So you’ve been living abroad for several years…or more…do you think you know all there is to know about US expat taxes? There are so many things to be aware of when it comes to staying on top of your tax requirements, so here’s a little review to see how savvy you are about your US tax for expats.
1. In general, expats must file a US Tax Return annually.
Most Americans who have some sort of job or means of earning an income will need to file a tax return, since the filing thresholds are relatively low. This is true of all citizens and permanent residents, regardless of where in the world they may be living, as the US tax for expats on worldwide income. The thresholds are as follows:
|Filing Status||Gross Income|
|Married Filing Jointly||$20,700|
|Married Filing Separately||$4,050|
|Head of Household||$13,350|
Self-employed? You’ll almost certainly need to file, as the threshold is a mere $400. The types of income that should be reported include wages, salaries, tips, allowances (housing, car, education, etc.), rental income and capital gains from property sales, among others.
2. Consider filing an extension if it can help you qualify for deductions.
There are several big ways for US expats to save on US tax for expats, but you must meet certain qualifications in order to take advantage of them. For example, the Foreign Earned Income Exclusion has two ways to qualify, one being the Physical Presence Test (PPT). The PPT requires that an expat be physically present inside a foreign country for 330 days out of any 365-day period. So, if you move abroad mid-year, you wouldn’t qualify come tax time. If you find yourself in this situation but know you’ll stay overseas long enough to qualify for the FEIE, all you would need to do is file an extension until the October deadline using Form 2350. Extension requests must be submitted by the June 15th tax deadline, so, while it may be too late this year – perhaps it will come in handy for you in 2018!
3. Don’t forget to research Social Security agreements between the US and your host country!
You don’t want to pay into two systems when you really only need to pay into one, so doing your research up front can help you save big! Social Security agreements, also known as Totalization agreements, help you determine to which country you should be making Social Security contributions. You can see a list of all countries with which the US has Totalization Agreements here. This is most commonly based on where your employment income is sourced; however, it could also be impacted by where you were hired and the length of time you plan to stay abroad.
- Overseas for less than five years? You’ll likely pay into the Social Security system of your home country.
- Overseas for more than five years? You’ll likely pay into the Social Security system of your host country.
It’s important to note that if you’re working in a country that doesn’t have a Totalization agreement with the US, it’s possible you may have to pay into the systems of both countries. You can read more about Social Security in this article.
These three facts above are just a small sampling of the things tax-savvy expats need to know when living overseas.
Download our guide for Americans working overseas to review the rest of the facts, including how to use the Foreign Earned Income Exclusion and the Foreign Tax Credit, FBAR and FATCA Form 8938 requirements and other ways to help you save on US tax for expats.
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