12 Tax Tips for Expats Moving Back to the US
- Tip #1: Ask Your Employer to File Departure Paperwork If Necessary
- Tip #2: Find Out If Your Employer Has “Grossed Up” Your Payments
- Tip #3: Know Your Residency Status
- Tip #4: Don’t Forget About State Residency
- Tip #5: Consider Offloading Foreign Bank Accounts and Assets
- Tip #6: Understand the Tax Implications of Selling Foreign Property
- Tip #7: Seek a Refund for Your Foreign Social Security Contributions
- Tip #8: Keep Track of Deferred Compensation
- Tip #9: Decide What to Do With Your Foreign Pension
- Tip #10: Claim Any Tax Credits and Deductions Available
- Tip #11: Use Streamlined Filing to Catch Up on Your Expat Taxes
- Tip #12: Get Help With Your Expat Taxes When Returning to the US
When planning your return to the US after a stint overseas, it’s essential that you understand how your move will impact your taxes. Depending on your foreign income and other factors, you may be subject to various US tax laws. Here are twelve tax tips to keep in mind when returning to the US.
- When moving back to the US, your tax obligations will change.
- Failing to meet your obligations could result in penalties or additional filing requirements.
- By understanding your expat taxes, you can take advantage of various opportunities to save.
Tip #1: Ask Your Employer to File Departure Paperwork If Necessary
If you’re leaving a foreign country permanently, your employer may need to file paperwork informing the foreign government of this. Some countries require special filings for employees who move away. If the right paperwork isn’t filed, you could end up having to pay an exit tax, or you may run into issues with immigration control. Each country has its own rules, so be sure to learn the requirements in your current country of residence.
Tip #2: Find Out If Your Employer Has “Grossed Up” Your Payments
If your foreign employer made tax payments on your behalf while you were working abroad, it’s important to make sure your tax return includes these payments grossed up. “Grossing up” means that the tax on the tax is paid in full. If your employer’s tax payments aren’t grossed up properly, you may be required to file an additional tax return in the future.
Tip #3: Know Your Residency Status
When returning to the US, you may not be considered a resident for tax purposes right away. This will depend on various factors, such as:
- Your length of stay outside the US
- What US ties you retained while abroad, such as a driver’s license or bank account
- What US-based assets you own
Your residency status could have a major impact on your tax obligations. Thus, it’s important that you learn whether you will be a resident upon your arrival in the US.
Tip #4: Don’t Forget About State Residency
Expats returning to the US may also need to consider state tax implications, as different states have different rules regarding residency and taxation. You may need to file state tax returns and pay state taxes depending on your residency status and the state’s tax laws. Check your state’s official website to learn more.
Tip #5: Consider Offloading Foreign Bank Accounts and Assets
Americans living abroad are subject to additional reporting requirements. For example, if you have more than $10,000 deposited in a foreign bank account, you have to file a Foreign Bank Account Report (FBAR). If you own foreign assets valued above certain thresholds, you have to file a FATCA report. Those accounts and assets are essential while living abroad, but they may not be necessary after returning to the US. By offloading what you no longer need, you can reduce your tax obligations.
Tip #6: Understand the Tax Implications of Selling Foreign Property
If you decide to sell a property located overseas, such as a foreign home, you may be taxed on any capital gains from the sale. However, if you are selling a home that you used as your primary residence for at least two of the last five years, you can exclude a gain of up to $250,000 from taxation ($500,000 if married). You may also be subject to taxation on any capital gains resulting from the sale of a foreign stock or other investment.
Tip #7: Seek a Refund for Your Foreign Social Security Contributions
Many expats are required to contribute to a foreign social security program while working overseas. In some cases, you can receive a refund for those contributions after returning to the US. Contact the local tax authority or social security agency to learn if you’re eligible for a refund. Contributions to a foreign company’s Social Security system are tax-deductible, so it’s also important to understand the taxability of any refund.
Tip #8: 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 there. This includes:
- Restricted stock options
- Stock options
- Severance pay
When the deferred item vests or you receive a payout, you may have to report this to the foreign government. Thus, you should keep track of your deferred income while living abroad so it can be properly allocated.
Tip #9: Decide What to Do With Your Foreign Pension
If you have accrued a foreign pension while working abroad, you may want to bring your savings back to the US. Unfortunately, most foreign pensions cannot be rolled over into a US-based retirement plan. This leaves you with a few options:
- Leave the funds in your foreign pension and withdraw them as you are eligible.
- Withdraw the full pension when you move back to the US. Then, reinvest them into a US-based retirement account. This will likely result in early-withdrawal fees, which could decrease your income significantly.
- Leave the funds in your foreign pension and pass it on to your heirs.
Consult a qualified tax professional to learn which choice is best for you.
Tip #10: Claim Any Tax Credits and Deductions Available
The IRS provides a variety of tax benefits for Americans living abroad, such as the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC). Even after returning to the US, you may still be able to claim these benefits for any income earned before moving back.
For example, if you arrive in the US on August 17, you can use the FEIE to exclude your foreign income earned from January 1 – August 16 of that year. You can also use the FTC to reduce taxes on any income earned on future business trips abroad or future receipt of deferred compensation. An expat tax expert can advise you on your options.
For more information about ways to save big on your US expat taxes, check out our guide for Americans working overseas.
Tip #11: Use Streamlined Filing to Catch Up on Your Expat Taxes
All US citizens are required to file a US tax return regardless of where they live in the world. Many expats are unaware of this requirement, however. Fortunately, the IRS provides an amnesty program: the Streamlined Filing Compliance Procedures. By using this program, you can catch up on your expat taxes without the usual penalties.
Tip #12: Get Help With Your Expat Taxes When Returning to the US
Moving back to the US can have serious tax implications. We strongly recommend consulting a qualified tax professional before making any major decisions. That way, you can remain compliant with US law and avoid any unnecessary headaches after coming home.
At Greenback Expat Tax Services, we help Americans around the world manage their US tax obligations. Our team of expat-expert CPAs and IRS Enrolled Agents are standing by.
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.