US EXPAT TAXES - EVERYTHING YOU NEED TO KNOW (2024)

FAQs

How do US taxes work for expats? ›

If you are a U.S. citizen or resident living or traveling outside the United States, you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States.

Some American expats who work abroad may also need to pay US Social Security and Medicare taxes on their earned income. For example, self-employed US expats and those who work for a US-based employer must file an expat tax return. For the 2023 tax year, the rate for expat employees is 7.65%.

The Foreign Earned Income Exclusion, or FEIE, is also known as Form 2555 by the IRS. This expat benefit allows you to avoid double taxation by excluding up to a certain amount of foreign earned income from your US taxes. In 2024, for the 2023 tax year, you can exclude up to $120,000 of foreign earned income.

The Foreign Earned Income Exclusion (FEIE, using IRS Form 2555) allows you to exclude a certain amount of your FOREIGN EARNED income from US tax. For tax year 2023 (filing in 2024) the exclusion amount is $120,000.

The US is one of the few countries that taxes its citizens on their worldwide income, regardless of where they live or earn their income. This means that American expats are potentially subject to double taxation – once by the country where they earn their income, and again by the United States. NOTE!

Mark-to-Market Exit Tax

Covered expatriates must pay a capital gains tax on all other assets above an inflation-adjusted exclusion limit ($767,000 in 2022, up from $744,000 in 2021) as if they sold those assets on the day prior to the date of expatriation.

Foreign Earned Income Exclusion

Expats can use the Foreign Earned Income Exclusion (FEIE) to exclude a certain amount of foreign income from US taxation. The maximum exclusion amount changes each year. For the 2023 tax year, the FEIE exclusion limit is $120,000 and will increase to $126,500 for the 2024 tax year.

The penalty for not filing your tax return is 5% of the amount of tax shown on the return for each month you have not filed, up to 25% of your tax owing. If you fail to pay, the IRS imposes a ½ percent penalty for each month that the amount remains unpaid, up to 25% of your total tax owing.

FDAP income that is non-effectively connected income is taxed at a flat 30% rate on the gross income unless a tax treaty specifies a lower rate. Nonresident aliens must file and pay any tax due using Form 1040-NR, U.S. Nonresident Alien Income Tax Return.

Do expats get Social Security? ›

If you earned Social Security benefits, you can visit or live in most foreign countries and still receive payments. Look up the country on the SSA Payments Abroad Screening Tool to be sure you can receive your payments.

Americans who retire overseas still have tax obligations. Typically, you will have to file a tax return with both the US government and your new host country. You may even have to file a tax return with the US state you used to live in.

How Can I Avoid Paying US Taxes Abroad? Based on the current US tax laws, the only way to avoid filing a US tax return and paying US taxes abroad is to renounce your US citizenship. Renouncing your US citizenship is a serious and permanent decision that should not be taken lightly.

Do not assume that since you have left the US you are not obligated to file a state tax return. Each state has its own set of rules about whom it considers a “resident” and their own minimum filing requirements. Most states, but not all, also allow the foreign earned income exclusion in determining taxable income.

There is no time limit on how long a person can live outside the country and receive benefits. Foreign citizens with a U.S. work history may also qualify for Social Security benefits under certain agreements. Social Security payments can be deposited directly into a foreign bank account.

Yes, U.S. citizens may still have to pay federal AND state taxes even if they live abroad.

Potential Refunds. Most US expats will not owe US taxes thanks to certain expat tax benefits such as the FEIE (Foreign Earned Income Exclusion), FTC (Foreign Tax Credit), and international tax treaties. As US taxpayers abroad may deduct or exclude tax debt, qualifying expats may see a payment for refundable tax credits ...

Nonresident aliens are generally subject to U.S. income tax only on their U.S. source income. They are subject to two different tax rates, one for effectively connected income, and one for fixed or determinable, annual, or periodic (FDAP) income that is non-effectively connected income.

In both cases, the same tax rules apply to you as any other citizen of the US, including all other dual citizens. You will have to file a US tax return every year, and you may have to pay taxes on any income you receive. The only way to escape this obligation is to renounce your citizenship.