US Expat Taxes: Guide to Filing in 2024

US Expat Taxes: Guide to Filing in 2024

Are you an American living abroad or considering a move to another country? If so, you’ll need to know how the US taxes expats. 

Tax requirements are complex for Americans and even more so for US citizens living overseas. To help you understand the rules, we put together a simple, straightforward list of the facts. Think of this post as your cheat sheet—the bare bones of what you must know about taxes for expats

Let’s get started!

Key Takeaways

  • No matter where they live in the world, American citizens must file a US Federal Tax Return. Believe it or not, many expatriates still don’t know this.
  • Tax credits and deductions, such as the Foreign Earned Income Credit and the Foreign Tax Credit, can help expats reduce or eliminate their US tax bills. More on that in a moment.
  • You must either file expat tax returns by June 15 or file an extension if you need more time to file. 
  • Not meeting the complex requirements for expat taxes—or not filing at all!—can result in steep penalties. (When in doubt, ask an expat CPA or Enrolled Agent.)

Expat Tax Filing Requirements 

Expats Are Required to File a US Tax Return 

We’ll start with a question our CPAs and tax specialists get asked all the time: 

Do expats have to file US taxes

The short answer is yes. Every US citizen must file a US Federal Tax Return as long their income exceeds the minimum filing threshold

Your filing status determines your filing threshold, and even if your income doesn’t meet this threshold, you may still want to file—for example, to claim certain tax credits, to receive a refund, or even to have peace of mind. 

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Most Expats Do NOT Have to Pay US Taxes 

Now, for some better news: Though the vast majority of expats must file a US tax return, most don’t end up owing US expat taxes

Several deductions, exclusions, and credits ensure that Americans living abroad don’t pay tax twice on the same income. However, to qualify for these tax benefits, you must meet certain standards. Keep reading for more details on that. 

You May Need to File a State Tax Return While Living Abroad 

Things can get trickier for expats at the state level. Depending on where you lived and whether you’re still considered a resident, you may be required to file a State Tax Return, even after moving abroad. 

Some states make it difficult to remove yourself from their tax jurisdiction. Others make it easy. The rules for determining residency vary from one state to the next, and they may impose taxes if any of the following are true:

  • You maintain a mailing address there (or use a friend’s or relative’s address) 
  • They issued your current driver’s license or ID card  
  • You have a spouse or child living there  
  • You have a bank account open there  
  • Your vehicle is registered there  
  • You registered to vote there  
  • You own property there  

That said, many states consider you a non-resident once you move away. To learn more about its residency standards, visit your state’s official website

One last thing: We’ve talked to numerous expats who didn’t understand the ramifications of owning rental properties or a business. If you earn income from within the state, you must file a state return. 

How to Save on Your Expat Taxes 

Reduce or Eliminate US Taxes with the Foreign Earned Income Exclusion 

Expats can take advantage of a number of tax benefits. One of the most common is the Foreign Earned Income Exclusion (FEIE), which lets you exclude a certain amount of foreign income from US taxation

Who doesn’t love a tax break? Use our handy calculator to learn what you can save using the FEIE.

Use our simple excel calculator to get an estimate of how the foreign earned income exclusion will save you money. It will make your day!

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The amount you can exclude increases each year as inflation rises. 

For the 2023 tax year, the maximum exclusion is $120,000, and if you are married, both you and your spouse can each qualify for a $120,000 maximum for a total of $240,000. 

You must pass either the physical presence or bona fide residence test to qualify: 

  • Physical presence test - You were physically present inside a foreign country for 330 days out of any 365-day period. 
  • Bona fide residence test – You lived overseas for at least one calendar year and don’t intend to move back to the US anytime soon. 

You can claim the FEIE by including Form 2555 in your expat tax return, and each year thereafter. However, should you decide that you no longer want the exclusion, you cannot claim it for the next five tax years unless you get approval from the IRS. 

Pro Tip

Always keep track of your time abroad. 

Passing both the physical presence or bona fide residence test requires spending a certain amount of time overseas. If you accidentally spend too many days in the US or cannot prove how much time you lived in another country, you may miss out on the FEIE. That one mistake could cost you thousands of dollars on your US expat tax return!

The Foreign Tax Credit Is Another Way to Lower Your US Expat Taxes 

Expats can also use the Foreign Tax Credit to reduce or eliminate your US expat taxes. 

It’s a dollar-for-dollar credit based on foreign income taxes you have paid or accrued.  

For example, let’s say you pay $15,000 in foreign income taxes. Later, when you prepare your US tax return, you find that you owe $20,000. The $15,000 Foreign Tax Credit would lower your US tax bill to $5,000. 

And if your foreign income tax bill is higher than what you would have paid in US taxes, you may owe nothing! 

