US Expat Taxes: How to File from Abroad in 6 Simple Steps

Filing a US tax return from abroad (also known as doing US expat taxes) can be extremely challenging.

Every year, millions of Americans living outside the United States are faced with parsing complicated expatriate tax rules and regulations. Many of these are time-consuming and tedious to understand.

Do expats pay taxes? What is expatriate tax?

These questions lead down Internet expat tax rabbit holes, often resulting in only a vague understanding that a 1040 is due, along with some combination of exemptions and credits.

But which ones, and how? Can US expat taxes be completed without the help of an expensive professional?

Deep breath – you’re in the right place.

Below, we’ll break out the most important information to understand when approaching the 2024 tax filing season for US expats.

Step 1: Ascertain your US expat tax filing requirement

In some cases, a US citizen living abroad may be completely unaware that they must file a US tax return.

Unlike nearly every other country in the world, the US operates a citizenship-based taxation approach. In a nutshell, this means that your worldwide income is subject to US taxation.

Generally, if you meet the following two tests, you are required to file a US expat tax return:

You earn more than the minimum income threshold for your filing category
You are a US citizen or a permanent resident (green card holder)

It’s important to note that these rules apply even under certain extenuating circumstances.

For example, if you have never lived in the US or don’t hold an American passport, you may still have a filing obligation.

Examples of these scenarios include being born on American soil (e.g., a military base) and having an American parent who registered you as an American at a US embassy when you were a baby.

In cases where someone learns they have US tax filing obligations but have never lived in the US, they are called Accidental Americans. (1)

Expat Taxes: 2024 US Income Tax Filing Thresholds

The filing threshold varies depending on your status, but, as you’ll see, filing is typically required:

Single or Married Filing Separately: $13,850
Married Filing Jointly: $27,700
Self-employed: $400
US citizen married to a foreigner and filing separately: $5

All figures noted are for the 2023 tax year, which are the numbers you’ll reference to complete your tax return in 2024.

Step 2: Understanding key aspects of filing taxes from outside the US

So, you’ve determined that you do need to file a US tax return from abroad. Now what?

First, you’ll want to understand the difference between earned and unearned income.

Earned income refers to money received for work performed, such as wages or salaries.

Unearned income is the same thing as passive income, which refers to income gained through investments, interest, foreign rental properties, and retirement distributions, among others.

Finally, it’s important to note is that all figures on your tax return must be converted into US dollars. To do this, you can use the US Treasury Reporting Rates of Exchange. (2)

Special mention: Self-employed expats and US taxes

It’s worth mentioning that self-employed expats might need to pay US Social Security and Medicare taxes (15.3% in 2023) on their earned income.

Generally, this payment will apply if you are not paying into the social security scheme of the country you’re living in. However, if you are paying into the social security scheme of your country of residence, you may be exempt.

Which comes first: The foreign return or the US tax return?

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In most cases, the foreign return is required to complete the US tax return. So, expats do their US tax return after completing their foreign taxes.

Essentially, the foreign tax return proves that you qualify for all of the exclusions, credits, and provisions that you’re claiming. So, it’s a pretty important piece of the puzzle for the IRS to assess.

That said, international tax dates rarely line up conveniently. Fortunately, the IRS provides avenues for US expats to extend their US tax filing deadline.

The first and most important is that there is an automatic, two-month extension to the April tax deadline. So, while the 2024 deadline is Monday, April 15th, expats have until Monday, June 17th to file their US expat tax return. (Note: It is June 17th and not June 15th because that date falls on a weekend. In cases where the deadline is pushed to a non-weekday, the deadline becomes the first normal working day.)

While an automatic extension is nice, it is often not enough time for expats living in areas of the world whose tax seasons fall later in the year. If that’s the case, there are two more opportunities to extend the US tax deadline. However, it’s crucial to note that:

they are not automatic and must be requested, and
deadlines for taxes owed still apply for qualifying taxpayers, e.g., quarterly payments for those who are self-employed with a US entity.

