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Tax Laws for American Expatriates

Updated on August 16, 2014

Expat Tax Laws for Americans Living Abroad

It’s that time of year again, tax time. For an expat, this is an especially stressful time of year because in addition to gathering all the necessary documents to file, we also need to figure out all the ins and outs of expat taxes. This is particularly trying for someone who just moved abroad – speaking from experience of figuring it all out during the last tax season after relocating from New York to Lisbon, Portugal.

To help you out on your journey of demystifying the various expat tax laws for the United States, I’ve compiled this hub to hopefully shed some light on the major questions you may have regarding filing your taxes from overseas. Below you will find the deadlines to be aware of, the forms you’ll need to fill out and other tax-related things that may be of interest.

Overview of taxation rules for expats living abroad

  • If you're living overseas and you're a U.S. citizen or resident alien, you're still obliged to file a U.S. Income Tax Return on your worldwide income, annually.
  • As an American living overseas, you get an automatic 2-month extension to file your taxes.
  • Americans living abroad and working abroad qualify for tax breaks.
  • You can easily avoid double taxation.
  • You must report foreign income in US Dollars.
  • If you file your tax return every year while living and/or working overseas, the statute of limitations for IRS audits will expire three years after filing those returns. Therefore, unless you're suspected of fraud, the IRS will not audit you for those years once the three years are up.

All these points are explained below.

Taxes on foreign income

Both US citizens and Permanent Residents of the US need to report any income that was earned in a foreign country. Therefore, you must file a tax return for any of the following:

  • Rental income earned overseas
  • Foreign dividends
  • Foreign pension income
  • Foreign capital gains or losses from real estate, stocks, or bonds
  • Foreign royalties
  • Other foreign income
  • Even if you did not earn a foreign income, you must still file your taxes.

Automatic Extension: Expats get an automatic extension to file taxes

If you are living abroad on April 15 (the regular due date for your return), you are allowed an automatic 2-month extension to file your return and pay federal income tax if you are a U.S. citizen or Permanent Resident of the U.S. Therefore, the due date to file your taxes is June 15th.

If you are unable to file your tax return by June 15th, you must then file for an extension by filling out Form 4868. This will extend the date to file your taxes until October 15th. However, you must pay any money owed to the IRS by June 15th. Payments that are made after that date will be subject to late payment penalties and interest charges.


Avoiding Double Taxation with Form 2555

Form 2555, Foreign Earned Income, should be filed if you earned an income while living abroad as a resident of a foreign country. The form allows for expats to subtract out of their U.S. income tax the first $92,900 (for 2011). The form can also be used to claim a housing exclusion or deduction. There is also form 2555-EZ which is easier to fill out for those expats whose situation isn't complicated.

To qualify for Form 2555-EZ, you must meet the following requirements:

  • your income earned abroad is from employment
  • you don’t have any additional self-employment income
  • you are a citizen or legal resident of the U.S.
  • your total earnings abroad don’t exceed $92,900 (for 2011)
  • you don’t report any housing or moving expense deductions
  • you don't claim the foreign housing allowance

To qualify for either Form 2555 or Form 2555-EZ, you must prove your foreign residency. To do so, you must meet one of two requirements:

  • Live 330 days abroad during a 12-month period, or
  • Live abroad for a full calendar tax year ((Jan. 1 through Dec. 31)

Get Tax Breaks with Form 8802 & Form 6166

In order to reduce the amount of worldwide taxes an American living abroad must pay, the U.S has tax treaties with many countries. In order to claim tax treaty benefits, use Form 8802, Application of United States Residency Certification.

Then you must get Form 6166, Certification of U.S. Tax Residency in order to claim income tax treaty benefits and certain other tax benefits in foreign countries. Form 6166 is actually a letter that will be printed for you on U.S. Department of Treasury stationery certifying that you are listed as a resident of the U.S. for purposes of the income tax laws of the United States. Please refer to the IRS website for more details.

Important forms for Americans living abroad

Form 4868
Filing for an extension
Form 8802
Claim tax treaty benefits in the country where you live
Form 2555
Claim exclusions on foreign income and housing
Form 8822
Notification of change of address
Form 1116
Provides dollar for dollar tax credit for taxes paid to foreign governments

A word on exchange rates

You will need to report all your foreign income in U.S. dollars. To figure out the exchange rate, you will need to convert the foreign currency using the yearly average exchange rate into U.S. dollars.

Deduct moving expenses for your move overseas

If you moved abroad because of your job, you can deduct the moving expenses that you incurred. Make sure to keep a good record of all your expenses.

Comments about US citizen tax laws

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    • Global-Chica profile image

      Anna 5 years ago from New York, NY

      Thanks, clevercat! I hope it will save some expats the trouble I went through finding out all the laws for American expats.

    • theclevercat profile image

      Rachel Vega 5 years ago from Massachusetts

      Very useful for expats. Including the links to forms makes filing even easier. Thanks!

    • Global-Chica profile image

      Anna 5 years ago from New York, NY

      Thanks so much, rebecca!

    • rebeccamealey profile image

      Rebecca Mealey 5 years ago from Northeastern Georgia, USA

      Your Hub on tax instructions is clearly written and organized well. Good job!