Tax Filing Information for U.S. Expatriates
U.S. citizens and Green Card holders living outside the U.S.
Important Note: U.S. Citizens & Green Card Holders must file a U.S. tax return even if living outside the U.S. This is true even if earned income is below $100,800; the earned income exclusion is not automatic!! See details below.
Many expatriates may have had a higher U.S. tax liability since 2010 because of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), mainly due to #3 below. TIPRA changes are as follows:
- The maximum foreign earned income exclusion has been increased to $100,800 (this usually changes each year).
- Housing costs (rent & utilities eligible for an additional exclusion or deduction) are now limited based on the city and country in which you live.
- Tax on income not covered by the foreign earned income or housing exclusions will now be calculated as though the exclusions had not been claimed.
Expatriate Tax Deadlines
You have an automatic extension until June 15 to file your return if you live outside the U.S. However, if there is a balance due, interest will be assessed on it starting after April 15. There is no penalty for being late if you owe no tax.
As an American citizen or Green Card holder you are subject to U.S. taxation of worldwide income, no matter where you go. However, tax can generally be reduced or eliminated by:
- the foreign earned income exclusion,
- the housing exclusion, and
- the foreign tax credit.
The foreign earned income exclusion may be available if:
- You are a bona fide resident of a foreign country, or
- You are physically outside the U.S. for 330 days out of any 365 day period and your tax home is abroad.
As of 2015, this entitles you to exclude up to $100,800 of earned income (i.e., income from working). If your earned income is above $100,800, you may also be eligible for a housing exclusion (generally if you rent), and a foreign tax credit. Note: Income generated by work performed on business trips in the U.S. cannot be excluded.
My income was under $100,800, do I still need to file?
Yes. If your worldwide income is more than the standard deduction ($6,300 for single in 2015) plus personal exemption ($4,000 in 2015), then you are required to file a U.S. tax return.
How do I meet the bona fide resident test?
You meet the bona fide resident test if you are a bona fide resident of a foreign country (or of more than one foreign country, such as part of the year living in Country A and the other part in Country B) for an uninterrupted period that includes an entire tax year. Generally, you qualify if you have made the foreign country your home, and you pay taxes there. Other than being a resident for a full calendar year, there are no specific time restrictions. For instance, it is possible to be away from your foreign residence for months and still meet the test.
How do I meet the physical presence test?
To meet the physical presence test, you must be out of the U.S. for at least 330 days in a 365 day period and have your tax home in a foreign country. If you are out of the U.S. for 330 days between Jan. 1 and Dec. 31, you’re entitled to an exclusion of up to $100,800. However, you do not have to use the calendar year. You could use any consecutive 365 day period (e.g., July 1, 2014 – June 30, 2015), in which case the exclusion of $100,800 would be prorated. For instance, If you were to use the dates in the above example for the physical presence test on your 2015 tax return, you’d have 6 months in 2015 (with the rest being in 2014), and so you’d get a maximum exclusion of $50,400 in 2015 instead of the full exclusion. When you do your 2015 return, you are free to use a different period for the test, if you choose.
Generally, you will still be subject to self-employment tax (social security and Medicare taxes) even if you can exclude all of your earned income for income tax purposes. However, if there is a social security (totalization) agreement between the U.S. and the country in which you work, and you are covered by social security there on your self-employment income, you might be exempt from U.S. self-employment tax. Click here for social security agreements.
Can I contribute to a U.S. IRA Retirement Plan?
In order to contribute to an IRA, you must have earned income which is equal to or greater than your contribution. If you exclude your entire income in a tax year, and also make an IRA contribution, you have to pay an excise tax on that contribution, and the tax will be assessed again in each future tax year until the IRA contribution has been withdrawn. A way around this is to choose a 12-month period that will not give you a full exclusion of your income, and therefore leave you with enough earned income to meet the requirements to contribute to an IRA. Also, any days worked in the U.S. on your foreign assignment are not excludable, and so the income generated on those days may be enough to allow you to contribute to the IRA. This is something I can figure out for you when I do your return.
Should I file jointly with my foreign spouse?
When preparing your tax return, I will let you know if it is better to file jointly with your spouse. It often is if your income is above the $91.5K exclusion or you have substantial non-earned income. Your spouse’s foreign income (if any) would need to be reported, but he/she is also entitled to the foreign income exclusion.
Green Card Holders
If you are a Green Card holder, please refer to this link for information on maintaining your permanent resident status.