How Do US Taxes Work For Expats?
The US taxes all its citizens on worldwide income - even if you are living overseas and paying tax in that country.
But... you don't pay tax twice! You can credit foreign taxes against the US tax and you can exclude foreign salaries and freelance income to a threshold each year.
Unfortunately, not filing US tax returns is a criminal offence. It's easy to catch up with your US tax returns or file them each each year.
ALREADY PAID TAXES IN YOUR HOME COUNTRY
You can offset any taxes paid in your home country against US taxes due on the same income.
The US allows you to claim a credit for taxes paid overseas.
You can also exclude employment and self-employed income up to a level each year.
A lot of expats overseas do not owe any US taxes once all the exemptions, credits and tax exclusions are claimed. The IRS does still require that you file a US tax return each year.
LOW INCOME OR NO INCOME
If you have no income during the year and you don't need to disclose your foreign bank accounts (see the FBAR section) then you may not need to file a US tax return.
The thresholds depend on whether you are single, married or claiming other people as dependents.
For example, if you are single you are below the US tax filing threshold if:
- your employed income is less than $10,300
- your self employed income is less than $400
You can contact us to run through your situation and we can let you know what your US tax filing requirements are.