One of the most important dates on an American expat’s calendar, April 15—the deadline for tax returns from overseas—is fast approaching but what exactly does this mean for US citizens living abroad?
Here’s our lowdown on the taxation that US taxpayers living abroad (International Taxpayers) can expect to pay.
The latest threshold for tax-free earnings for US citizens is $91,400 of earned income for 2009. If you are married and both of you earn income abroad you can exclude up to $91,400 of your partner’s income too. This means that a couple claiming jointly can claim up to $182,800. In order to qualify for the exclusions you need to live abroad permanently or have been out of the United States for at least 330 days of any consecutive 12-month period.
In addition to earnings exclusions, some expatriates may be eligible for tax breaks based upon their housing costs. It is possible for US citizens to exclude a portion of the money they spend on rental or property costs. In 2009 the maximum that can possibly be excluded from taxable earnings as a result of housing costs can be $27,420. The way in which the deductions should be applied and whom they are applicable to is provided in full detail here.
Calculating your tax payment
Any income that is over and above the exclusion amount, after housing allowances have been applied, will be taxed. The tax rates and breaks are as follows:
- Earnings between $91,000 and $171,550 ($208,850 couples) will be taxed at 28%.
- Earnings between $171,550 and $372,950 will be taxed at 33%.
- Earnings above $372,950 will be taxed at 35%.
Foreign tax treaties
The United States does have a number of agreements in place with some foreign countries. Expatriates who are based in qualifying countries are permitted a lower rate of tax. In some cases they may be completely exempt. In order to establish which countries have a tax treaties in place with the US see IRS Publication 901, that can be found here.
Late payment/ Failure to file appropriate documentation
It is crucial that you file your return prior to the deadline as the IRS do have the jurisdiction to deny taxpayers the foreign earned income exclusions if they file late.
In addition to this US expatriates are required to file a Foreign Bank Account Report (FBAR) for every foreign bank account they have which contains funds exceeding $10,000. The deadline for these reports in June 30th. The rules governing FBAR forms are very strict and are part of money laundering legislation. Those failing to meet the requirements can be subject to criminal penalties.
Other things you may not know about US tax
- Expatriates are actually eligible for a two-month extension on the traditional tax submission deadline of April 15th. The final date by which expats may submit their return is June 15th. However, all due tax must be settled in full by April 15th.
- Even if you are earning less than the exclusion amount you may still need to file a tax return. Married couples earning a total of $11,400 between them are required to file, as too are Singles who earn anything over $5,570.
For full information about the regulations and rules governing US citizens who live abroad please see the “meeting obligations at home” section of our free Expat manual. It contains comprehensive information about citizenship, taxation, health care, education and social well-being and tells you everything you need to know as a US citizen living abroad.