Tax For Expats : What Americans Abroad Have To Know

Paying Taxes While Living Abroad

One of the biggest concerns many Americans living abroad face is taxes. There’s a lot that isn’t intuitive when it comes to tax for expats. While many governments only tax citizens currently residing in their country, the US pursues taxes worldwide, and so American expats do have to pay US taxes. However, there are differences between the way you pay taxes at home and abroad, and it is important to understand these differences in order to avoid any accidental difficulties with the IRS.

Social Security Taxes

Many American expats have questions about if and how their social security is impacted by tax for expats and living abroad. If you are self-employed, you must pay the US Self-Employment Tax, and therefore must pay social security taxes to the US government. However, if you work for a foreign corporation that takes that country’s payroll taxes out of your pay, you do not have to pay social security taxes to the US. This is more complex if you own a foreign corporation because you have to file an additional form and may be required to pay taxes on your company’s earnings.

Income and Housing Exclusions

When it comes to certain areas of tax for expats, it is possible for American expats to claim foreign earned income exclusion or foreign housing exclusion if they meet certain qualifications. First of all, your tax home must be in a different country. Your tax home refers to your main place of business or employment, and it doesn’t necessarily have to be aligned with your family home. Second, you need to have a foreign earned income. Third, you must meet certain qualifications for residency of a different country, which are laid out in detail in the IRS’s official Tax Guide for US Citizens and Resident Aliens Abroad.

Foreign Bank Accounts

Many American citizens or resident aliens living abroad have foreign bank accounts and are therefore concerned about how these may play into tax for expats. As the US doesn’t tax wealth, you don’t need to pay taxes on these bank accounts; however, you do have to file a report with information about the contents of any foreign bank accounts. There are two different reporting forms for foreign bank accounts, and depending on an individual’s situation, he or she may be required to file both forms or only one. The Foreign Bank Account Report (FBAR) must be filed if your total foreign assets are worth $10,000 or more, or if you hold signature authority over any foreign accounts. The Foreign Account Tax Compliance Act (FATCA) must be filed if your foreign assets surpass certain limitations regarding your marriage status.

Staying Informed and Educated

As there are very harsh penalties for failing to file taxes properly, it is important to understand what is required of you come tax season, and what tax for expats consists of. Many Americans choose to hire tax advisors to make sure they file their taxes properly, and the IRS’s Tax Guide has all the information and regulations for Americans living abroad available online.

Esquire Group, a boutique international tax advisory firm specializing in tax consulting, tax planning and compliance and helping corporate and individual taxpayers with Offshore Voluntary Disclosure Program, asset protection, and tax consulting for US expats ( Esquiregroup/Tax-for-expats ). To learn more about us, visit Esquiregroup/About-us.