Americans living abroad must still file US tax returns and report worldwide income. The good news: exclusions, credits, and treaty benefits can significantly reduce or eliminate US tax. Understanding your obligations and options is essential.
Who Must File?
US citizens and green card holders are taxed on worldwide income regardless of where they live. Filing thresholds apply—single filers under 65 typically need to file if income exceeds about $13,850 (2023). Self-employed individuals file if net earnings from self-employment are $400 or more.
Filing Deadlines for Expats
Expats get an automatic 2-month extension to June 15 (April 15 plus 2 months). You can request an additional extension to October 15. However, any tax owed should be paid by April 15 to avoid interest. Penalties may apply for late filing or failure to report foreign accounts.
Key Tax Benefits for Expats
Foreign Earned Income Exclusion (FEIE)
Exclude up to about $120,000 (2023) of foreign earned income. You must meet the Physical Presence Test (330 days abroad in 12 months) or Bona Fide Residency Test. Investment income, pensions, and other unearned income do not qualify.
Foreign Tax Credit (FTC)
Credit foreign taxes paid against US tax on the same income. Reduces double taxation. Excess credits can sometimes be carried back or forward.
Foreign Housing Exclusion/Deduction
Additional exclusion for qualifying housing costs above a base amount. Useful in high-cost cities.
Reporting Requirements
- FBAR (FinCEN 114) — Report foreign financial accounts over $10,000 aggregate
- Form 8938 — FATCA reporting for specified foreign assets above thresholds
- Form 2555 — Claim FEIE and housing exclusion
- Form 1116 — Foreign tax credit
Common Mistakes
Missing FBAR or Form 8938 can trigger stiff penalties. Assuming “I don’t owe US tax” does not eliminate the filing obligation. State tax may still apply if you maintain ties to a state. Working with an advisor who specializes in expat tax is strongly recommended.
American living abroad? Contact A2N Advisory for expat tax preparation and planning.
