Summary of the U.S. Filing Rules for Expats

Every year, all American citizens (and Green Card holders) are required to submit a federal tax return to the United States, declaring their worldwide income (converted into dollars for reporting), regardless of where they are or live.

Americans living overseas with worldwide income under the Standard Deduction level ($12,550 in 2021) do not have to file, unless they are married to a foreign spouse or have self-employment income.

Americans residing overseas sometimes have to file taxes in the country where they work or reside, as well as having to file U.S. taxes.

Avoiding double taxes sometimes involves filing supplementary IRS forms in order to obtain credits. Depending on your circumstances, your expat tax advisor will provide you with advice on how to achieve this. Most often, it means filing IRS Form 1116 to claim the Foreign Tax Credit, which gives U.S. tax credits based on the value of the foreign income taxes you’ve paid.

Another IRS provision that expats may use to decrease their U.S. tax burden is the Foreign Earned Income Exclusion. It enables Americans to remove their earned income (as opposed to passive income like rent, pension income, or dividends) from U.S. taxes up to a yearly income level. The Foreign Earned Income Exclusion limit for the tax year 2021 is $108,700.

Americans filing from abroad are also often required to report their international bank, investment, and pension accounts, as well as any foreign registered businesses they own or have a major stake in.

Self-employed Americans residing overseas also have to pay U.S. self-employment taxes, although they may be able to claim an exemption if they live in a country that has a Totalization Treaty with America.

2022 Filing Deadlines

Americans filing from outside the United States in 2022 will be granted an automatic two-month delay until Wednesday, June 15, 2022. However, they need to pay an estimated tax by April 18 to avoid interest, assuming they owe any U.S. tax.

Expats may still submit Form 4868 to seek an extension until October 17, 2022, if they need additional time to file their foreign taxes first. FBARs (Foreign Bank Account Reports) must also be submitted by October 17, 2022.

More 2022 U.S. Expat Updates

The U.S. is substantially increasing investment in the IRS, to upgrade its I.T. systems and hire a large number of new agents. One of the declared goals is to enforce international taxpayers better, so we can infer that they will be able to better assess the data they receive from foreign banks and governments on American residents overseas.

The recent increase to the Child Tax Credit is excellent news for American parents, but expat parents should be wary. The higher credit of $3,000 for every dependent child in 2021 and 2022 is only available if you have physically lived in the U.S. for at least six months of the calendar year. Because of this provision, expat parents should still only expect to receive a $2,000 credit, of which only $1,400 is refundable.

President Biden's Build Back Better plan, though currently in limbo, aims to raise the GILTI tax on offshore corporate earnings, with the potential to affect millions of Americans who have a company registered in another country.

Catching Up If You Didn't File Last Year

Don't be alarmed if you're an American living overseas who was unaware that you have to submit U.S. taxes; there are provisions for Americans who couldn't file. The Streamlined Procedure is an IRS amnesty program that allows you to catch up on your taxes without risking penalties, as long as the IRS hasn’t reached out to you yet.

If you have any questions or doubts about your U.S. taxes as an American living abroad, consult with an expat tax professional to seek out your best outcome.

About the author

Nicolas Castillo is a Managing CPA at Bright!Tax, and a leading U.S expat tax specialist.

To get support and help you with US Expat Tax, check Bright!Tax service on Expat-Quotes.com

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