To claim the Foreign Tax Credit, you must file Form 1116

Keep in mind the IRS won’t let you “double dip” by using both the FEIE and Foreign Tax Credit for the same income. However, some expats can use one expat tax exemption, exclusion, or credit for some income (say, the FEIE for the first $120,000) and use a different one for their remaining income.  

Not sure if you should use the FEIE or Foreign Tax Credit? Schedule a tax consultation, and one of our tax specialists will help you find the right strategy for your situation. 

Expats Can Reduce Their Taxes Further Through the Foreign Housing Exclusion 

The Foreign Housing Exclusion allows expats to deduct foreign housing-related expenses from their US tax bill. 

You may have the following expenses that qualify: 

  • Rent 
  • Utilities (but not phone or TV-related expenses) 
  • Homeowners insurance 
  • Repairs 
  • Parking fees near your home 

However, you can only claim the Foreign Housing Exclusion if you also claim the FEIE and will use Form 2555 for both. 

Expat Parents Can Claim the Child Tax Credit 

Some expats with dependent children who are US citizens or permanent residents have eligibility for the Child Tax Credit. It gives parents a maximum credit of $2,000 per qualifying child

This credit has another benefit, too. Expats who meet the income limits can receive up to $1,500 per child as a tax refund. 

Knowing what deductions and credits you’re eligible for could save you big time.
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You may also be able to deduct childcare costs, using the Child and Dependent Care Credit. To use this credit, you must have earned income—e.g., salaries or wages—and if you excluded all your income with the FEIE, you can’t use this credit.

Pro Tip

For taxpayers who can claim the Child Tax Credit, using the Foreign Tax Credit rather than the FEIE will often yield better overall tax savings

Tax Treaties Help Prevent Double Taxation for US Expats 

Currently, the US has tax treaties with 69 countries. These treaties reduce double taxation by clarifying which country has the right to tax an expat.  

It’s worth noting that most US tax treaties contain a “saving clause” that protects each country’s right to tax its own citizens—almost as if the treaty didn’t exist. 

US expats in countries with those treaties usually cannot use tax treaty benefits to completely eliminate their US tax bills. However, many tax treaties still provide options for reducing taxes for expats. Consult a tax professional/CPA to figure out what your options are.

Renouncing Citizenship May NOT Help You Avoid US Taxes 

Frustrated with filing requirements or what they pay in taxes, some US citizens consider renouncing citizenship

There are a couple of catches to be aware of. Before you can give up US citizenship, you must prove that you have met US tax requirements for at least the last five tax years. Depending on your income and net worth, you may also be subject to an exit tax when you renounce. It usually applies when your net worth exceeds $2 million. 

Some people must continue filing US tax returns after expatriation, especially those who earn income in the US. They typically pay a flat 30% tax rate on that income.

Filing Taxes as an Expat 

Expats Receive an Automatic Tax Filing Extension Until June 15 

Though expats have the same tax deadline as taxpayers living in the US—typically April 15—that deadline automatically extends to June if you miss it. 

However, to avoid penalties and interest, you still must pay any tax owed by the original deadline.  

Expats can request an additional extension by filing either Form 4868 or Form 2350. The right form depends on your specific situation and needs.

Failing to File Can Result in Severe Penalties 

The vast majority of expats must file a return every year, the same as Americans living in the US. No surprises there. 

If you end up owing tax yet fail to file an expat tax return, you’ll most likely incur late fees and penalties for each month your tax return and/or tax payment are late. The longer you wait to fail and the more you owe—that is, the more delinquent you become—the more severe the repercussions.

The IRS has been known to revoke the passports of US citizens who owe tax and even press criminal charges that can result in jail time. 

The easiest way to avoid getting into trouble? 

Work with an expat tax specialist to file your taxes on time and pay what you owe.

Use the Streamlined Filing Compliance Procedure to Catch up on Taxes 

Years after moving abroad, many expats discover that they do, in fact, have a US filing requirement. Fortunately, the IRS created the Streamlined Filing Compliance Procedures, an amnesty program that lets delinquent expats catch up without facing any penalties. 

To take advantage of this program, here’s what you do: 

  • Self-certify that your failure to file was an accident, not a willful refusal  
  • File your last three delinquent income tax returns.
  • Pay delinquent taxes owed with interest
  • File Foreign Bank Account Reports (FBARs) for the last six years 

In most cases, these steps bring you into compliance with IRS regulations, which is a huge relief for expats unaware of their US tax filing obligations.  

Tired of running from Uncle Sam?

If you’re behind on your US taxes, you may qualify for a special compliance program to get back on track without penalties. Download our Streamlined Filing Eligibility guide to understand if you qualify.

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You Can Amend a Previous US Tax Return if You Made a Mistake 

Mistakes happen. The IRS gets that, and if you or your tax specialist finds a mistake, you can file an amended return for that tax year using Form 1040-X

This form applies to income you failed to report and deductions you didn’t take. 

