Living abroad and travel

Taxes 101 for US Citizens Living Abroad

Are you a US Citizen that is living in another country? If so then that means you are still required to file for a federal tax return. Perhaps you may have thought that moving to a different country also meant that you could escape from filing US taxes but the law still obligates that you to still file a federal tax return.

No matter where you are in the world, if you are an American citizen, you are required to file because of the unique citizen-based taxation system that the United States has. Only one other country besides the US has this system and this is Eritrea. Therefore, Americans living in other countries have to abide by the same rules and regulations regarding income taxation as people living within the US.

For US citizens living abroad the flags represent the different countries they may live in.

Three Types of Taxation

There are three different common types of taxation; Territorial-based taxation, residence-based taxation and citizenship-based taxation, which is the system that the United States uses. We’ll go over briefly over the differences of each of these systems so that you may understand why Americans living abroad still need to pay US taxes.

  • Territorial-Based Taxation: A citizen or business is required to pay taxes to the countries in which they earn their income. Therefore this means wherever the person is located either by citizenship or green card then that person is obligated to pay taxes to that country.
  • Residency-Based Taxation: There are a handful of countries that use this system; Several EU countries, Mexico, Canada and many others. This form of taxation means that country in which you are living is able to tax all sources of income that are from that country. For example, if you are a resident of Mexico then Mexico is able to tax your income regardless of source.
  • Citizen-Based Taxation: A citizen or permanent resident living in any country will have their income taxed regardless of where it was earned. As mentioned earlier, the system is very rare as only two countries use this system, both being the United States and Eritrea. This means that if you are US citizen living outside of the US then you are still required to file for income tax.

How Much Do You Owe In Taxes?

Also, as an American citizen that lives abroad, you are required to file a US federal tax return in 2022. There are minimum thresholds and if your income exceeds that in 2021 regardless of where the income was earned and what currency you must file.

For citizens filing as Single:

  • $12,550 if under age 65
  • $14,550 if age 65 or over

For citizens filing as Married Filing Jointly:

  • $25,100 if both spouses under age 65;
  • $26,450 if one spouse under age 65 and one age 65 or older
  • $27,800 if both spouses age 65 or older

For citizen filing as Married Filing Separately:

  • $5

For citizens filing as Self-Employed:

  • $400

For citizens filing as head of household:

  • $18,800 if under age 65
  • $20,500 if age 65 or older

For citizens as qualifying widow(er)s with dependent child:

  • $25,100 if under age 65
  • $26,450 if age 65 or older

How You Can Avoid Penalties

You should know what happens if US citizens don’t file taxes while living abroad. Citizens who don’t file may face penalties, interest costs or criminal charges. The IRS charges penalties for both late filing and late payments.

Here are the penalties you may face:

  • Failure to File Penalty: 5% of the unpaid taxes for each month the tax return is late, up to 25%
  • Failure to Pay Penalty: 0.5% of the unpaid taxes for each month the tax payment is late up to 25%
  • Over 60 Days Late: The maximum for this penalty is 25% of your unpaid taxes.

The IRS does offer a way for Americans that live abroad to get caught up on their taxes. So don’t worry if you have forgotten to or if you simply didn’t know that you needed to file US taxes while living overseas. All you need to do is file the past three years of Federal tax returns and the past six years of FBAR regardless of the amount of years you haven’t filed for.

Do you have anymore questions regarding your US Expat Tax return? Here is some more information on filing abroad from the IRS website.

Please don’t hesitate to reach out to our team and get your questions answered immediately! We understand that taxes in general can be confusing however we are confident that we can help you find the answers you are looking for. 

Contact us to get your questions answered or if your ready we can help you file today!