A comprehensive guide to American Taxation for US citizens living abroad

American citizens living abroad are required to pay US tax irrespective of their country of residence. This unique aspect of the US tax policy applies to all the citizens, irrespective of their country of residence. The United States of America distinguishes is one of the few nations globally that imposes taxes based on citizenship instead of residency.

The country has a unique taxation system that follows its citizens wherever they go, irrespective of residency. Even when one is settled abroad they must file annual federal income tax returns with the IRS and report the world-wide income whenever the income exceeds the IRS filing limit.

American tax for US residents living abroad ensures the global income is subject to US income tax laws. The only way to escape US expat taxes is to renounce the citizenship even if one is a dual citizen.

What is the IRS filing threshold for expats?

The IRS filing threshold refers to the minimum income level at which individuals are required to file federal income tax return. USA expats have to file their 2023 US tax return in 2024 if their income exceeds the following thresholds-

Type of filers	Minimum income level
Single	$ 13,850
Married filing jointly	$ 27,700
Married filing separately	$ 5
Head of Household	$ 20,800
Self-employed	$ 400

The above figures represent all income sources like wages, self-employment income, rental income, dividends and more. Also, certain circumstances like special deductions on tax credits can determine whether tax return needs to be filed or not.

How much tax a US expat has to pay?

The tax liability of the American expats depends on many factors that include income level, filing status and applicable deductions.

The progressive tax system of the USA states that the filers with higher income face higher tax rates on income portion within each tax bracket. Each portion of the income falls into a specific tax bracket and the individuals have to pay the corresponding rate on that portion.

US tax deductions and credits

The tax deduction is a fixed dollar amount that minimizes the tax payer’s adjusted gross income and their taxable income. The standard deduction amount for tax year 2023 has increased across various filing statuses as compared to previous year with added deductions that include itemized deduction, child tax credit and education credits to reduce the taxable income.

Filing status	Standard deduction for tax year 2023	Increase over tax year 2022
Married filing jointly	$ 27,700	$1,800
Single	$ 13,850	$ 900
Married filing separately	$ 13,850	$ 900
Head of household	$ 20,800	$ 1400

Do US expats need to declare their foreign income in the US?

Yes, US expats must declare their foreign income to the IRS even if their income is derived from the foreign sources and they have no income in the America. This is because of the concept of citizen ship based taxation.

The foreign income that expats need to declare is

• Employment income
• Self-employment income
• Rental income
• Investment income
• Foreign pensions
• Foreign social security benefits
• Business income
• Other income sources

American Tax for US residents living abroad is a complex process and thus it is imperative to collaborate with a dedicated USA expat tax expert who will help you navigate the tax procedures effectively without any hassle.

Also Read A comprehensive guide to American Taxation for US citizens living abroad

Understanding U.S. Tax Obligations for Americans Living Overseas

For American expatriates, navigating the complexities of tax obligations back home can be daunting. The U.S. is one of the few countries that tax its citizens on their global income, regardless of where they live or work. This means that Americans living abroad are required to file U.S. taxes, a reality that can bring both challenges and opportunities. This blog aims to demystify the process, highlighting key aspects of U.S. tax obligations for residents living overseas.

The Basics of U.S. Tax for Expatriates

At the core of the U.S. tax system for expatriates is the requirement to file an annual return with the Internal Revenue Service (IRS) if their income exceeds certain thresholds. These thresholds vary depending on filing status and are updated regularly. Importantly, filing a tax return does not necessarily mean paying taxes; it’s about reporting income.

Foreign Earned Income Exclusion (FEIE)

One of the most critical provisions for Americans abroad is the Foreign Earned Income Exclusion (FEIE). This allows eligible expatriates to exclude a certain amount of their foreign earnings from U.S. taxes. The exact figure is adjusted annually for inflation. To qualify, taxpayers must pass either the Bona Fide Residence Test or the Physical Presence Test, proving they are genuinely residing in another country or have been present in a foreign country for at least 330 full days during a 12-month period.

