributions refunded.

There’s a good chance you had to contribute to the Social Security system of your host country while living and working there. Fortunately, it may be possible to have your contributions refunded when departing, depending on certain circumstances like permanence of departure or your citizenship status within the foreign country. It’s a good idea to contact the local tax authority or Social Security agency before you leave to see if you’re able to get a refund.

For US tax for expats purposes, contributions to the plan by you and your employer are nondeductible and thus have already been taxed. Earnings should have been included on an annual basis on your US tax for expats, also. In some situations, though, it may have been difficult to include, so it’s important to know what has been taxed on the US side and what hasn’t been.

Often, contributions to a foreign company’s Social Security system are tax-deductible, so it’s important to understand the taxability of the refund.

Fact #2: You may need to have special departure paperwork filed. 

If your employer isn’t aware of your plans to return to the US (such as in the case of a resignation), be sure they’ve filed the appropriate forms that indicate your plans to depart the foreign country. Sometimes, foreign countries have special filings for departure cases that are not the same for a resignation. In some countries, this could trigger an exit tax, or paperwork might need to be shared at immigration control.

If you had tax payments made on your behalf by your company, be sure the departure year return has these items grossed-up, aka, the tax on the tax that is paid in full. If the employer paid-for income items aren’t grossed-up, you may be required to submit a future filing.

Fact #3: You should keep track of deferred compensation.

In most countries, you’ll be required to file and pay tax payments upon receipt of deferred compensation earned while working in the foreign country. This includes restricted stock options, stock options, severance pay, and bonuses, among others. When the deferred item vests or you receive a payout, a foreign tax filing will be required. Thus, you should keep track of your deferred income while living abroad so it can be properly allocated.

Fact #4: You’ll want to understand taxation on foreign investment property sales.

When you decide to move to the US, you might not necessarily be considered a US resident at the time. Once US residence is established, you’ll be treated as any other US citizen or Green Card holder – and you’ll be taxed on worldwide income. If you have any investment property that you plan to sell, US law indicates that the sales price less the basis must be included in taxable income. The basis would be the original purchase value. If you become a US resident, you’ll be paying tax on the portion of the appreciation of the property that wasn’t associated with US residence. This is true for property, as well as stocks, grant options and more. You’ll want to discuss your investment holdings with an accountant in order to determine the best options (sell, hold, sell/buy back) for tax purposes.

Fact #5: You may want to simplify your foreign accounts.

 The US continues to increase its vigilance over US tax for expats ownership of foreign companies and accounts, and there are a number of reporting requirements for those who hold bank accounts, trusts, foreign corporations and partnerships. To make it easier for yourself, be sure that only the accounts that need to be open actually remain open. If they don’t need to be open, go through the legal process for shutting down any accounts that won’t be used when you return to the US.

If you leave a foreign account open, it could potentially be beneficial, especially if payments are to be made post-departure. But note that if you leave a foreign account open that has $10,000 or more, you must file an FBAR each year that the account remains open.

Fact #6: You should educate yourself on state residency rules. 

Every state has its own guidelines for filing state taxes, some being more complicated than others. There are states with no income tax and others with very strict rules regarding residence/domicile. For example, if you’re abroad on foreign assignment, you might find that your state still claims resident status due to domicile, while other states would count your days on foreign assignment in addition to looking at domicile when determining residency. Understanding the details of US tax for expats in your state is critical to ensuring you don’t end up paying state taxes while living abroad.

Fact #7: You may still be eligible for exclusions, credits and deductions.

If you’ve been living abroad for some time, you’ve probably heard of or taken advantage of tax treaties, the Foreign Earned Income Exclusion (FEIE) or a Foreign Tax Credit (FTC) as ways to save on expat taxes and prevent double taxation. You should be aware of which concession was used primarily and ensure that a partial qualification is incorporated into your departure year tax return. You’ll still be eligible for a partial FEIE, even without living abroad the entire year. Also, FTCs may be used against income earned on future business trips abroad or future receipt of deferred compensation, so it’s important to carefully track these. For more information about ways to save big on your US expat taxes, check out our guide for Americans working overseas.

Moving Back and Need Help Filing Your US Tax for Expats?

Our team of expat-expert CPAs and IRS Enrolled Agents are here for you. With a 100% focus on expat taxes, we’ll help make filing your US expat taxes a more hassle-free process – get started with us today!