Filing Taxes as an Expat: Everything You Need to Know

Filing taxes in the US can be a headache but filing taxes as an expat can be much much worse.  Trust me.  I know.

As if the system isn't complicated enough, living abroad adds more complexity and more paperwork that you have to fill out.

Not to mention that the penalties for mis-filing or filing incorrectly can be outrageous.  Are you afraid of the big bad wolf?  

As it is, most Americans are never taught how to manage their finances. Most don't know how to do their taxes even living in the states.  So it comes as no surprise then that neither do Americans living abroad. 

It's time we remedy this situation!  This guide for Filing Taxes as an Expat will hopefully set you straight and encourage you to start filing your taxes yourself or at least seek some professional help. 

You've been avoiding taxes long enough.  It's time to put your big girl panties on and get to work.  Here's to adulting!  

(Note: Taxes can be very complex so, if necessary, consult a professional).

To get us started here are the main forms any American expat may need to file:

For the most part, you will only need to use the top two forms.  But if you have assets over a certain amount, then the other forms are also needed.

Who needs to file?

It may come as a surprise but not every expat will need to file their taxes.  As it turns out, only if you make over a certain threshold do you need to file.  The threshold depends on your filing status and age.

*If you are 65 or older, the threshold amount increases by $1,300 or $1,650 (if single/HoH).

**If you are not living with your spouse at the end of the year, the amount drops to $5.

Essentially, you will need to file taxes if your income is greater than the standard deduction.  Be aware though that when such deduction amounts change, your filing obligation will change as well.

Also, some forms may be necessary to file even if you do not have to file a personal tax return.

Typically, the standard deduction goes up every year.  The current high standard deduction amount was put into place by the Tax Cuts and Jobs Act of 2017 which is due to expire in 2025.  So be on the look out for it to possibly drop back to a much lower deduction.

Note: For individuals who are self-employed, you must file if you have net earnings of $400 or more.

When do you have to file by?

The typical deadline for filing your taxes is April 15th.  However, as an American citizen that is living abroad you get an automatic 2 month extension to file.  Of course, you must be abroad at the time of the regular due date (April 15th, for most).

Thus, the deadline for filing taxes as an expat is June 15th.  If you are mailing in your taxes, they must be postmarked on or before your tax return deadline.

To get this extension you must attach a statement to your tax return stating that you are living abroad or stationed abroad with the military. For married filing jointly, if one qualifies for the extension, it'll apply to both.

Additional Extensions

There is also a 6 month extension option but you must request this by the due date of your tax return.  This extension would give you until October 15th to file (but not to pay).

To get the 6 month extension, you must fill out Form 4868 no later than June 15th for expats.

Furthermore, should you need an extension longer than 6 months so that you can meet the qualifications for the bona fide residency test, you can file Form 2350.

* Be sure to file for any desired extension early.  That way if you are denied, you still have time to file your taxes without being penalized. *

Estimating Tax

If you find that you owed taxes to the US for the previous year, you will have to start making estimated tax payments from April 15th of the following year.

This applies to people who may find themselves making more than can be excluded with Foreign Earned Income Exclusion, the housing exclusion, etc.  

Any amount over the threshold will be taxed.  Thus, you will have to start making estimated tax payments throughout the following year.

Where to file your taxes?

While you can definitely file your taxes online through the IRS e-file system, for those of you who prefer, you can still file paper taxes.

If you don't owe any taxes, mail your paperwork to this address:

If you do owe taxes, mail your return with a check or money order to this address:

What forms do you need to file?

Filing taxes as an expat will require more than the usual tax forms.  Especially if you hope to take advantage of some of the credits and deductions that come with living abroad.

One thing to note is that when filing your taxes you must convert your income into US dollars.  And if you owe any taxes, they too must be paid in US dollars.

Form 1040 / 1040-SR (for Seniors)

No surprise here.  This is the individual tax return form that everyone has to use when filing US taxes.  It is only two pages long and quite simple to fill out on your own given there are no complicating circumstances like owning real estate etc.

There are many different schedules for this form depending on your tax situation (i.e. whether you are self-employed, have other kinds of income, or wish to take additional credits).  You only need to fill these out as they apply to your situation.

Filing out the form is pretty straightforward.  You fill in your name, current address, SSN, income, and any dependents you may have.  After some simple calculations you can arrive at how much you overpaid in taxes or money that you owe.

