You may wonder if you need to pay US taxes as an expat because you typically need to file a US tax return. The truth is – it’s a fact that living abroad as a US citizen or Green Card Holder does not mean you can avoid US taxation. Depending on where you live in the world, you may be double-taxed – an occurrence where taxes are placed on your income from both the US and the host country.
But don’t worry just yet – the US was aware of this double-taxation situation, so they made a variety of tax exclusions, deductions and agreements with several countries around the world to prevent this:
- Foreign Earned Income Exclusion: Also known as the FEIE, expats can exclude a little over $100,000 of foreign earned income off 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: You could re-use every euro, pound, yen from paying income taxes as in another country as credits against your US tax liability. Expats should use this form 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 off a US tax return. There is through 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 exclude having to pay US Social Security and Medicare taxes.
To learn more about whether you need to pay US taxes as an expat, please visit our expat tax guide.