Do I need to file my US federal taxes as an expat?

US expats are generally subject to the same tax rules as US residents. This is because the US tax system requires all US citizens to file and report their worldwide income, no matter where they live.

Screenshot passport US taxes

So, when you are an expat living and working abroad, you likely need to file your US taxes every year. A lot of Americans abroad don’t realize this, but don’t worry – it’s easy to catch up if you fall behind!

The good news is that although you need to report your worldwide income and file a US tax return, this does not necessarily mean that you owe US taxes. In fact, a lot of US expats end up not paying any US taxes at all. 

We will explain this in more detail further below.

Who needs to file a US expat tax return?

As Americans living abroad are subject to the same tax rules as US residents, the same filing thresholds apply. For tax year 2020 and 2021, US expats are required to file a US federal tax return if they meet the following thresholds:

FILING STATUSTax Year 2020Tax Year 2021
Single$12,400$12,550
   65 or older$14,050$14,250
Head of household$18,650$18,800
   65 or older$20,300$20,500
Qualifying widow(er)$24,800$25,100
   65 or older$26,100$26,450
Married filing jointly$24,800$25,100
   One spouse 65 and older$26,100$26,450
   Both spouses 65 and older$27,400$27,800
Married filing seperately$5$5
*Any filing status but has self-employment income$400$400

Also, regardless of the above filing thresholds, if you have self-employment income of $400 or more, you need to file your US federal tax return. This includes individuals with their own business, as well as freelancers, and independent contractors. 

Check out this article when you are self-employed or working as a digital nomad!

Will I owe US taxes as an expat?

The good news is that although you need to file your US federal tax return reporting your worldwide income, this does not mean that you owe US taxes. In fact, a lot of US expats end up not paying any US taxes. We will explain this in more detail further below.

Although most expats don’t owe any tax, this does not mean that they are exempt from filing your expat tax return. Just make sure you file your taxes each year! Expatfile made it simple for you. Click here to start your expat tax return. 

When do I need to file my US expat tax return?

For 2021, the regular due date for filing a US federal tax return is April 15, 2022. Generally, expats have an automatic extension to June 15, 2022. The automatic extended deadline is granted so that Americans living abroad have time to collect information from their local tax return. 

Can US expats apply for a filing extension? 

If you need even more time for your 2021 expat tax return, you can apply for an additional extension to October 15, 2022. The IRS will grant this extension as long as the extension has been filed by your regular tax return due date of April 15, 2022. This request can be made by filing form 4868. 

Am I taxed twice by the host country and the US?

As an expat you may also have to pay taxes to the foreign country you live in. Expats also need to report the same foreign income in the US, but it would be unfair if the same income is taxed by both the foreign country you live in, as well as in the US.

To prevent this, and provide relief to US expats, the US tax code allows expats two methods to prevent their income from being taxed twice. These methods are the Foreign Tax Credit, and the Foreign Earned Income Exclusion. These will be further explained in this article.

The Foreign Tax Credit (“FTC”) and the Foreign Earned Income Exclusion (“FEIE”)

US expats can claim either the Foreign Tax Credit, or the Foreign Earned Income Exclusion, or both! This can reduce or eliminate an expat’s US tax bill.

Foreign Tax Credit

If you paid any taxes to a foreign country during the year, then you are likely able to claim the foreign tax credit by filing Form 1116. By claiming the foreign tax credit, you can offset your US federal taxes dollar for dollar based on the amount of foreign taxes you paid!

Here’s a simplified example of how it works:

  • You’re filing your 2021 US federal tax return and your filing status is “single”.
  • You earned foreign wages of $120,000 while living and working in the Netherlands
  • Let’s assume you would owe $40,000 in US federal taxes on this income.
  • On your foreign wages, you actually paid $50,000 in Dutch taxes.

Since you paid $50,000 in Dutch taxes, you can use up to $40,000 of this as a foreign tax credit, bringing your US federal tax bill from $40,000 down to $0. In addition, the $10,000 in excess Dutch taxes can be carried forward to the next year, offsetting any US federal taxes owed on foreign income in the next year!

Sometimes claiming the FTC may not be as beneficial as claiming the FEIE, but in most cases we advocate for claiming the FTC first!

Read more about the Foreign Tax Credit.

Foreign Earned Income Exclusion

The FEIE allows expats to exclude all or part of their foreign wages and foreign self-employment income from being subject to US federal tax. You claim the FEIE by filing Form 2555.  This exclusion reduces your US taxable income which eventually results in a lower U.S tax bill, or even no US tax bill for many expats.

