If you are a U.S. citizen or resident alien (Green Card Holder) living and/or working in a foreign country, the rules for filing U.S. income tax returns and paying estimated taxes are generally the same whether you are in the United States or abroad. Please be aware that your international income is taxed, regardless of where you reside. However, you may qualify to claim a foreign earned income exclusion ($105,900 for 2019). If you are married, your spouse is allowed an additional $105,9100 exclusion. To qualify, you must meet either the:
- Bona fide resident test – you’ve lived in a foreign country for an entire calendar year, made it your home, and (generally) pay taxes there. There are no specific time restrictions; for instance, it is possible to be away from your foreign residence for months and still meet the test, or
- Physical presence test – you were physically outside the U.S. for 330 days out of any 365 day period and your tax home was abroad.
Also, only earned income–salaries, wages, and fringe benefits, plus allowances and expenses for housing–qualifies for the exclusion. Dividends, interest, capital gains, pension or retirement distributions, and alimony do not qualify. If you are a member of the U.S. military or other government service and are living abroad, your income is not considered foreign income.
Even if you avoid U.S. income tax, you will likely pay some form of income tax to the country in which you reside and earn a salary. Should you fail to meet the physical presence test or the bona fide resident test, or if you receive income above the allowable exclusion, you’ll probably end up paying both foreign and U.S. income tax. If you do pay foreign income tax, you can apply for a separate U.S. tax credit (using Form 1116) in the amount of foreign income tax you are required to pay. The amount of foreign tax that qualifies for the credit is not necessarily the amount of tax paid. If you were working in a foreign country paying an income tax rate that was higher than the rate would be in the U.S., then in general, you are likely to receive a full foreign tax credit for those foreign taxes that you paid on your income. If you are working in foreign country paying an income tax rate that is less than the rate would be in the U.S., then in general, you would owe the difference in tax to the IRS. If you spent any time working in the U.S. for your foreign employer, then that income is not available for a foreign tax credit.
If you are self-employed, you will still be subject to self-employment tax (social security and Medicare taxes) even if you can exclude all of your earned income for income tax purposes. However, if there is a social security (totalization) agreement between the U.S. and the country in which you work, and you are covered by social security there on your self-employment income, you might be exempt from U.S. self-employment tax. Click here for social security agreements.
Tax Tip: If you are a U.S. citizen, green card holder, or meet the substantial presence test, you are generally required to file a U.S. income tax return, even if you are living abroad. This is true whether or not you owe taxes and whether or not you are filing a foreign country income tax return.
Under certain US tax treaties, if applicable, a green card holder may have the option to elect non-resident alien (“NRA”) status and be released from US tax resident status. If you are a NRA who is claiming that you can exclude days of presence in the United States for purposes of the substantial presence test, then you may need to file Form 8843 to explain the basis of your claim.
|Filing deadline for expats||15-Jun|
|Filing deadline by requesting extension||15-Oct|
|Deadline to pay tax due||15-Apr|
|FBAR (Foreign Bank and Financial Account Reporting)||15-Apr (or Extension deadline if granted)|
- Most expats qualify for an automatic two-month filing extension. So, your return would be due by June 15, 2020.
- You must pay any tax due by April 15, 2020 even if you’re an expat filing your return by June 15, 2020.
- If you don’t pay taxes due by April 15, 2020 the IRS won’t assess a failure to pay penalty if you file and pay by June 15, 2020. However, you’ll be charged interest on the unpaid amount.
Disclaimer: Information provided by Sigma Accountants LLC on this site is not to be construed as legal, tax, or accounting advice. Every effort is made to provide current and accurate information but tax laws and regulations can change and errors can occur. This information is provided “as is” with no guarantees of completeness or accuracy and without warranties of any kind- express or implicit.