Many US citizens who live abroad like to believe that taxes are something they don’t need to think about anymore. Sadly, we have bad news for people living in another country — you will still have to file for US federal tax returns.
When it comes to income and taxation, the United States is one of the more unique countries. The United States has a residence-based taxation system. This means that all residents both living in the country and abroad are obligated to pay their taxes.
How much people living abroad have to pay for their taxes
All foreign income is the same for the US tax system as the one earned inside. The same marginal rates are used for taxing this income. In other words, all green card holders or citizens living abroad have to file for US federal tax returns.
Naturally, not all people have to do this, but if your total income has exceeded a certain number, you will be obligated to file for tax returns:
If you’re single and your income was at least: $12,400
For joint filing of married citizens: $24,800
For married people filing separately: $5
For self-employed people: $400
For household heads: $18,650
It doesn’t matter if you are abroad throughout the whole year and never set foot on US soil; the IRS will want you to file your taxes.
How to avoid double taxation
One of the most significant issues many people living abroad have is being taxed double for their income. In other words, both the US and their current country of residence could ask for taxes. This issue is especially present for American citizens who live in another country full-time and qualify to become residents in those countries.
In order to avoid this, the US tax code has added the FEIE or “foreign earned income exclusion,” which allows people living abroad to exclude up to $108,700 of their abroad income from their taxing obligations. The foreign tax credit is another provision that can prevent double taxation.
With it, they can expand the FEIE exclusion limit if they have paid taxes to a foreign government. However, not all occupations have the right to this.
Other requirements for taxpayers abroad
When filing US federal tax returns, you will have to report additional information apart from income. All taxpayers abroad need to disclose all of their accounts in the foreign country as well as the assets that have a particular value.
In some cases, retirement contributions without accounts could be taxable as well. So, when you are filing your taxes while abroad, make sure to check all the requirements that must be in your file. It could take time to get everything down, but it’s essential to do this and prevent any issues with your taxes.
Conclusion
These are the essentials you need to know about filing your taxes as a US taxpayer living in a foreign country. If you have more questions, make sure to talk to the US government and clear out any misunderstandings.