2024 Tax Deadlines

Standard US Tax Deadline - Monday, April 15th

Automatic US Tax Deadline for Expats - Monday, June 17th

US Tax Deadline for Expats (must request) - Tuesday, October 15th (request with Form 4868)

2nd US Tax Deadline for Expats (must request) - December 16th, must write directly to the IRS explaining your situation (3)

Step 3: Figuring out how to file your US expat tax return

So far, we’ve covered the difference in income types and how expat tax deadlines are subject to as-needed change. Now it’s time to dig a little deeper.

In this section, we’ll review common forms that are important to be aware of, as well as important filing obligations with certain thresholds to be mindful of.

Common US expat tax forms

Name: IRS Form 2555 - Foreign Earned Income Exclusion (FEIE)

Key provision: Excluding up to $120,000* of foreign-earned income from US taxes

*This figure is adjusted annually for inflation. $120,000 may be excluded for the 2023 tax year, while in 2024, that amount increases to $126,500.

Typically best for: US expats who paid less foreign tax than what they would have in the US. Only applies to earned income.

Name: IRS Form 1116 - Foreign Tax Credit

Key provision: Allows you to take a doll-for-dollar, non-refundable credit for each dollar paid in foreign taxes, often allowing expats to wipe out their US tax liability.

Typically best for: US expats who paid more in foreign tax than what they would have in the US. It can be used on both earned and unearned/passive income.

Filing obligation: Foreign Bank Account Report (FBAR); FinCEN Form 114

Qualifying threshold: Equivalent to $10,000 USD held in any one or more bank accounts

Key provision: The $10,000 threshold refers to the sum total of all money held in foreign bank accounts

You may have to file if: You have the equivalent of $4,500 in one account and $6,000 in another account

Filing obligation: Foreign Account Tax and Compliance Act (FATCA); Form 8938

Qualifying threshold: Depends on your status, but begins at $200,000 for single filers.

Key provision: U.S. taxpayers with foreign accounts and assets must disclose their holdings, and this legislation is supported by foreign financial institutions (FFIs) who are legally obligated to transmit account information of their US clients to the IRS.

You may have to file if: You meet the threshold, which includes business and trust ownership, plus certain contractual investments with foreign parties.

Filing obligation: Passive Foreign Investment Company (PFIC); IRS Form 8621

Qualifying threshold: A foreign entity, at least 75% of whose income comes from non-business operations, like investments. (4)

Key provision: The US applies an extremely broad definition in PFIC cases.

You may have to file if: Certain everyday foreign retirement and investment accounts are implicated. Expats must be extremely careful when opening foreign accounts, even if a company’s HR is simply doing so as “standard.” For example, if you live and work in Switzerland on a local contract, you may wind up with a pension plan or accounts that are not advantageous to Americans. When in doubt, consult a professional.

Understanding the difference between FBAR and FATCA (5), and whether you’ve stumbled into disadvantageous foreign accounts is incredibly important for the financial well-being of US expats.

For their part, PFICs are nasty to navigate because they are complex to file and often more expensive than they’re worth. Moreover, their complexity makes them expensive to file too, as it’s almost always better to let a professional lead the way in these cases.

The bottom line here is to get a second opinion from a certified US perspective; many foreign employers and banks are unaware of the unique rules US expats must navigate and so make recommendations that are in fact a great fit for everyone except their American employees or clientele.

Save for later: What is Net Investment Income Tax? (And Can Expats Avoid It?)

Step 4: Determine whether you have a state tax filing obligation

Most states will require you to pay taxes if you retain significant ties.

The definition of significant ties can vary, include more or less than what’s listed below, and interpretations change from state to state.

However, in general, the following may trigger state tax filing, even if you are a US expat:

Property
Investments
Voter registration
Dependents

If you are concerned about a potential state tax filing requirement, you do have options. If you don’t have significant ties and can demonstrate that you live abroad, many states will not require you to file an expat tax return.