Be sure to enter your bank account information to get your refund, sign, and voila! You're done!

Now for most us expats on a simple teacher's salary everything will zero out once you exclude your foreign earned income.  So nothing owed and nothing returned. 

Form 2555

This is the form for the Foreign Earned Income Exclusion and the Foreign Housing deduction.  So if you wish to have your money exempted from US taxes and receive housing deductions, you will want to fill this out.  

For the 2019 tax year, any income earned up to $105,900 can be excluded (for 2020, $107,600 for individuals and $215,200 for couples).  Anything over that will be taxed unless you can reduce your tax liability with other deductions and credits.  

There used to be an 2555-EZ form but now you must complete the whole thing, which includes the housing exclusion, whether you will take it or not.

On this form, you will calculate how much of your income and housing expenses you can exclude.  Then write that on your 1040 form.  Once you make your decision to exclude your foreign earned income, it will apply to all future tax returns unless it is revoked.

Foreign Earned Income Exclusion

Do you qualify?

In order to take this exclusion, you must first qualify.  To qualify your tax home must be in a foreign country for the tax year.  In addition, you must pass what they call the bona fide residence test or the physical presence test. 

The Bona Fide Residence Test (Part II)

There are two ways you can meet this test:

* You qualify as a bona fide resident based on your intentions for being/staying in the country.  If you are only there temporarily to complete a project, you are not considered a bonafide resident.

The Physical Presence Test (Part III)

For this test, essentially, you must be living abroad for at least 330 full days of the tax year.  They do not have to be consecutive and you must record the dates that you were in the US.

Foreign Housing Exclusion

To qualify for this exclusion you must first take the FEIE and your housing expenses must be greater than 16% of your FEIE.  Only the portion above 16% is excludable.

You can elect not to take the housing exclusion.  This makes sense if you can exclude all of your income with the FEIE.  

How to Calculate Your Housing Exclusion Amount

1.  Calculate your foreign earned income exclusion amount.
2.  Multiply that number by 16% which gives you the base amount that your expense must exceed in order to take the exclusion.
3.  Calculate your total 'reasonable' housing expenses including expenses from your qualifying second home.
4.  Subtract the base amount from your total housing expenses.  This is the amount you can exclude.
5.  Compare this to the exclusion limit for your city.  If your previous amount is greater, you must use the limit for your city instead.  Find the list of cities here (pdf). If your city is not on the list, use 30% of the FEIE cap (for 2019, $105,900) or $32,770. * You will need to prorate this if you weren't a resident for the full year. *
6.  Add your housing exclusion total to your FEIE amount and put this amount on Schedule 1, line 8 of your 1040.

Should You Take the FEIE and Housing Exclusion?

While these exclusions are a godsend that can help you pay $0 in US taxes, there is a catch to using them that you may find to be too much for your situation.

By taking the FEIE and the housing exclusion, you are giving up the opportunity to take the Earned Income Credit, the Additional Child Tax Credit (a refundable credit), the Foreign Tax Deduction or Credit (on the excluded income), and the IRA Deduction* (may be able to take a partial deduction) See Pub. 590-A.

So you'll want to crunch some numbers and see which way gives you the greatest benefit.  It just may be that not taking the exclusions will give you the most money back.

Form 1116

Otherwise known as the Foreign Tax Credit, this form was created to prevent double taxation.  Use this form if your earned income is subject to being taxed in a foreign country.  

For the most part, you will want to use this for the income that cannot be excluded with the FEIE (i.e. anything over $105,900 for 2019).  So for all you high-income earners this credit can save you loads in taxes.

Another thing to consider is your foreign tax rate.  If your foreign tax rate is higher than the US rate, then, in most cases, taking the Foreign Tax Credit would be more favorable to you.

You can elect to take this as a credit or an itemized deduction. Remember though, that there is no point in itemizing if your total deductions are not more than the standard deduction.  Also, credits are seen as more valuable as they reduce your tax bill dollar for dollar.

For Any Expats in France

In 2019, the US government made an agreement with France to treat Contribution Sociale Generalisee (CSG) and Contribution au Remboursement de la Dette Sociale(CRDS) taxes as regular taxes and not Social Security taxes.  

This means that if you paid these taxes in the past you are able to file an amended return and claim the foreign tax credit.