Foreign Tax Credit (FTC)

Another vital tool for avoiding double taxation is the Foreign Tax Credit (FTC). If you pay or accrue taxes to a foreign government, the FTC allows you to offset these against your U.S. tax liability on the same income. This can significantly reduce or even eliminate the taxes owed to the U.S., ensuring that income is not taxed twice.

Reporting Foreign Bank and Financial Accounts (FBAR)

Americans living overseas with foreign bank accounts must be aware of the Foreign Bank and Financial Accounts Report (FBAR). If the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year, the FBAR must be filed separately from the tax return. This is a critical requirement aimed at combating tax evasion and requires careful compliance.

Tax Treaties and Totalization Agreements

The U.S. has entered into tax treaties and totalization agreements with several countries to prevent double taxation and ensure social security benefits are appropriately allocated. These agreements can provide specific rules on which country has the right to tax certain income, potentially offering relief for expatriates.

State Taxes

Even after moving abroad, some Americans may still have state tax obligations. State tax laws vary widely, and some states do not recognize the FEIE or have their own set of rules for determining tax residency. It’s essential to understand the tax laws of your last state of residence to ensure compliance.

Planning and Compliance

Proper tax planning and compliance are crucial for Americans living abroad. It’s advisable to seek professional advice to navigate the complexities of expatriate taxation. An experienced tax professional can help you understand your obligations, take advantage of available exclusions and credits, and ensure that you remain compliant with U.S. tax laws.

While the requirement to file U.S. taxes as an expatriate might seem overwhelming, understanding the key components of the tax system and utilizing the available tools can significantly mitigate the burden. By staying informed and proactive, American expatriates can navigate their tax obligations confidently and minimize their tax liability, ensuring a smoother experience living abroad.

Also read more: Do US citizens need to pay taxes when living abroad?

Nonresident Tax Obligations: What You Need to Know

Tax obligations can be complex, especially for individuals who are not residents of the United States. Nonresident aliens, in particular, often have questions about their tax obligations and whether they are subject to certain federal taxes. In this article, we will answer some common questions regarding non-resident tax liabilities.

Do nonresidents pay federal income tax?

Non-residents who earn income from US sources are generally subject to federal income tax. The Internal Revenue Service (IRS) defines non-residents as individuals who do not meet the common test, which determines whether a person has lived in the United States for a period of time. However, the taxation of non-residents may vary depending on the type and source of their income.

Are nonresident aliens subject to federal income tax?

Yes, nonresident aliens are subject to federal tax on income earned in U.K. locations. This includes salaries, wages, tips, and other compensation received for services rendered in the United States, as well as other investment income, such as interest, dividends, and royalties rental of US real estate.

Are nonresident aliens exempt from federal withholding?

In most cases, nonresident aliens are subject to federal withholding on their U.S. source income. Employers are required to withhold federal income tax from wages paid to nonresident aliens, just as they do for U.S. citizens and resident aliens. However, there are certain exclusions and exceptions that may apply depending on tax treaties between the United States and the individual’s home country.

Do nonresidents pay Social Security tax?

Nonresidents, including nonresident aliens, are generally exempt from paying Social Security taxes, also known as FICA taxes. FICA stands for Federal Insurance Contributions Act and includes taxes for both Social Security and Medicare. However, there are exceptions for certain employment situations, such as when a non-resident alien is considered a resident for tax purposes or when they work for a foreign government.

Do nonresidents pay Medicare tax?

Similar to the Social Security tax, nonresidents are generally exempt from paying Medicare tax. This tax funds the Medicare program, which provides healthcare benefits to individuals aged 65 and older. However, there are exceptions for specific employment situations, such as when a nonresident alien is considered a resident for tax purposes or when they work for a foreign government.

Are nonresident aliens exempt from FICA taxes?