The maximum exclusion amount for 2021 is $108,700. This exclusion basically means that the first $108,700 of your foreign income will be excluded from your US taxable income. If your foreign income exceeds $108,700, then you would only be subject to US federal tax on the amount of foreign income which exceeds the FEIE amount of $108,700.

Here’s a simplified example of how it works:

  • You’re filing your 2021 US federal tax return and your filing status is “single”.
  • You earned foreign wages of $130,000 while living and working in Singapore.
  • Let’s assume you would owe $40,000 in US federal taxes on this income.
  • On your foreign wages, you actually paid $20,000 in Singapore taxes.

Of the $130,000 of your foreign wages, you can exclude up to $108,700 from being subject to US federal taxes. This brings your wages subject to tax down to $21,300. The 2021 standard deduction for a taxpayer claiming the “single” filing status is $12,550 (everyone gets this), meaning your taxable income would be $9,250. You would pay US federal taxes on the $9,250, and not the full amount of your foreign wages of $130,000. However, since you paid foreign taxes too, you will still be able to claim a foreign tax credit and reduce your US federal tax bill down to $0.

If you are a married taxpayer, and your spouse is also earning foreign wages, then they will also be able to claim the FEIE as well! The maximum foreign earned income exclusion for married couples amounts to $217,400. 

Find more details on the Foreign Earned Income Exclusion.

When should I claim the FEIE and when should I claim the FTC?

If you live and work abroad in a country where the foreign tax rate is higher than the US federal tax rate, then you are usually better off by claiming the FTC. Claiming the FTC is a much simpler process than claiming the FEIE, and it also opens you up to other tax breaks in the US like the child tax credit.

Generally, if you live in a country where the foreign tax rate is lower (or zero) than the US federal tax rate, then you are usually better off by claiming the FEIE.

Some benefits of claiming the FTC over the FEIE include:

  • If you claim the FEIE in a given year and you want to switch to FTC in a future year, you may not be able to claim the FEIE for 5 years unless you receive special permission from the IRS to do so.
  • If you paid more foreign taxes than US federal taxes, you could carry forward these as a credit to future years.
  • If you claim the FEIE, you cannot claim the Additional Child Tax Credit (a refundable tax credit of up to $1,400 per child per year). If you claim the FTC, you are allowed to take this credit.

You can also claim the FEIE and the FTC together, subject to certain rules. With Expatfile, our expat tax software automatically figures out what’s best suited for you, and ensures you make the right choices as you file your expat tax return, guaranteeing you the largest and best expat tax breaks available. 

How is self-employment income taxed?

Many expats who are self-employed don’t realize that they are still subject to an additional tax, called the self-employment Tax. The self-employment tax rate for 2021 is 15.3% on self-employment earnings. Your self-employment tax should be reported on Schedule SE. 

Self-employed expats and digital nomads are subject to the same rules as any other American abroad, which requires all US citizens to file and report their worldwide income, no matter where they reside. This means that a self-employed expat or digital nomad will basically be subject to the regular income tax, but also to the self-employment tax, just like if you were self-employed in the US. 

For the self-employment tax, unfortunately the Foreign Tax Credit or Foreign Earned Income Exclusion cannot be used to reduce what you would owe for self-employment tax. 

However, if you are paying foreign social security or equivalent tax in the foreign country you reside in, you may not have to pay US self-employment tax. If the country you are paying foreign social security tax does have a totalization agreement with the US and you have a ‘certificate of coverage’, you are exempt from paying US self-employment tax. A certificate of coverage is basically proof that you pay social security or an equivalent in the host country. 

Read more about self-employment tax.

What are the most common tax forms US expats need?

While all US taxpayers are required to file Form 1040, expats have two specific forms they shouldn’t overlook (Form 1116, 2555). Here are the common and most important tax forms expats need to complete:

Expat families may claim the Additional Child Tax Credit

Also, Americans abroad are eligible to claim the refundable additional child tax credit. This would give a refundable credit of up to $1,400 per child. This is reported on form 8812. To be eligible to claim this credit, you need to have at least an income of $2,500 and cannot claim the foreign earned income exclusion in your return. Your child must meet the following criteria to benefit from the Additional Child Tax Credit:

additional child tax credit form

  • must be 16 or younger by December 31 of the tax year
  • be claimed as your dependent
  • be a citizen, national, or resident of the US with an SSN
  • did not provide over half of their own support for the tax year
  • lived with you for more than half of the tax year

Expatfile lets you calculate the total refundable credits you can claim and compare if you otherwise filed with FEIE.

 

Can I still claim my missing stimulus payments? 

If you are still waiting for your stimulus checks to arrive, we have good news for you! You can still claim them through your 2020 and 2021 return as tax refunds. The only thing you need to do is file your US expat tax return(s)! We have processed thousands of tax returns of expats claiming tax refunds since they did not receive their stimulus payments.  

