Do US expats need to pay tax in US?
Many expats often find themselves exempt from paying US taxes thanks to typical expat tax breaks. Typically, expats can benefit from either the Foreign Tax Credit or the Foreign Earned Income Exclusion, both which can reduce their US tax liability to zero. To illustrate how this works, please find below a simplified example.
Meet Dave, an American residing in the Netherlands. Dave earns a salary of $50,000 from Company X in the Netherlands. In the Netherlands, Dave pays 40% income taxes, which is $20,000.
| Example 1: Foreign Earned Income Exclusion | |
|---|---|
| Foreign Wages | $50.000 |
| Less: foreign earned income exclusion | $50,000 (max. 120,000 for TY2023) |
| Taxable income | $0 |
| US tax liability (over $0) | $0 |
| Example 2: Foreign Tax Credit | |
|---|---|
| Foreign Wages | $50.000 |
| US tax (over $50,000) | $15,000 |
| Less: foreign tax credit | $15,000 (max. $20,000) |
| US tax liability | $0 |
Expatfile's tax software automatically calculates the most favourable tax breaks based on the information entered. So no need to think, just enter your personal information, income and foreign taxes paid, if any, and Expatfile does the rest.