Nonresident aliens are generally exempt from FICA taxes, which include both Social Security and Medicare taxes. However, as mentioned above, there are exceptions to this rule. Nonresident aliens who meet certain conditions, such as being considered residents for tax purposes or working for a foreign government, may be subject to FICA taxes.

Do nonresident aliens pay payroll taxes?

Nonresident aliens who are not considered residents for tax purposes are generally exempt from paying payroll taxes. Payroll taxes, which include federal income tax withholding, Social Security tax, and Medicare tax, are generally withheld by employers from employees’ wages. However, nonresident aliens may still be subject to federal income tax withholding, depending on their specific circumstances. Finally, expatriate tax obligations can be complex, but it is important for individuals to understand their responsibilities when deriving income from US sources. Nonresident aliens are generally subject to federal income tax on their U.S. income, but exemptions and exemptions may apply to certain taxes such as Social Security, Medicare, FICA, and withholding. Consulting a tax professional or referring to IRS guidance can provide additional clarity on specific circumstances and obligations.

File US tax returns when living abroad

Moving to another country for any reason can be a difficult time for anyone. There are several documents, forms, legal needs, agreements and sometimes certain ones are forgotten about or even not known to the person who is moving to another country. Often the tough one to understand is the US expat tax which is a process by which the US internal revenue system can continue to tax US citizens or green card holders despite them living in another country for life or up to 10 years following their loss or renunciation of citizenship.

What are the expat tax filing obligations?

No matter whether an expat has earned an income abroad or not, they must always be filing US tax returns even if they don’t owe any taxes. But there are certain thresholds but to which an expat is needed to file an IRS form 1040 no matter what. They may be needed to submit an FBAR, FinCEN form 114 (foreign bank account report) if the aggregate balance of all their bank accounts is more than $10,000 including any pensions, investments and any accounts with signature authority. The FATCA IRS form 8938 (the foreign account tax compliance act) may be required to be submitted if certain financial assets exceed filing thresholds.

How can you reduce expat tax return?

For filing Federal tax for non resident,  The FEIE IRS form 2555 (the foreign earned income exclusion) let’s you exclude a certain amount of their income from US expat taxation which means that amount can be subtracted from their earned income like pensions, dividends, interest, US sourced income and capital gains on those expats are liable for full US tax. Apart from this, another exclusion that can be used is foreign tax credit. You can subtract the tax on your income that was already taxed by a foreign country by using the IRS form 1116. You can claim a foreign tax credit on the income that is being taxed by the US, thus it excludes the amount that has already been removed by the FEIE. You can also claim the foreign housing exclusion on your income from rent to further reduce your tax amount.

When do you have to file tax as an expat?

If you are living abroad, then you will have the same tax deadline as a US citizen at home but you will get an automated 2 months extension to file but any taxes owed are still due by the original deadline. If you decide to return to the US, you may still be eligible for certain US expat tax deductions and exclusions for the tax year but with no extension. The total amount must be in the US dollars when US tax filing is based on the yearly average currency exchange rates.

Quick Guide to US Expat Tax Return Filing Requirements

Taxation has always remained an Achilles hill for most taxpayers, especially when taxation has to be done for us expat taxes. It often goes unnoticed that even the Americans living outside has taxation in the form of federal tax for non residents, in this case, they must always file an annual tax liability which generally includes their incomes from all over the world. Don’t get worried too much about filing us expat tax return, generally and usually the US has a range of standard exemptions and deductions that ultimately results in almost zero tax liability.

USA Expat Taxes is an American expat tax services company that handholds you in the entire process and provides services in an end to end manner. Most commonly the expat taxes becomes complex, it is not by design, but by the sheer nature and quantum of laws and regulations, including the double taxation avoidance agreements that the US has with many countries gives it the complex nature. Before we go into the factors as to why to chose US Expat taxes we would just like to mention a few pointers which must be kept by everyone in mind before filing the expat taxes –

• Expats must file tax returns in the US even if their source of income is outside of the US. Income can include profits, Interests, Income, Rent, Dividends etc.
• Foreign earned income is excluded but the exclusion is not automatic.
• Certain time restrictions are mentioned in regulations for qualification as an expat.
• Presence of specified residency tests.
• Analysis of the Double taxation avoidance agreements which the US might have signed and ratified with the country you are residing in. 

