As a US Citizen or Green Card holder living abroad, you have to file US taxes with the IRS each year if you meet the income filing threshold. However, filing US taxes does not necessarily mean you will owe taxes. In most cases, your main responsibility is to report your income and other necessary information.
How it works
Depending on where you live in the world, you may be subject to double-taxation, an occurrence where taxes are placed on your income from both the US and your host country. But don’t worry just yet—when you pay taxes in your host country, you typically won’t owe additional US taxes because the US has variety of tax exclusions, deductions and agreements with several countries around the world to prevent double-taxation:
- Foreign Earned Income Exclusion (FEIE): Expats can exclude a little over $100,000 of foreign earned income from their US tax return. We recommend utilizing this exclusion if you pay low to no income tax in your host country, and do not have or plan to have children (dependents) who would register for a Social Security Number.
- Foreign Tax Credit (FTC): You could use every euro, pound, yen of income taxes paid in another country as credits against your US tax liability. Expats should use the FTC if they, for example, pay more income tax in their host country, and earn more than the FEIE rate.
- Foreign Housing Credit: Certain housing expenses from your home abroad can be deducted from your US tax return. There is a limit to how much you can deduct, but using this credit can help if your foreign earned income surpasses the FEIE threshold.
- Tax-Treaty Benefits: The US made agreements with several countries around the world to help prevent double taxation for Americans abroad. Expats can utilize tax treaty benefits when filing their US tax return to avoid having to pay US Social Security and Medicare taxes.
When you might owe US taxes
- You have US-sourced income that exceeds the standard deduction and is therefore subject to US income tax.
- You have US-sourced income with no federal taxes withheld.
- You do not pay enough foreign tax on unearned foreign income, such as capital gains from the sale of foreign property, which remains subject to US tax.
- You’re subject to self-employment tax and there is no Totalization Agreement between the US and the country where you live.
To learn more about whether you need to pay US taxes as an expat, visit our Expat Tax Guide.
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