The intricacies of filing US expat taxes can be complex, especially when it comes to ensuring you save the most money each year. Fortunately, many expats find they don’t owe taxes due to the credits, deductions and exclusions made available to Americans abroad. However, there are a segment of individuals who may be subject to the Alternative Minimum Tax (AMT), which is an alternate method of taxation that typically affects wealthy Americans. Here is the US expatriate tax help you need for understanding the AMT.
What is the Alternative Minimum Tax?
The Alternative Minimum Tax (AMT) was introduced in 1969 in response to many Americans being able to eliminate their US tax liability entirely. The AMT most commonly affects wealthy individuals, and in recent years, has affected a growing number of US expats. A quick US expatriate tax help tip: as a US citizen or national, you will pay either the regular income tax (learn more about filing Form 1040 here) or the AMT, whichever is greater.
- The AMT is calculated as a flat rate on total income.
- You cannot include itemized deductions before your AMT is calculated.
- Other deductions and credits are limited and some are not allowed in calculating the AMT.
There are certain exemptions from total income in your AMT calculation, adjusted for inflation when necessary. For the 2016 tax year, the exemptions are as follows:
- Married Filing Jointly: $83,800
- Married Filing Separately: $41,900
- Single or Head of Household: $53,900
- Have dependents? You can also take a $4,050 exemption on their behalf.
Another important US expatriate tax help tip! It’s important to note that these exemptions start to phase out once you exceed a specified threshold:
- Married Filing Jointly: $159,700
- Married Filing Separately: $79,450
- Single or Head of Household: $119,700
Determining AMT Liability
Once you’ve taken the exclusions that are applicable to your situation from your adjusted gross income, you can calculate your AMT liability for your US Tax Return. This will be based on your filing status and tiered based on income. When you pass one of the specified thresholds (noted above), you’ll be taxed at the high rate as follows:
- Single or Married Filing Jointly
- From $0-$186,299: 26%
- Above $186,300: 28%
- Married Filing Separately
- From $0-$93,149: 26%
- Above $93,150: 28%
Need US expatriate tax help with calculating the AMT? The IRS offers a tool that can assist you with figuring whether you should pay the AMT and how much you would owe.
AMT Facts for US Expats
Americans abroad are typically eligible for several big credits, deductions and exclusions (click here to learn more about these big money-savers for your expat taxes) that help prevent double taxation between the US and your host country. Therefore, expats who are considered wealthy by the IRS may be subject to the AMT.
US expatriate tax help tip! If you must pay the AMT, you cannot apply the Foreign Earned Income Exclusion or the Foreign Housing Exclusion/Deduction to your adjusted gross income. You may, however, be eligible to use the Foreign Tax Credit, albeit using a different calculation than the dollar-for-dollar credit most expats would use. You can learn more about the Foreign Tax Credit in this article.
The AMT has increasingly been affecting US expats who fall into the middle class category, since the IRS hasn’t adjusted the AMT for inflation. If you need help understanding your requirements or calculating the AMT, it’s a good idea to consult with a tax professional for expat tax advice to ensure you meet your expat tax obligations. For more ways to save on your expat taxes, download our guide for Americans working overseas.
Need US Expatriate Tax Help?
Our team of expat-expert CPAs and IRS Enrolled Agents are here to help make the process of filing expat taxes a hassle-free experience. Get started with us today and cross taxes off your to-do list ahead of the expat tax deadline!