Apart from the above-mentioned pointers, many other factors must be considered before filing the expat returns. We understand and comprehend that handling the minor details and regulations might be tricky for you and to explore each clause with your busy routine might be tedious. And why at all should you even think of doing this all alone when USA Expat taxes is here! Our years of experience in helping our customers from a range of countries, our domain experts tax professionals and our customer-centric approach is what makes us stand apart from our peers. Few of other reasons why you should trust us –

• Low transparent pricing structure our transparent pricing starts at just $249! That too comes with the highest standards of privacy and security which we understand how important it is to you.

• Reliability
  • Our years of experience in servicing our expat community all over the world because we earnestly appreciate your contribution. Our years of dedicated services provide a sense of reliability.
• Professional
  • We do not believe in generalist tax consultants. We have a specialist group of CPAs and EAs who are expat tax specialists with years of experience in the relevant field and domain expertise.

Always feel free to reach out to us to discuss any of your concerns, we are available all round the clock and just a click away from you.

How to Pay Federal Tax for Non Residents

Number of laws have been made in order to appropriately collect taxes from the United States citizens. The most difficult task the citizens of the United States faces is tax filing, tax return and the payment. It is for everyone to face the tax related requirements, even if the citizen lives and earns abroad. In spite of these many people who do not comply with these rules. Either these people are smart enough to ignore these rules or purposely not following the same. Because of their foolish act, these people have to face significant legal actions. Kindly be anxious enough to pay attention to Federal tax for non residents  if you are also one of them who is living in abroad country.

Although you are living abroad but you were born in the United States and your passport proves it, then you have to give the record of your complete income you earn every year to the IRS. The same has to be followed to pay the taxes to the United States even if you live abroad but hold the citizenship of America.

Expats only have to pay US citizen aboard tax when:

They have income based on the United States that is over the standard deduction, so subject to the US income tax don’t pay enough overseas income tax on unearned overseas income that is still subject to the US expat taxes.

How to pay American tax for US residents living abroad

Those American who are living abroad have been provided with the facilities like US expat taxes software or a US expat tax firm that supports them to file the tax return electronically. Furthermore, they can send a US tax return on the below mentioned address from abroad without any hesitation.

Department of the treasury

Internal revenue service

Austin, TX 73301-0215

United States of America

How to pay tax bills online

It is not necessary to inform you when your US expat tax return has been received by the IRS. They will only inform you when they have any question related to it. They will only inform you when they have any question related to it. In case there is no tax refund for your tax return, then you can directly call them and know the status whether they received your mailed US expat tax return or not.

Nowadays, there are American expat tax services available that can offer you with quite honest services. These services know that people are not at all aware of the taxation system. Furthermore, these services help people in preparation of their tax return and filling, in addition it also helps those who live abroad to know more about the US tax return system. It will be quite irrelevant to know where you stay in the World. The tax preparation and filing services will be of great help to assist you regarding the United States taxes for the American abroad and further elements related to it.

How Filing US Tax Return Online When Living Abroad is best Option?

Filing income tax return is something that bind every tax payer together. Salaried employees and workers who comes in tax filing category need to be extra cautious when it comes to filing their income tax. People who are working for a long time and have not filed their return yet then they are in big problem. Every taxpayer needs to file their tax return. If you are one of them then there is some news for you. Now you can file your US tax return online.

Online tax filing for US citizens living abroad is a great solution for every tax payer who is living and working abroad. If you have not tried filing online yet then it is the right time to do. Filing online is the safest and most convenient option to file tax return in time. There are many people who are not comfortable filing online but once they have given it a try, they never looked back and always file their tax return online.