Pub 972 and Schedule 8812 (Child Tax Credit)

For those of you with children, you'll probably want to fill out these forms.  That is, if you don't elect to exclude all of your income with Form 2555 (FEIE).  Choosing to exclude your income disqualifies you from being able to take the Child Tax Credit (CTC).

The CTC is a great credit to claim as it reduces your tax bill dollar for dollar.   As of now (2020), you can get $2000 per child in credit.  However, the child must be under 17 and have a social security number to qualify.

Also, you must have at least $2500 of earned income and you or your spouse (if filing jointly) cannot file the FEIE or Form 2555.

Further, for married couples filing jointly this credit begins to phase out with income over $400k ($200k for other filing statuses).  Above that you will only get partial credit.  No credit is given for those making more than $440k (joint), or $240k (single).

To claim the CTC you may need to use the worksheet provided with Pub 972 to calculate your total credit.  Then write your results on your 1040 form, line 12a.  This credit can only be claimed by one taxpayer.

Additional Child Tax Credit (ACTC)

The ACTC is the refundable portion of the CTC.  Should you be unable to claim the full amount of the CTC on your tax return (because you don't owe any taxes for example), you can claim the ACTC.

The ACTC is a refundable credit which means that the government will owe you money should your tax bill go below $0.  It is refundable up to $1400 per qualifying child, which is a lot of dough for anyone who has a lot of kids!

However, don't think you can just get unlimited funds from the government for popping out babies left and right.  The payout is capped at 15% of your earned income.

After completing the CTC worksheet in Pub 972, use Schedule 8812, if necessary, to claim the ACTC credit.

Be sure to check with your county of residence for this type of benefit as well.  Many countries give this incentive to residents so take advantage of it if you can!

Credit for Other Dependents (ODC)

Should your child be 17 years or older by the end of the year or you have other dependents, you may be able to claim the ODC on your tax return.

This is a new non-refundable credit that may only be available until the year 2025.  Use this should you have eligible dependents you can't claim under the CTC.

It is $500 per qualifying dependent.  This credit also begins to phase out for income over $200k ($400k for married filing jointly).  Use the same worksheet as the CTC to calculate.

FinCEN Form 114

This is the Foreign Bank and Financial Accounts Report (FBAR).  When filing taxes as an expat, you may need to file FBAR if you own or have authority over any financial accounts in a foreign country.  

However, you would only need to file if your combined bank accounts total over $10k at any given time during a tax year.  This doesn't apply to US military banks.  

You typically must file FBAR by the April 15th deadline although there are some instances where extensions are granted.  Be aware that there may be huge penalties for not filing FBAR but there are programs to help you get back on track should you do so unknowingly.

FunFact -FinCEN stands for Financial Crimes Enforcement Network. Makes sense since they were formed to crack down on people trying to evade the IRS with offshore bank accounts.  

Form 8938

This form is for reporting certain foreign financial assets as laid out by the Foreign Account Tax Compliance Act, FATCA.  FATCA requires foreign institutions to report back to the US on your assets and requires you to fill out Form 8938.

As is usually the case, you would only have to report your assets if they are over a certain threshold.  This threshold varies depending on your filing status and whether you are currently living abroad.  Be sure to attach your 8938 form to your annual tax return.

Foreign Asset Threshold for Expats

If you're a taxpayer that moved back to the states but still maintain control of your foreign assets, the thresholds are much lower.

Foreign Assets Threshold for Taxpayers Living in the US

What assets need to be reported?

• Foreign Businesses (you own or are a partner in)
• Securities/Gold certificates etc. issued by a foreign entity
• Real Estate held through a foreign entity
• Foreign stocks/bonds not held in an account
• Foreign pension/ deferred contribution plans
• A Foreign Estate (if you are the beneficiary)
• Investment contracts with a foreign entity

What assets do NOT need to be reported?

Here are some of the assets that you do not need to report on Form 8938:

• Directly held - Art, Jewelry, Antiques, Cars, Precious Metals, and other Collectibles
• Real Estate (held by you)
• Foreign Social Security Benefits
• Securities held through a US financial institution

Do you need to do both FBAR and Form 8938?

Filling out Form 8938 doesn't mean you no longer have to fill out FBAR. You may be required to fill out both.  Penalties for not filling out Form 8938 are $10k each time for a total of $50k.  

In addition to that, there are penalties for understating your asset values and potential criminal ramifications as well.  For not filing FBAR,  the IRS will take half of the money in your foreign account.  Such penalties can be as high as $130k. 

