American Expat Tax: What U.S. Citizens Living Abroad Should Know

At a glance

U.S. citizens living abroad still may have a U.S. tax obligation to the Internal Revenue Service (IRS). Learn the basics behind U.S. expat tax rules and filing requirements with this expatriation tax guide.

us citizen living abroad looking up expat tax rules on mobile phone in London

For U.S. citizens living abroad, taxes can seem confusing at best and downright overwhelming at worst. You’ve probably got a whole host of questions — for example, do U.S. citizens have to pay taxes on foreign income? How much taxes do you pay if you work overseas?

If these questions sound familiar, you’re not alone — U.S. expat tax rules can be confusing and complicated for even the most financially-savvy Americans.

Despite what you might think, you do have a tax obligation to the United States as long as you’re a citizen — regardless if you’re currently living in Tokyo, Japan or St. Louis, Missouri.

Ready to file your expat taxes? Whether you file expat taxes yourself with our online DIY expat tax service designed specifically for U.S. citizens abroad or file with an advisor, H&R Block is here to help.

Do U.S. citizens pay taxes if they live abroad?

Yes, U.S. citizens have to pay taxes on foreign income if they meet the filing thresholds, which are generally equivalent to the standard deduction for your filing status. You may wonder why U.S. citizens pay taxes on income earned abroad. U.S. taxes are based on citizenship, not country of residence. That means it doesn’t matter where you call home, if you’re considered a U.S. citizen, you have a tax obligation this tax year.

Your expat tax filing requirement doesn’t change even if you’re paid by a foreign employer overseas. In addition to federal income taxes, some U.S. citizens living abroad also need to file state taxes as well, depending on their last state of residence.

Taxable foreign-earned income includes:

  • Wages
  • Interest
  • Dividends
  • Rental Income
  • Qualified retirement account distributions

Additionally, if you have foreign financial accounts (including bank accounts, investments, and other financial accounts) or assets, you may need to report them. The U.S. requires citizens to disclose international financial accounts that held $10,000 or more at any one time in the year. To do that, you have to file a Foreign Bank Account Report (FBAR). If you have foreign assets with a value greater than $200,000, you may also have to file FATCA Form 8938.

If you’re a U.S. citizen abroad and have never filed a tax return, you can relax. The IRS built in a safeguard for honest expats who truly didn’t know they had tax filing obligation. You can get caught up penalty-free with Streamlined Filing Compliance Procedures. To qualify, you must:

  • Have lived in a foreign country for at least 330 days during one of the last three years
  • Confirm it was a genuine mistake you failed to file your U.S. tax return and FBAR

How much in taxes do I pay if I work overseas?

Now that you know U.S. citizens have to pay taxes on foreign income, your next question is probably about how much in taxes you pay if you work overseas. You might wonder if you’ll have any money in the bank after paying both your U.S. and host country income tax liabilities!

Fortunately, even though most U.S. citizens working overseas must file taxes, expat tax rules have evolved so most expats don’t actually owe any amount at the end of the year.

Is there a tax exemption for U.S. citizens living abroad?

A common question we hear is, “Do Americans living abroad get taxed twice?”

The short answer is no, Americans do not have to pay taxes twice. While there is no overall U.S. expat tax exemption, there are exclusions and credits to help alleviate the tax burden for U.S. citizens living abroad. These include:

  • The Foreign Earned Income Exclusion (FEIE) and Housing Exclusion – The FEIE and foreign housing exclusion allow U.S. expats to exclude up to a certain amount of foreign earned income if they meet certain requirements.
  • Foreign Tax Credit – The Foreign Tax Credit allows Americans to claim a dollar-for-dollar credit on foreign taxes paid if they meet certain requirements. Because you may pay a higher income tax in France than you would in the U.S., this may be a better option to choose than claiming the FEIE.
  • Tax treaties – To prevent double taxation, the U.S. has tax treaties with individual countries, which dictate how special circumstances are handled (including foreign retirement accounts).

Tax exclusions and credits are just two examples of the many unique tax rules applicable to U.S. expats working overseas, so it could be helpful to work with a qualified and reputable expat Tax Advisor to help manage your worldwide tax burden.

Want to know more? Learn the top 20 things every American overseas should know about U.S. expat taxes.

What are some common tax forms U.S. expats need to know about?

Now that you know you have to file, you should get to know some of the common forms U.S. expats use to file their taxes.

  1. Form 1040 – The form every American files during tax season to report income to the IRS. A common question you may have is “Does a US citizen living abroad file IRS Form 1040 or 1040NR?” The answer is, it depends. If you are a nonresident alien, you will file the 1040 NR.
  2. Foreign Tax Credit Form 1116 – This is the form you use to claim the foreign tax credit.
  3. FBAR (FinCEN Form 114) – If you had more than $10,000 in foreign accounts at any time in the year, you’ll have to report it to FinCEN as well as the Internal Revenue Service. This is the form you use to report foreign accounts to FinCEN.
  4. Foreign Earned Income Exclusion Form 2555 – The is the form you use to claim the foreign earned income exclusion.
  5. FATCA Form 8938 – How you report assets in foreign financial institutions to the IRS.
  6. Form 5471 – Informational return for U.S. citizens who are also shareholders, officers, or directors of a foreign corporation.
  7. Form 8621 – Informational return for U.S. citizens who are also shareholders of a passive foreign investment company or foreign mutual fund.
  8. Form 3520 – You’ll use this IRS form to report certain transactions with foreign trusts, ownerships of foreign trusts, or if you receive certain large gifts from certain foreign persons.

I’m retiring abroad. What do I need to know?

If retiring abroad in the countryside is your long-term goal, you should first understand how taxes work when retiring abroad:

  • Even if you retire abroad you still may have to file a U.S. tax return
  • You’ll still have to report money in any foreign financial accounts on your FBAR if you meet the requirements
  • If you have a foreign pension or retirement account it may be treated differently than in the U.S.

How to file U.S. taxes as an expat

With H&R Block’s tax preparation services, you have two options to file your U.S. expat taxes: With you in the driver’s seat using our DIY online expat tax service (designed specifically for expats), or by letting one of our experienced Expat Tax Advisors take the wheel. No matter which journey you choose, you get the 100% Accuracy Guarantee from H&R Block.

Here’s how to file your U.S. expat taxes from overseas:

  • Head on over to our Ways to File page
  • Pick your journey—in the driver’s seat with our online DIY tool or letting a Tax Advisor take the wheel.
  • Once you’re through your chosen journey, you review your return and pay
  • We file your return with the IRS
  • You sit back knowing your taxes were done right

Living abroad? Confused about filing your U.S. taxes?

For U.S. citizens abroad, expat tax rules can be a headache. Have more questions or confused on how expats file taxes? Ready to file? Rely on H&R Block’s American expat tax services. No matter where in the world you are, we’ve got a tax solution for you. Get started with our made-for-expats online expat tax services today!

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I have been using H&R block for a few years now. I live abroad, but don't make a lot of money. Filing with H&R block is as painless as doing taxes gets and my Advisor is wonderful and answers all my questions.

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