Taxes for expats: what you need to know
Americans living abroad still need to pay taxes on their global income. But your filing status and income will determine just how much. Here’s your guide to expat taxes.
Taxes for expats
In the US, taxes are based on citizenship rather than residential status. So, even if you’re living abroad, you still need to file your taxes on US income tax brackets using US tax forms. Although expat taxes are simple to understand and complete, preparation is key, and knowing your tax liability and what you need to pay, is vital to filing your taxes properly.
How much tax do expats pay?
How much tax you pay as a US expat depends on which income threshold you qualify for.
Your total income, including wages, interest, dividends, and rental income, all contribute to your total taxable income. The higher this level is, the more income tax you will need to pay.
The thresholds for expats are:
| Status | Gross income threshold |
|---|---|
| Single (under 65 years old) | $12,950 |
| Married, filing jointly (under 65 years old) | $25,900 |
| Married, filing separately (any age) | $5 |
| Head of household (under 65 years old) | $19,400 |
These thresholds also apply to self-employed people. You must file a tax return if you are self-employed and earn over $400 a year.
However, expats can also qualify for several exemptions that reduce their tax liability, including:
Foreign Earned Income Exclusion (FEIE) can exclude some foreign income from tax.
Foreign Housing Exclusion can offset higher living costs in foreign countries, including leasing fees, rental expenses, and housing repairs.
Some popular expat destinations have Tax Treaties with the US, meaning exemptions or reduced tax rates on incomes can be applied.
Foreign Tax Credit (FTC) offsets tax rates if the country of residence has a higher tax rate than the US; this is a good way of reducing your US tax burden.
Which tax forms do expats need?
Filing your taxes from abroad is largely the same for those living in the US.
You must complete Form 1040 as normal, including details such as your Social Security number, income, and any eligible deductions.
With this completed, you should fill in Form 2555 next. This form calculates any exemptions on earned foreign income and any further credits and exemptions you may be eligible for.
Form 2555 is also used to claim Foreign Housing Exclusion and is filed with other tax forms. You must qualify for an FEIE to claim Foreign Housing Exclusion.
If you’re eligible for exemptions, you may need to fill in several other forms, including:
Form 8833 allows you to claim tax treaty benefits as long as you are eligible.
Form 1116 allows you to claim foreign tax credit if you have paid foreign taxes within a foreign country. This form is vital for avoiding double taxation.
Form 8938 calculates and declares the value of your foreign assets. If you have any foreign financial assets, such as pensions, that either reach or exceed $400,000 by the end of the tax year or over $600,000 at any point during the year, you must file Form 8938.
Form 114 must also be filled out if you have any assets in foreign financial institutions. This declares your assets to the Financial Crimes Enforcement Network of the US Treasury.
Contact your financial advisor if you are unsure which forms to fill out, depending on your personal circumstances.
When do expats have to file their taxes?
Expats have more time to complete their tax returns than those in the US.
For the 2023/24 tax year, domestic filers need to file their US tax returns by April 15, 2024, whereas, for expats, there is a further two-month extension, meaning you need to file your taxes before June 15, 2024.
If you also need to file for taxes you must pay in the US; you must complete your return by the usual date – April 15. You may have a separate deadline in some countries, like the UK and Australia. Speak to your financial advisor to find out if this applies to you.
What are the penalties for failing to file your taxes as an expat?
If you fail to file your taxes properly or miss the filing deadline, you may face some consequences from the IRS.
Initial penalties include compounding fines, but the longer you go without fully filing your taxes, the worse these punishments can become. Eventually, you could face jail time and risk losing your passport, so it’s important to plan ahead and pay close attention to the relevant tax filing deadlines that apply to you.
How can expats avoid paying taxes?
There are ways expats can minimize the amount of tax they pay.
While living abroad, you may qualify for some of the abovementioned exemptions. Still, you must plan ahead to ensure that you are well-prepared with the appropriate forms and documentation to prove your eligibility.
While your eligibility for some exemptions may come down to your financial circumstances, speaking to a financial advisor will help you plan your tax affairs and can help you minimize the taxes you need to pay.
While you still need to pay taxes while living outside of the US, certain financial strategies are available to reduce your tax burden. From taking advantage of certain tax exemptions to taking onboard tailored financial guidance, speaking to a financial advisor can help you minimize your tax liability while living abroad.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.