Additional Reporting Requirements for Expats 

If Your Foreign Account Balances Exceed $10,000, You Must File an FBAR

If the combined balance(s) of all your foreign bank accounts exceed $10,000, you must file FinCEN Form 114, better known as the Foreign Bank Account Report (FBAR)

This requirement applies even if your account(s) pass that $10,000 threshold for a single day (or minute!) during the year.  

As you calculate your FBAR liability, you need to include all foreign bank accounts, including pensions, investments, and accounts that you don’t own but have signature authority over, such as those belonging to a parent or relative. 

The initial deadline for the FBAR is the same as the one for filing tax returns (typically April 15), but with the FBAR you get an automatic extension to October 15. 

You May Also Need to File a FATCA Report 

Under the Foreign Account Tax Compliance Act (FATCA), US citizens who own foreign assets valued above certain thresholds must file Form 8938, better known as a FATCA report.  

Your filing and residency status determine your value threshold. 

FATCA and FBAR filing requirements are similar but separate. Depending on your situation, you may need to file one or both.

Social Security and Retirement 

You Can Still Receive Social Security Benefits When You Retire Abroad 

If you’re an American expat who is considering retiring abroad, you can still collect your Social Security benefits in most countries

Only a small number don’t allow Americans to collect benefits:  

  • Cuba 
  • North Korea 
  • Azerbaijan 
  • Belarus 
  • Kazakhstan 
  • Kyrgyzstan 
  • Moldova 
  • Tajikistan 
  • Turkmenistan 
  • Uzbekistan 

However, you can collect back payments once you move to a different country. 

For example, while living in Havana, you can’t receive US Social Security payments. A few years later, after you move to Liberia, Costa Rica, you can collect the payments you missed out on in Cuba. 

Totalization Agreements Determine Which Country You Pay Social Security Taxes To 

The US has totalization agreements with 28 countries. These agreements stipulate which party receives your Social Security tax payments. 

Most of these agreements allow you to use the credits you earn in one country to calculate the benefits you receive in another. This works in your favor. Without such an agreement, you might pay for social security (or its equivalent) in two countries while receiving only one benefit!  

Special Circumstances and Tax Situations 

Buying and Selling Foreign Real Estate Creates Tax Implications 

The tax rules for buying and selling foreign property are similar to the ones for buying and selling property in the US:

  • You don’t have to report the purchase of foreign real estate. 
  • If you sell your personal residence at a loss, you don’t have to report the sale. 
  • If you sell for a profit, you must report it, and you may be subject to a capital gains tax

As for the sale of a rental property, you must report it whether it results in a gain or loss. (You must also report any rental income on annual tax returns.) 

Expat Entrepreneurs Are Required to Pay a Self-Employment Tax 

In addition to income taxes, self-employed expats must also pay the self-employment tax while living abroad. This 15.3% tax replaces the Social Security and Medicare taxes in an employer-employee relationship, and the FEIE or the Foreign Tax Credit doesn’t offset it.

 However, other expat tax benefits can still help you lower your US tax bill.

Pro Tip

The structure of your business entity impacts your tax liability. For example, LLCs and corporations must meet different requirements. An expat tax professional can help you navigate those requirements.

Digital Nomads Must Follow the Same Rules as Other Expats

Digital nomads travel from place to place and work remotely. Many are self-employed, and digital nomad taxes are similar to those of other expats: 

  • All digital nomads must file a US Federal Tax Return. 
  • Some may need to file a State Tax Return. 
  • Self-employed digital nomads must pay self-employment tax. 
  • Digital nomads can claim other expat tax benefits if they’re eligible. 

Meanwhile, traveling from place to place without establishing a domicile ​​has unique tax implications that can complicate the expat tax process. A specialized tax professional/CPA can help you understand and meet your tax obligations. 

The Next Steps for Your US Taxes for Expats 

Now that you know the ins and outs of US expat taxes, complete these steps to stay compliant and minimize your tax bill

  1. Learn your tax filing requirements and make a plan to fulfill them. 
  2. Decide now how you’ll keep track of all important tax-related information throughout the year. Staying organized will make it easier for you to file on time. 
  3. If necessary, use the Streamlined Filing Compliance Procedures to catch up on your expat taxes. 
  4. File your US Federal Tax Return and any other expat tax forms every year.

Many expats prefer not to manage this process alone. Instead, they work with a qualified US expat tax specialist/CPA. 

They can help you file your expat taxes correctly, and on time, and with Greenback Tax Services, you pay a flat fee with no surprises or hidden costs.

Many of Greenback’s CPAs and Enrolled Agents are expats themselves, and because they live in 14 timezones, they experience firsthand the challenges of living abroad. They have the knowledge and patience to help you navigate the complicated US tax system, as well as your local rules.

We focus exclusively on expat taxes and have since the company was founded in 2009. If you’re ready to be matched with the right Greenback accountant for your situation, click the Get Started button below. 

For general questions on US expat taxes or working with Greenback, reach out to our amazing Customer Success Champions.

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