Top 20 Facts to Know about US Expat Taxes

1. Do I have to file a US income tax return if I live and/or work overseas?

US citizens and Green Card holders are subject to income tax on their worldwide income.  Therefore, if you meet the minimum income thresholds for filing a US federal income tax return, you are required to file a US tax return regardless of where you earn your income.

2. Do I have to file a State Income tax return if I live overseas?

The necessity to file a State Income tax return depends on the state of your residency prior to moving overseas.  Some states have stringent domicile rules that consider factors such as property ownership, voter registration, and mailing addresses. Others rely on a physical presence test.

3. Do I have to file a US income tax return if I’m retired and living overseas?

Yes, if you meet the minimum income thresholds for filing a US tax return, even in retirement, you are obligated to file a US income tax return when living overseas.

4. Can I receive US social security payments overseas and is the income taxable in the US?

In many countries, you can receive social security payments directly into your foreign bank account. However, it's crucial to note that all of your worldwide income, including social security payments, is subject to US federal income tax.

5. What income do I need to report on my US federal income tax return if I live or work overseas?

US citizens and green card holders are obligated to report all worldwide income.  Thus, you are required to report all income received both overseas and in the US.  This encompasses the same types of income that would be reportable if earned domestically.

6. Are there any relief provisions, deductions, or credits available on my US tax return?

Indeed, there are specific relief provisions for expatriates that can alleviate their tax liability.  Notable among these are the Foreign Earned Income Exclusion (up to $120,000 in 2023), the Foreign Housing Exclusion, and the Foreign Tax Credit for foreign income taxes paid.

7. What are the income thresholds for filing a US income tax return?

While there are various income thresholds, it is highly recommended that you consult with a tax professional to understand your individual filing obligations. The thresholds for the tax year 2022 vary based on filing status, age, and residency.

8. Is it true that I will owe zero US taxes if I work overseas?

Not necessarily. Your tax liability depends on factors such as income, qualification for exclusions, and eligibility for tax credits or exemptions.

9. Are there other filing requirements that expats who are working overseas are obligated to fulfill?

Expatriates are subject to additional reporting requirements and failure to comply may result in significant penalties. These include reporting of foreign financial assets, ownership in controlled foreign corporations, transactions with foreign trusts, and more.

10. Do I have to pay Social Security and Medicare taxes if I work overseas?

In most cases, you will be required to contribute to the US Social Security/Medicare program, unless you are covered by a foreign national Social tax program and hold a Certificate of Coverage under a Totalization Agreement. 

11. Do I have to report rental income on my US federal income tax return?

Yes, rental income must be reported in Schedule E. However, you can deduct legitimate and necessary business expenses related to the property, paying tax only on the net income.

12. How do I qualify for income exclusions or credits?

Qualification for exclusions like the Foreign Earned Income Exclusion is contingent on meeting either the physical presence test or bona fide residence test.  The Foreign Tax Credit is a credit for income taxes paid to a foreign government on the same income you report in your US tax return. 

13. How does the Foreign Earned Income Exclusion work?

The Foreign Earned Income Exclusion allows taxpayers who qualify under specific tests (bona fide resident or physical presence) to exclude a specified amount of foreign-earned income from taxable income.  The exclusion is available on earned income only which does not include passive income such as income from rental properties or investment accounts. 

14. What is the Foreign Tax Credit and do I qualify?

The Foreign Tax Credit provides an almost dollar-for-dollar reduction in your calculated US tax liability for the equivalent USD amount of foreign income taxes paid.  It is available to all US taxpayers, including expatriates.

15.  Can I claim deductions for housing and living expenses abroad?

Potentially, if you meet certain criteria, you can claim the Foreign Housing Exclusion or Deduction in addition to the FEIE.

If you meet the Bona Fide Resident and or the Physical Presence Test, you might qualify to take a deduction for certain foreign housing expenses incurred.  The calculation is limited depending on where you live and is only available to the extent that you have foreign income that exceeds the amount of Foreign Earned Income exclusion claimed.  

.16. Does the Foreign Earned Income Exclusion affect my tax liability on my US-sourced income?

No, the Foreign Earned Income Exclusion does not offset taxes on US-sourced income.

17. Can I contribute to an IRA if I work overseas and earn foreign-sourced income?

Contributions to an IRA are contingent on having income that exceeds the amount claimed under the Foreign Earned Income Exclusion. Excess contributions may need to be withdrawn.

18.  If I own a home overseas and sell it, do I need to report the sale on my US tax return? 

Yes, you will need to report the sale of your foreign residence on your US return.  The calculation of the gain or loss is the same as for a sale of a US residence.  You are also able to claim the primary residence exemption on the gain (up to $500K if filing MFJ) if you meet the requirements to do so.  Mortgage interest paid during ownership is deductible as an itemized deduction.  However, property taxes paid on your foreign residence do not qualify as an itemized deduction. 

19.     Do I need to report foreign bank accounts?

Yes, if you have over $10,000 in foreign financial accounts at any point during the year, you must file an FBAR (FinCEN Form 114).  While the FBAR is a filing separate from your tax return, your tax preparer should be able to e-file the FBAR for you. You might also need to report bank accounts in Form 8938 - Statement of Specified Foreign Financial Assets.

20.   What are the filing deadlines for US expat tax returns? 

The standard deadline is April 15th, but expats generally receive an automatic extension until June 15th.  A further extension to October 15th is also available by filing the standard extension Form 4868.