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Do Americans Living Abroad Have To Pay Taxes?

If you’re thinking of moving abroad and you’re a U.S. citizen, you can’t get away from paying taxes. Many Americans may dream about living and working abroad, thinking they won’t have to worry about paying U.S. taxes. However, Americans living abroad are still obligated to file U.S. tax returns even while not living in the U.S. Are you an American living abroad wondering if you still have to pay back taxes? The answer is yes. Read on as Platinum Tax Defenders explains why, even if you’re living abroad, you can’t escape Tax Day.

Getting Taxed As A U.S. Citizen Living Abroad

The United States isn’t like most countries when it comes to taxes. Some countries only tax individuals on income made within the country’s borders. Other countries tax residents on all income earned from local and foreign sources. For non-residents living in the countries that subscribe to the above tax systems, only income earned locally is taxed.

Two countries subscribe to a citizenship-based taxation system – the United States and Eritrea. What does a citizenship-based taxation system mean? If you’re an American citizen living abroad, you must still file a U.S. federal tax return and pay U.S. taxes. No matter where you live, you’re subject to the same rules regarding income taxation as those living in the U.S.

How Does Living Abroad Affect Your Federal Tax Return?

The U.S. taxes foreign income at the same rate as income earned inside the U.S. If you are an American living abroad, you’ll need to file a U.S. federal tax return. Green Card holders living in the U.S. also need to file federal tax returns. The U.S. government requires citizens and Green Card holders to pay taxes if their total income exceeds the following thresholds:

  • $10,300 for citizens filing single
  • $20,600 for married citizens filing jointly
  • $4,000 for married citizens filing separately
  • $400 for self-employed citizens

If you haven’t lived in the U.S. during the tax year and made money abroad, you still have to file. Also, the IRS may require you to submit a state tax return depending on your state of residence before moving abroad.

Can I Avoid Double Taxation?

One problem with the U.S. tax system is that the IRS can double tax individuals on income earned abroad. Taxpayers living abroad risk paying taxes to the U.S. and the country in which they live. Taxpaying Americans residing abroad can avoid being doubly taxed. The U.S. tax code includes a provision called the Foreign Earned Income Exclusion. As of 2017, expats were permitted to exclude $102,100 of income earned abroad from their U.S. taxes. 

Another way to avoid double taxation is through the Foreign Tax Credit. If you have paid or accrued tax to a foreign government, you may reduce your U.S. tax obligation. Through the Foreign Tax Credit, you can reduce taxes beyond what the Foreign Earned Income Exclusion allows. However, this provision only applies to certain types of income. Also, there are unique considerations related to each foreign country. For that reason, it’s beneficial to work with a tax professional when filing taxes abroad.

What Other Documents Do I Need To File Taxes Abroad?

There are additional items you need to report in addition to your earned income when filing taxes abroad. The IRS will also want you to disclose your foreign accounts and assets that go beyond a value limit. Your retirement contributions into foreign accounts may even be taxable. 

What Happens If I Don’t Pay Back Taxes Abroad?

For taxpayers living in the U.S who don’t pay back taxes, the IRS charges fees. For American citizens living abroad who don’t pay back taxes, there are still fees associated. Below are the penalties the IRS can charge if you don’t file or pay back taxes.

Failure To File

If you don’t file taxes by the deadline or extension, the IRS charges a Failure to File penalty. The Failure to File penalty is typically 5 percent of the amount of unpaid taxes. You will be charged a 5 percent penalty each new month your return is late. However, the penalty cannot exceed 25 percent of your total unpaid tax amount. The minimum penalty for filling 60-plus days past the filing extension date is 100 percent of the overdue amount.

Having Tax Trouble Abroad ptd

Failure to Pay Penalty

If you file your taxes on time but don’t pay back taxes, you will face a Failure to Pay penalty. The monthly penalty is 0.5 percent of the total unpaid amount and cannot exceed 25 percent. Taxpayers can avoid the failure to pay the penalty by filing an extension and paying at least 90 percent of back taxes. For taxpayers living abroad, the deadline to pay back taxes is June 15. If you pay back taxes after the standard April deadline, but before June 15, you will not pay the penalty. However, interest will begin to accrue on your back-tax amount starting April 15. 

American expats who are self-employed with the underpayment of estimated taxes over $1,000 per year will have an underpayment penalty even if they pay by April. Also, self-employed individuals are responsible for the payment of FICA taxes. FICA taxes have strict time requirements than income tax. 

What are the Consequences For Not Filing Taxes as an Expat?

If you’re an American citizen living abroad and don’t file taxes, the IRS can impose several consequences. Those consequences for not filing or paying back taxes while living abroad can include:

Penalties

The IRS can impose several penalties, including failure to file and failure to pay. If you owe back taxes, a delay may result in a penalty as well as interest charges. The longer you wait to file your return, the more money you will owe. 

You May Lose Your Refund

If you don’t pay back taxes or file on time, you may lose your refund from the IRS. 

Statutes of Limitations

After the Statute of Limitations expires (10 years), the IRS can no longer collect on your back taxes. Additionally, the Statute of Limitations on back taxes does not start until you file your return.

Earned Income Tax Credit

If you have an Earned Income Tax Credit you can claim, you can’t claim until you file your tax returns. To receive the credit, you must file your tax returns within three years of the due date.

Are you an expat living abroad and need help settling back taxes? Call Platinum Tax Defenders

The expert team at Platinum Tax Defenders includes enrolled agents, CPAs, tax attorneys, and x-IRS tax attorneys. Our tax attorneys can help you settle back taxes even if you’re living abroad. You decided to live overseas to enjoy your life better. Don’t let back tax issues ruin your time. Call Platinum Tax Defenders today and speak to one of our tax attorneys. We offer free consultations for new clients. 

Are you an expat living abroad and need help settling back taxes? Call Platinum Tax Defenders

The expert team at Platinum Tax Defenders includes enrolled agents, CPAs, tax attorneys, and x-IRS tax attorneys. Our tax attorneys can help you settle back taxes even if you’re living abroad. You decided to live overseas to enjoy your life better. Don’t let back tax issues ruin your time. Call Platinum Tax Defenders today and speak to one of our tax attorneys. We offer free consultations for new clients. 

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