The IRS introduced the so-called Recovery Rebate Credit. The Recovery Rebate Credit amount equals the missing stimulus payments for you and your dependents, if any. 

Remember that you claim the 1st and 2nd stimulus payment in your 2020 return and the 3rd stimulus payment in your 2021 return. For exact eligibility requirements for the Recovery Rebate Credit, reference is made to this article.

How can I file my US expat taxes?

There are several ways to file your US federal tax return as an expat. You can hire a tax professional and pay a lot of fees. You can do it yourself (but you may not want to or know all the rules and all the forms you need to file!). 

You can also use Expatfile, the world’s first intuitive tax software, designed specifically for expats like you! Expatfile takes all the guesswork out of expat taxes and will allow you to instantly e-file your expat tax return in a matter of minutes. No tax expertise needed! Check out Expatfile’s features here.

I have never filed. How to catch up? 

If you did not file your returns, just make sure you file them as quickly as possible. When you are behind two years or less, you should just file your expat tax returns as quickly as possible to get back on track! 

If you are behind three years or more, there is a special amnesty program called the Streamlined Offshore Filing Procedures. Filing under this program, you can catch up without any penalties, but the reason for not filing is due to non-willful conduct. 

If you want to file under this amnesty program, you should file the last three delinquent tax returns and the last six delinquent FBARs. Also, form 14653 should be attached to each tax return explaining the reason for not filing in the past. 

How do I file if I am married to a foreigner? 

As an expat married to a foreigner (so-called ‘non-resident alien’) can file as Married Filing Separately, Married Filing Jointly, or as Head of Household. 

Filing jointly with a non-resident alien spouse increases your standard deduction, but remember that your non-resident alien spouse’s worldwide income will also be subject to US taxation. This is often not beneficial for expats married to non-resident aliens. 

Filing Married Filing Separately is the most common filing status for US citizens married to a non-resident alien. 

You could also use Head of Household filing status if you have dependents living with you who have a US social security number. 

From our customers, we understand that it has been impossible to e-file returns where the spouse is a foreigner. With Expatfile, we made this possible and you would never need to send in a paper return. You can just e-file your return if you are married to a non-resident alien. 

Do I need to file state taxes as an expat? 

If you need to file a state tax return depends on which state you lived in and whether you still have ties to that state. To check whether you need to file one, you first need to determine whether you are a resident of that state for tax purposes. If you cannot be considered a state tax resident, there is no need to file a state tax return. You also need to file a state tax return if you still have income from that state while living abroad. 

In general, most states require you to file a state tax return if you lived in that state during the year and have income generated within the state. If there are no ties anymore with the state, you are not required to file a state tax return. 

Some states might require you to file state taxes as well. California, Virginia, South Carolina, and New Mexico require you to file state taxes as an expat. In these states, you can already be considered a state tax resident if you have the following connection with that state:

  • You own a property in that state. 
  • You have a bank account or investments held in that state. 
  • Voter’s registration 
  • Mailing address in that state (e.g., P.O. Box)
  • Your spouse or dependents still live in the state. 

Also, for state tax return, you need to report your worldwide income, even if you did not live in the state during the tax year. 

Should I keep track of the days spent in the US?

If you plan to claim the Foreign Earned Income Exclusion in your 2021 return and you plan to qualify through the Physical Presence Test, you should be aware that the days spent in the US are relevant for claiming the Foreign Earned Income Exclusion. You need to be physically present inside a foreign country for 330 full days (days traveling to and from the US don’t count). Therefore, it is very important to keep track of the actual dates when you travelled to the US. 

Moreover, if you plan to take the Foreign Tax Credit, counting the days in the US becomes irrelevant as you simply don’t claim the foreign earned income exclusion. 

As an expat, do I have other filing obligations?

Yes, you may have to file an FBAR if your foreign bank account(s) exceed a balance of $10,000 at any time during the year. Please be noted that this is a separate filing obligation which is not part of your return. Find more details on the FBAR rules.

You may also have to file FATCA. The Foreign Account Compliance Act is similar to the FBAR, and it prevents US taxpayers from hiding cash and assets offshore, but different thresholds apply. If you need to file FATCA, form 8938 should be filed which is part of your return. For single filers, you cash and assets need to exceed $200,000 (married couples $400,000)

Will renouncing my US citizenship avoid filing in the US?

If US tax laws make you want to renounce your citizenship to get out of filing taxes, you’re out of luck. You can only formally renounce your citizenship if you have complied with all US tax laws for at least five years before filing for renunciation. 

Still have questions? 

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