American Abroad Tax Basics:
Filing U.S. taxes from abroad doesn’t have to be as complicated as it sounds. Every day, I see clients who go from overwhelmed by the idea of filing their U.S. taxes to excited because they realize they could be in for a big refund.
As an American abroad myself, I’ve lived through the same frustrations. It’s why I started MyExpatTaxes, which provides do-it-yourself tax software along with the opportunity to work alongside top expat tax professionals for more complex cases.
Who needs to file:
American citizens, U.S. citizens, Americans abroad, Americans overseas, dual citizens, accidental Americans, it doesn’t matter what you call yourself. All American citizens and green card holders must submit a U.S. tax return each year if they met the minimum income threshold in the previous year. This threshold is the same whether you’re living inside or outside the U.S. It doesn’t matter how long you’ve lived abroad: If you’re a U.S. citizen, you’re required to file.
What is the income threshold? The minimum income threshold typically rises each year, and depends on your filing status. In 2023, you’ll need to file a U.S. tax return if your 2022 income was at least:
- Single - $12,950
- Married Filing Separately - $5 (not a typo)
- Married Filing Jointly- $25,900
- Head of Household - $19,400
In addition, if you have more than $400 in net self-employment (e.g., freelancing) income -- even if only as supplemental income – you must file a U.S. tax return.
These thresholds are normally aligned to the standard deduction, except for Married Filing Separately (MFS). Those who are married to a Non-Resident Alien (NRA, aka Non-U.S. Citizen) typically file under MFS if they are not eligible for Head of Household. The threshold to file as Married Filing Separately was lowered to $5 for Tax Year 2018 and remains there. However, the standard deduction for Married Filing Separately is the same as for Single: $12,950 for Tax Year 2022.
Tip for those married to an NRA: You do not need to get an ITIN for them file your own tax return. You will be able to file as Married Filing Separately or, if eligible, as Head of Household and can exclude all their income from your U.S. filing. But if you have joint financial accounts with them and are subject to FBAR/FATCA filing, then these joint accounts must be included on your FBAR and Form 8938.
If you’re 65 or older, you may have a slightly higher minimum income threshold. However, if Married Filing Separately, the income threshold doesn’t change, nor does the self-employment-income filing requirement.
Children 18 or older will need to file their own U.S. tax return only if they meet the filing thresholds above. However, if they have over $1,150 in unearned income (i.e., passive investment income) in Tax Year 2022, they may need to report it on their parent’s tax return, or even file their own return.
Up-to-date filing thresholds can be found here.
What forms do you need to file?
Each person’s tax situation is unique, but some forms are more common for Americans abroad.
Form 1040 – As a U.S. Citizen or Green Card holder, you must file Form 1040, even if living abroad. It summarizes your total income, deductions, credits, and overall amount owed to or refundable from the IRS.
Form 2555 – The FEIE (Foreign Earned Income Exclusion) allows you to exclude up to $112,000 of foreign-earned income from your 2022 U.S. taxes. But consider using the Foreign Tax Credit (Form 1116). If you’re a parent and use the FEIE, you will not be eligible for Child Tax Credits (explained below). To use the FEIE, you need to qualify as living abroad full-time through either of the following (2) tests:
- Bona fide residence: This applies if you lived abroad for a full tax year (January 1st to December 31st) and were a registered taxpayer in your resident country. Digital nomads and international-organization employees not registered as tax residents locally cannot use this test.
- Physical presence: This depends on how many days you were physically present outside the U.S. You qualify if you were physically present for 330 full days in a 12-month period either starting or ending (or both) in the tax year.
Form 1116 – The FTC (Foreign Tax Credit)
When you live in a foreign country, the Foreign Tax Credit can be used against any taxes you may owe to the IRS and may wipe them out entirely. This is especially useful if you’re living in a high-tax country. If you plan to move to a low-tax country, you can even use leftover credits on future U.S. tax returns, for up to 10 years!
Can you use both? Using both the FEIE and the FTC can sometimes be beneficial. I recommend working with a tax software or service specifically built with expats in mind to figure out if this is beneficial to you.
The FBAR – The Report of Foreign Bank and Financial Accounts is not an IRS tax form but may need to be filed anyway, even if you don’t need to file a U.S. tax return and don’t owe U.S. taxes.
Anyone who reaches the combined max balance of $10,000 from their foreign financial accounts at any time during the tax year must file an FBAR. For example, if you have two foreign accounts and one account holds a max balance of $9,500 in the calendar year and the other has $700 max balance, you’ll need to file an FBAR. It doesn’t matter if the account only held that max balance for one day, you still need to file. The threshold is based on USD so – if your accounts are in a foreign currency – convert your max balances using the correct exchange rate.
Which accounts will you need to report? Any foreign financial accounts to which your name is attached, including personal bank accounts, joint bank accounts, foreign investment or retirement accounts, or accounts for your children or company which you have signature authority over.
How to file the FBAR
Because the FBAR is not a tax form, it doesn’t get filed with your US tax return. In fact, it doesn’t go to the IRS at all. For this reason, it’s often not even offered by traditional tax software. Again, another good reason to look into MyExpatTaxes (we always include FBAR filing) or another expat-focused tax service.
