When it comes to understanding your US expat tax return obligations, it’s easy to see how it can be confusing. But it doesn’t have to be! That’s why we’re separating some common US expat tax facts from fiction, to ensure you’re prepared to comply with requirements set forth by the IRS. Get the information you need here.
1. I don’t need to file US expat taxes now that I live outside the US.
Fiction. So long as you meet the filing thresholds for the tax year, you will need to file an expat tax return to report your worldwide income. The thresholds for the 2016 tax year are:
- Single with income over $10,350
- Married filing jointly with income over $20,700
- Married filing separately with income over $4,050
- Self-employed individual with net profit over $400
If your income falls below the threshold for your filing status, it’s still a good idea to file an expat tax return annually, as doing so means you can use it toward future tax deductions and for qualifying for certain government programs (like college financial aid), among others. You can read more about filing a zero income tax return here.
2. I can make over $100,000 abroad tax-free.
Fiction (sort of). Many US expats will be able to qualify for the Foreign Earned Income Exclusion (FEIE), which means you can exclude $101,300 of foreign earned income from your 2016 expat tax return (and $102,100 for 2017 taxes). Get the facts about the FEIE in this article. Technically speaking, if you’re employed and earn below this amount, you probably won’t owe US expat tax. However, if you’re self-employed, you will likely need to pay self-employment tax in the US. Depending on where you’re living abroad, you may also have a filing requirement in your host country (you can check out tax-free countries here). So, it’s probably a good idea to prepare for some tax responsibility, to avoid surprises come tax time!
3. My spouse and I file “Married Filing Jointly” so we’ll be able to exclude a total of $101,300 for the Foreign Earned Income Exclusion on our joint income.
Fiction. If you and your spouse are both treated as US residents for tax purposes and both earn an income, you would both be eligible for the Foreign Earned Income Exclusion – so you could EACH exclude $101,300. This means you would be able to exclude up to $202,600 on your combined income on your expat tax return!
4. If I have foreign financial accounts, I must report them to the IRS.
Fact (sort of). It comes down to how much money you have in your account(s), but yes, you should always be prepared to report these accounts along with your US Tax Return.
FBAR: All US citizens with more than $10,000 in foreign bank accounts at any point during the year must file an FBAR. This would include: foreign accounts held at foreign branches of US banks, foreign mutual funds, foreign stock or securities held in a foreign financial institution, and foreign-issued life insurance or an annuity contract with cash value. The FBAR deadline now follows the US tax deadlines, so it was technically due June 15th. However, there is an automatic extension until the October 16th deadline to help Americans acclimate to the deadline change.
FATCA Form 8938: All Americans with foreign financial accounts exceeding specified thresholds must file Form 8938 along with their expat tax return. These thresholds are significantly higher than that of the FBAR; however, a wider array of foreign accounts must be reported on this form. You will need to file Form 8938 if you meet one of the following qualifications:
- Single or Married Filing Separately– The total value of your foreign assets is greater than $200,000 on the last day of the tax year or more than $300,000 at any point during the year.
- Married Filing Jointly– The total value of your foreign assets owned by you and your spouse is greater than $400,000 on the last day of the tax year or more than $600,000 at any point during the year.
Still Need to File Your Expat Tax Return?
Our team of dedicated expat tax experts can help you get back on track while providing you with a hassle-free tax filing experience – get started with us today!