Tricky (aka “sticky”) states

In many cases, Americans who pack up their lives, move abroad, and file US taxes only have to contend with federal taxes. However, a handful of states are referred to as “sticky” within the tax community because they are especially difficult to extricate from.

If your last state of residence prior to living abroad was any of the following, you will need to proceed carefully to mitigate your US state tax liability:

Virginia
California
New Mexico, or
South Carolina

One final note: Although uncommon, some areas in the US levy local taxes. As a general rule, it’s a good idea to carefully research the tax obligations of the last place you lived to fully understand your tax filing obligations.

Step 5: Familiarize yourself with other common US expat tax provisions

US expat taxes are complex as a baseline and the complexity only increases when you factor in big-picture strategic thinking such as retirement or other international moves. However, developing your understanding to include key expatriate tax vocabulary is an excellent way to proactively take control of your expat financial management obligations.

Below, we’re rounding up a “quick hits” list of other important IRS tax provisions that remain available to expats too, as well as important bilateral agreements that may be helpful to you.

Child Tax Credit

This credit permits US taxpayers to claim a partially refundable $2,000 tax credit per qualifying dependent child living with you if your income is at or below the given threshold ($400,000 for joint filers, $200,000 for other filers). (6)

Student Loan Interest Deduction

This dedication permits US taxpayers to deduct up to $2,500 in interest paid on qualified student loans. (7)

Foreign Housing Exclusion

This exclusion is also filed with IRS Form 2555, like the FEIE. With this exclusion, Americans deduct certain foreign housing expenses from their taxable income. Most expats who qualify for the FEIE are also eligible for the Foreign Housing Exclusion. (8)

Medical Expenses Deduction

Using this deduction, US taxpayers can deduct qualified medical expenses above 7.5% of their adjusted gross income. (9)

Streamlined Filing Compliance Procedures

For every expat who was unaware they had a US tax filing requirement, there is likely an expat who is behind on their tax filing. While this can feel like an extremely vulnerable and frightening situation to be in, the Streamlined Procedures is an IRS program that allows qualifying taxpayers to catch up without penalty. (10)

Important terminology

Double-taxation treaty: A tax treaty is a bilateral (two-party) agreement made by two countries to resolve issues involving double taxation of passive and active income of each of their respective citizens. (11) The details of these will vary from country to country and often have significant implications when making cross-border financial planning decisions.

Totalization Agreement: From the Social Security Administration website: “International Social Security agreements, often called "Totalization agreements," have two main purposes. First, they eliminate dual Social Security taxation, the situation that occurs when a worker from one country works in another country and is required to pay Social Security taxes to both countries on the same earnings. Second, the agreements help fill gaps in benefit protection for workers who have divided their careers between the United States and another country.”

Key callout: Questions concerning Totalization Agreements and retirement benefits should be directed to the SSA, not the IRS.

Step 6: Build an expert expat financial support team to champion your goals and long-term financial wellness

As you can tell, filing US expat taxes is a complex and deeply personal endeavor.

Doing so correctly often requires expert analytical and research capacities, which is where certified professionals with cross-border expertise come into play. Expat tax professionals are an important part of this picture, however, in complex cases, a cross-border financial planner is essential for setting the CPA up for success.

If you have plans to move to Europe and anticipate that your US expat tax situation may be complex, or if you are already living in Europe and feel like your situation merits long-term insight and planning, you may be an excellent candidate for personalized cross-border financial planning.

References

Meet the Author

Arielle Tucker is a Certified Financial Planner™ and IRS Enrolled Agent with Connected Financial Planning. She's spent over a decade working with US expats on US tax and financial planning issues. She is passionate about working with US expats and their families to help secure a financial future that is reflective of their core values. Arielle grew up in New York and has lived throughout the US, Germany, and Switzerland.