Instead of going to the IRS, the FBAR needs to be filed with FinCEN (Financial Crimes Enforcement Network). It can be submitted directly on the FinCEN website, or if you’d like extra guidance, you can file it directly at www.MyExpatTaxes.com/FBAR.
When to file
The April 15th Deadline: This is the standard tax-filing deadline for anyone living in the U.S. Because of the weekend and holidays, the deadline in 2023 will be April 18th. Expats don’t need to file by the April deadline but – to avoid late-payment fees and interest – must PAY any taxes due by this date. We recommend expats who believe they may owe taxes to file by the April deadline to avoid surprises.
The June 15th Deadline: The IRS extends an olive branch to Americans living outside the U.S. by granting an automatic extension until June 15th. You don’t need to request this extension, just file as you would normally, and submit by June 15th. But if you’re planning to eFile, be aware that many traditional tax software programs make eFiling from abroad difficult, or they don’t allow it all, when you neither owe taxes nor are due a refund. They may also not include the statement required to get this automatic extension, which states you live abroad and are eligible for Treasury Regulation 1.6081-5.
If you don’t eFile, you’ll have to print your tax return, sign it, and send it to the IRS office in Austin, Texas. Just make sure it’s postmarked by the deadline!
The October 15th Deadline: You can request this additional extension by submitting Form 4868 – or by paying at least $1 via irs.gov/payments as an extension payment – by the June 15th deadline This is usually easy, and most tax software won’t charge you extra. As mentioned above the FBAR has an automatic extension to October 15th, so no additional extension form is required for the FBAR.
The December 15th Deadline: If you need a further extension, you have one more chance. It will take extra work. You’ll need to write a letter to the IRS and explain why you need extra time. For Americans abroad, it typically has to do with waiting for tax forms from their local country, but there could be other reasons.
Mail that letter to the IRS in Austin, Texas via traditional post. It is not possible to submit it electronically. The letter must be sent by your previous deadline, normally October, assuming you’ve already received that extension.
Never filed? Use the Streamlined Filing Offshore Procedure (SFOP)
If you’ve never filed U.S. taxes from abroad, I’ve got two words for you: Stimulus Checks. Yes! The clock is ticking, but it’s not too late to claim all three stimulus payments from Tax Years 2020 and 2021, worth up to $3,200 per single taxpayer.
If that’s not enough motivation, I’ll remind you, filing a U.S. tax return is your obligation as a U.S. Citizen. It’s written directly in your U.S. passport. Failing to file could lead to hefty fines and penalties.
But many Americans didn’t realize that they needed to file. For this reason, the IRS has created an amnesty program known as the Streamlined Filing Offshore Procedure. All you need to do is file
- (3) years past tax returns,
- (6) years of past FBARS (if required, but generally recommended), and of course,
- the current-year tax return and FBAR
The Streamlined Procedure is considered an amnesty program because the IRS lets you off the hook for potential penalties for failing to file. It also allows you to back-claim any missed refunds, up to 3 years past the due date of a return. But you must Streamline BEFORE the IRS catches you.
Child Tax Credits Abroad
In addition to Americans abroad claiming stimulus payments, many also benefit from Child Tax Credits. When filing this year, you’ll be able to claim up to $1,500 per eligible dependent with a valid U.S. Social Security number and under age 17 in 2022. If you’re getting caught up on your U.S. taxes, you can also claim the previous year’s refundable child tax credits.
Tip: If you have used Form 2555 and therefore did not get the refundable child tax credits, you can amend your 2019-2021 tax returns to revoke FEIE and use FTC instead to get the refunds. 2019 refunds must be filed with the IRS by three years past the due date of that return, so generally April or June of this year, 2023.
Get Your Tax Refunds
Between stimulus payments and child tax credits, the refunds can add up, especially if you’re claiming refunds from the last three tax years plus the current year. Over the last couple of years, I’ve seen our clients receive tax refunds into 5-figures.
The refunds won’t be available forever, so file ASAP if you haven’t done so already.
About Nathalie Goldstein
Enrolled Agent & CEO of MyExpatTaxes, the leading US expat tax software
Named in Forbes 2022 30 Under 30 list, Nathalie is a US expat based in Vienna since 2015 and originally from Silicon Valley. She is the co-founder and managing director at MyExpatTaxes, the leading online US tax filing software specifically created for expats. An accredited IRS Enrolled Agent, Nathalie's mission is to make the expat filing process easier and more streamlined especially for her fellow DA members.
Disclaimer: Democrats Abroad cannot provide individual tax advice. Advice requires consideration of your individual circumstances and needs, none of which can be done at this event. We are not tax lawyers, accountants, or advisers. Please consult a professional tax adviser/accountant/return preparer when addressing your personal tax matters.
Democrats Abroad does not endorse or recommend companies or individuals attending or hosting this event. The views expressed at the event are those of the respective individuals and companies, not Democrats Abroad. No liability is accepted by Democrats Abroad for the opinions expressed, or for any errors or omissions expressed about matters of tax in any country, your financial planning, or your legal obligations.
If you are in need of tax advice you can consult the IRS Tax Return Preparer Directory to find an advisor or tax return preparer near you or providing online services to meet your needs and budget, though buyers need always beware: https://irs.treasury.gov/rpo/rpo.jsf