Expat Tax Basics

Most U.S. Citizens are unaware of their continued responsibility to file a U.S. income tax return if they live and work outside the U.S. Especially if they pay taxes to a foreign country. The following pages will give you a basic overview the different tax laws unique to U.S. expatriates, and help you answer the following basic questions:

Filing Requirements

U.S. citizens and residents are subject to U.S. income tax on their worldwide income, including foreign income which has been taxed by another country. American expatriates, who have established residency (living) in a foreign country are required by law to file a U.S. income tax return every year. However, your earned income from a foreign country may be entitled to an exclusion from U.S. income tax. In addition, you may qualify for an exclusion or deduction related to housing while living abroad.

The Initial Deadline for filing your U.S. expatriate tax return is June 15.  The extended filing deadlines, provided you file for an extension, are October 15 and December 15. However, any tax owed is still required to be paid by April 15.

Foreign Earned Income

Earned income is payment you receive for your personal services, either in the form of employee wages, independent contractor pay, and/or business and self-employment earnings. If you qualify, based on the Bona Fide Residency Test or Physical Presence Test, you can exclude up to $126,500 of your Foreign Earned Income for tax year 2024 (increasing to $120,000 for tax year 2023). However, you must file a U.S. tax return with the correct forms related to your foreign earned income in order to claim this exclusion. Unearned foreign income, such as: interest, dividends, or rental income, do not qualify for the foreign earned income exclusion amount. However, the Foreign Tax Credit may apply.

Self-employed individuals or independent contractors who earn income in a foreign country are required to pay Social Security & Medicare taxes at a rate of 15.3% on the net foreign earned income unless there is a Totalization Agreement between the U.S. and the foreign country you reside in.

Foreign Tax Credits

Foreign tax credits are intended to mitigate double taxation to U.S. citizens and residents by allowing a credit against U.S. income tax for certain taxes paid to a foreign country, even if the income does not qualify for the Foreign Earned Income Exclusion.  Foreign tax credits may apply to earned or unearned income.  However, the allowable Foreign Tax Credit cannot exceed your U.S. income tax liability in any tax year, but may result in zero U.S. income tax.

Foreign tax credits cannot offset your liability to pay any Social Security or Medicare taxes on your net earnings from self-employment.