4 Things Every US Citizen Living Abroad Should Know - Tom LR Griffiths | Tax Advisor and Consultant
Tom LR Griffiths is a tax advisor and consultant, specialising in US expatriate tax matters
Tom LR Griffiths
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4 Things Every US Citizen Living Abroad Should Know

tom griffiths - tax specialist

4 Things Every US Citizen Living Abroad Should Know

Each year US citizens living abroad are obligated to file their tax returns as they have a legal duty. American citizens must remain up to date with their tax responsibilities even though they live and work in another country. This can seem daunting to many who have to move abroad for work and don’t yet know the tax system from this perspective.

4 Things Every US Citizen Living Abroad Should Know

1. You Still Have to Pay Taxes

Even though you may have settled in another country halfway across the world and you are living and working there, the US tax system still requires you to file and pay any taxes they deem necessary. Assumptions are often made where Citizen Based Tax and Residence Based Tax are concerned. It currently stands that all US citizens must file their taxes, whether living on US soil or in a foreign country. The IRS requires all those deemed to be citizens to report their worldwide income annually.

2. You May or May Not Owe Taxes

As a US ex-pat, you may be concerned about being double-taxed by the IRS, and this is a legitimate concern. The US system for citizens living and working abroad is vastly different to many other countries worldwide. Thankfully, due to exemptions such as the Foreign Earned Income Exclusion and the Foreign Tax Credit, many ex-pats can avoid paying double the tax or even any tax at all.

Foreign Earned Income Exclusion (FEIE)

American citizens living and working abroad can be excluded up to 107.600 dollars of “foreign earned income” earned solely from outside the US in 2021. US citizens must be registered residents of a foreign country and be subject to their local income tax for at least one whole year to qualify for this tax exclusion benefit. Alternatively, to have lived outside the US for 330 full days in a consecutive 12 months of the tax year.

Tax treaties with other countries outside the US also allow American ex-pats to avoid being double-taxed by the IRS. These treaties enable US citizens abroad to be taxed at a reduced rate on income from US sources and are even exempt from certain income items. Those wishing to live and work abroad must understand the country of residence’s requirements or contact an expert tax specialist who can advise and guide.

3. Being a Parent Could Be Beneficial

If you are a US citizen living abroad with children, you may be entitled to tax benefits because the US provides financial support to ex-pat families. You are entitled to tax credits and refunds if you have a child under 17 with a valid Social Security Number and can claim up to $2,000 in non-refundable credit for each child on their tax return if they owe taxes. For those who do not owe tax, that amount is $1,400 of refundable credit.

4. Missing Payments Doesn’t Always Mean Penalties.

While it is always advisable to stay on top of your taxes and ensure everything is in order to file your annual tax return. Sometimes, this can seem a daunting task with so many things to juggle when moving abroad. Thankfully, the IRS is understanding of this and has provided some leeway for these exact times. Forgetfulness and uncertainty are often the main reasons for not filing on time or at all. But with the right advice and support from a tax specialist, most people can make up lost years of tax filing and avoid the penalties.