The IRS provides a great table comparing the two.  You can check that out here.

Note:  If you are not required to file a tax return for a given year, you do not have to file Form 8938 even if your assets exceed the threshold.

Form 8621

The form itself can be a pain to fill out.  You will need to file a form for each PFIC in which you directly or indirectly hold stock.  Even if you don't have to file an individual tax return, you will still need to file this.

As an American. it is never a good idea to invest with foreign companies.  It has been said that this form alone can take you 49 hours to complete. That's more than two days! Now I know ain't nobody got time for that!

So trust me when I say if you are thinking about investing with a foreign company, think again.  The hassle and amount of resulting paperwork is not worth it.  And if you have already done this, you may want to get a tax professional to help you sort through this mess.

 To File

Attach the form to your individual tax return by your normal due date. Failure to file keeps the statute of limitations open indefinitely for that tax year.

Form 5471

This form is for expats who have or whose spouse has some ownership stake in a foreign company as an officer, director, or shareholder.   Typically, this is 10% or more.

For the most part this is just an informational return reporting the activity of the company to the IRS.  It is used ferret out the people who are trying to hide their assets offshore.  Probably, it is these people we have to thank for making filing taxes as an expat worse.

While the form itself usually doesn't result in any tax obligations, there are some circumstances where it can be determined that income received from the company is taxable.

This may be one of the few forms where you do not have to write everything in US dollars.  But I must warn you I got a headache from just looking at the instructions for this form.  So read at your own risk.

Form 3520

This form is for anyone who is the grantor or "substantial owner" of a foreign trust such as an education fund set up for your children or a retirement account.  

Also, if you received gifts of $100k or more from a foreign trust or individual or $16,388 from foreign corporations, you are required to fill out this form.

Like the PFIC Form 8621, you must file a separate form for each foreign trust.  You may also be required to complete the FBAR and FATCA forms.

There are some exceptions to those who must file the 3520.  For instance, those who have Canadian retirement plans such as the RRSP, RRIF, etc. do not have to file this form.  

Certain non-profit organizations may be exempt as well.

The due date for this form is the 15th day of the 4th month after the end of the tax year.  So, for most people it would be April 15th.  

However, if you are abroad at that time or you file for the 6 month extension, your new due date would be June 15th or October 15th, respectively.

Penalties for not filing or mis-filing can be substantial and will cost you at least $10k.  See Instructions for Form 3520 for more information.

Additional Tax Forms You May Need:

• Form 1040-X - If you need to amend an earlier tax return.
• Form 1040-ES - For estimating tax payments.
• Form 2350 - Application to extend your time to file so that you qualify for 'living abroad' status.
• Form 4868 - Automatic application for extended time to file your individual tax returns. (6 months)
• Form 8822 - For change of address
• Form 6251 - For individuals/business owners with certain kinds of favorable income or who can take certain deductions (i.e. electric vehicle deduction). Use this to possibly reduce your total tax.

Totalization Agreements

Last but not least, the US has entered into agreements with several countries in order to prevent US citizens from being taxed twice when it comes to Social Security and Medicare.  

This means that if you are paying Social Security taxes in your country of residence, you do not have to pay them in the US as well.  For those who are business owners or self-employed, be sure to check with your host country as this could save you lots of money in self-employment taxes.

You'll find another benefit of these agreements when it comes time to draw on them.  Even though you may not technically have enough credit in either system to qualify for benefits, you can combine the credits from both countries.  

So, you can still receive your social security benefits where you would otherwise not qualify for them.

Does your host country have an agreement with the US?

As of 2020, here is the list of countries that America has signed agreements with:

All in All

Filing taxes as an expat, while daunting, is not impossible.  Most of us will only need to use forms 1040 and 2555.  You can file them easily on your own without all the professional fees and charges.  

But everyone's situations is different and if you feel it is necessary, then do hire a professional as things can get complicated pretty quick and the penalties are significant. 

Even if you decide to hire a professional, it is good to have some understanding of your taxes.  That way, you will always know what you should be doing to reduce them.  Good Luck!

Related Questions 

If I renounce my US citizenship, do I still have to pay taxes?

As it turns out, after renounciation you no longer have to pay US taxes. BUT in order to renounce you going to need to have been paying your taxes properly for the past 5 years.  

The IRS will check this.  And if they find anything amiss you may have to cough up years of back taxes, fees, and penalties.