How can you file your tax return online?

There are several websites that can help you to fike tax return. But, you have to find the right website. To find the right one, you can check the credibility of the website simply by browsing the customer reviews that people leave after their experience with the services the website given to them. When you have selected a website for your income tax return filing, now you need to get in touch with their e-filing professionals. These e-filing experts will guide you through the whole process of filing your return. Keep in mind that check at least 2 or 3 websites and see how comfortable you are with their procedures before narrow down your choices. Filing tax return online is a great breakthrough and has helped people file their tax returns from any country of the world and on time.

Online tax filing service providers are more reliable and won’t overcharge you for any of the services they provide. Also, you don’t need to worry about those agents who make you wait and charge high fees.

Must choose a website that shares all the necessary details and information with you. There are some websites that might hide details like the login and the password to your file and this is not the kind of website you should hire. A reputed and experienced website will share everything with you and make sure they maintain a transparent relationship with their clients.

Online US tax return filing is one of the most convenient techniques that every tax payer will find and as a salaried person as it will help you save on money and time. So it is the right to ditch the traditional methods of filing tax return and learn the art of filing online.

If you want to save your time and money, you can hire the services of an accountant to do all the necessary calculations and complete your tax return. Remember, a good accountant will advise you on hoe you can reduce your tax liability as well. He or she must be up to date with latest tax rules and regulations as well.

Everything You Want to Know About US Expat Taxes

US Expat tax is a complex topic. It is therefore imperative that you understand the ins and outs of the US expat tax system. United States is one of those two countries in the world that tax its citizen for income earned by them in any part of the world. US citizens living abroad have to pay the expat taxes for the income by them abroad

Understanding the US tax code can be a daunting task. And for US citizens living abroad, the information of expat taxes are even more complex and confusing. Here are some of the things that have to be taken into account about US expat taxes:

1. Expats must file American taxes if they have income, received certain credits or other special situations that might apply. If you are an American citizen earning over a certain amount of foreign income abroad then you are bound to file US tax return. If you are legally US citizen, you have a tax obligation to the US.

2. Most American expats do not owe US taxes: There are varieties of mechanisms in place to prevent US expats from being double taxed on foreign earned income. In most situations US expats can offset foreign earned income with – Foreign tax credit, Foreign earned income exclusion and Foreign Housing exclusion.

3. Expats might still have to pay US state taxes: Living abroad does not automatically exclude American expats from paying state taxes and it depends on the state you live in prior to moving abroad. It is recommended that you consult an expert and professional American expat tax services if you are if you have state tax obligation or not.

4. If you are US expat and not filing taxes can result in losing of your passport, being charged with fines and other penalties to jail for serious tax evaders.

5. Claiming children as dependents will give you few perks on your US expat taxes. However, while you are abroad, your eligibility can differ. If you claim FEIE, you are not able to claim the refundable portion, meaning the child tax credit will not lead to refund on your return.

6. If you are a US expat and has never filed a tax return, then IRS understands that is it a complex topic and show lenience with genuine mistakes. With streamlined filing compliance procedures the expats can get caught up on multiple years of US expat taxes.

7. You may qualify for COVID 19 stimulus checks if you fall within the income threshold, have a social security number and file taxes as an expat. All the non filers and retired expats who live abroad also qualify.

8. The US government and the country where the US expats are living provide them with the variety of aids to prevent them from double taxation. These aids include tax treaties, the foreign earned income exclusion and the foreign tax credit.

9. If you retire abroad you may still have to pay US expat taxes on your retirement income and social security payments.

10. When filing for expat taxes, certain investment accounts or retirement plans owned abroad may not be treated the same as your US counterparts, changing your liability drastically.

Blog Source : https://usa-tax-news.mystrikingly.com/blog/everything-you-want-to-know-about-us-expat