Tax rules for US expatriates living abroad can be complex and depend on various factors such as income sources, residency status, and specific tax treaties between the US and the country of residence. Here's an
overview:
1. Foreign Earned Income Exclusion (FEIE)**: One of the primary benefits for US expatriates is the FEIE, which allows qualifying individuals to exclude a certain amount of their foreign earned income from US taxation. For tax year 2023, the maximum exclusion amount is $112,000 per qualifying individual.
2. Foreign Tax Credit (FTC)**: If you pay foreign taxes on income that is also subject to US taxation, you may be eligible for a foreign tax credit. This credit can reduce your US tax liability on that income.
3. Foreign Housing Exclusion or Deduction**: Expatriates may also qualify for a housing exclusion or deduction to help offset the cost of housing abroad. This can be claimed in addition to the FEIE.
4. Tax Treaties**: The US has tax treaties with many countries to avoid double taxation and provide certain exemptions. These treaties can affect how income is taxed and which country has the primary right to tax specific types of income.
5. Filing Requirements**: US citizens and green card holders living abroad are generally required to file US tax returns if their income exceeds certain thresholds, regardless of where the income was earned. There are specific forms, such as the Form 1040 and Form 2555 (for the FEIE), that may need to be filed.
6. Reporting Foreign Accounts**: US expatriates are required to report their foreign bank accounts and other financial assets if they exceed certain thresholds. This is done through the Foreign Bank Account Report (FBAR) and Form 8938.
7. Social Security and Medicare Taxes**: US citizens working abroad may still be subject to Social Security and Medicare taxes, depending on their employment situation and the country they're residing in.
8. State Taxes**: While living abroad, US expatriates may still be liable for state taxes, depending on the state's rules regarding residency and taxation.
It's essential for US expatriates to understand their tax obligations and take advantage of available benefits to minimize their tax liability while remaining compliant with US tax laws. Consulting with a tax professional who specializes in expatriate taxation is highly recommended to ensure compliance and maximize tax benefits. Contact Kauffman Nelson CPAs and Attorney if you need assistance. Email: ddnelson@gmail.com . We have been doing expatriate and international taxes for over 30 years for over 800 clients located abroad. US Phone 949-480-1235. Whatsapp 818-519-9219.
