The Care Up
Related Articles
Tax Guide
The US expat tax rules can be complex and difficult for Americans living abroad. Even worse, serious fines may be imposed for incorrect filing. In any case, there are significant tax benefits created expressly for US expats if they are prepared and submitted appropriately.
To help American expats understand their tax obligations, we put together our Expat Tax Guide. For the 2021 tax year, this document details tax rates, filing criteria, exclusion amounts, and more.
- Must File US Taxes if Over Certain Foreign Income Limits
US citizens who earn over a certain amount while living overseas must file a tax return in the United States. Though their income is above the threshold, US residents and Green Card holders must submit a US tax return even if they live abroad and do not owe any tax. Even for digital nomads, this is true.
These are the cutoffs for the 2021 tax year:
- Gross Income Filing Status
- Single (under age 65) (under age 65)-$12,550
- Using the joint-filing system (under age 65)-$25,100
- Jointly and severally liable (any age)-$5
- Chief Executive Officer (under age 65)-$18,800
You must file if you are self-employed and have made more than $400 from your business. Even if your income is within these limits, there are still other situations in which you must file a tax return.
- Paying Taxes Abroad As a self-dependent
Self-employed expats should aware that the FEIE provides only an income tax exemption. Therefore, regardless of how much they make as self-employed, they still have to pay self-employment tax. For the first $142,800 of earnings, the combined social security and Medicare tax rate for self-employed people is 15.3%.
If your net earnings from self-employment are more than $200,000 for an individual or $250,000 for a married couple filing jointly, an additional Medicare tax of 0.9% may apply.
But suppose your nation of residence and the United States have signed a Social Security Totalization Agreement. In that case, you can decide which country’s system to pay into based on your own unique financial and tax circumstances. For example, the equivalent of the United States’ 15% self-employment tax is 25% in Italy, so you can select which rate to pay if you live there. You may have to contribute to the systems of both countries if a Totalization Agreement isn’t in place.
- International Tax Agreements
Over 60 countries have signed Tax Treaties with the United States, including many of the most common destinations for American expats.
Australia, Canada, most Western Europe, Mexico, China, Japan, and even outlying regions like Kyrgyzstan have income tax accords with other countries. However, the United States does not have a tax treaty with Singapore, Hong Kong, the United Arab Emirates, Brazil, or Colombia.
Some forms of income, such as those from pension and retirement plans and interest and dividends earned passively, may be free from taxation or subject to lower tax rates thanks to tax treaties.
An expert US expat tax accountant will ensure that any treaty benefits you are entitled to are included in your US tax return. To be sure, every circumstance is different. For example, suppose you are an expat needing tax advice in the United States living in the UK. In that case, you can consult with an US Tax CPA in the United Kingdom to your circumstances and needs.
4. Fees Paid to Each State
It’s possible that even as an expat in another country, you’ll still be obligated to pay state taxes to the state where you previously lived in the United States. The laws of each state vary regarding your responsibilities.
States that do not impose an income tax are the most convenient for Americans living in other countries. These states include Florida, Nevada, Texas, and Washington.
Some states take no official position on the topic of expats. Some of these states may need you to submit documents verifying your new residency. Fortunately, you won’t encounter too many roadblocks in neutral states.
The states of California, South Carolina, New Mexico, and Virginia are the most challenging and combative. The states of Massachusetts, Maryland, and North Carolina have also been mentioned as having problems.
Be well-versed in the laws of your state. For example, the state may notice a gap in your filings if you move out of the state for a while and then come back. In addition, you may be required to file and pay back taxes for years in which you did not live in the United States.
5. How to file taxes Living Abroad
Expat life has its ups and downs but can be quite rewarding. Unfortunately, US federal income tax returns get increasingly intricate as well. However, US citizens living outside the country may be eligible for substantial tax benefits provided they know the tax laws that apply to them.
This Expat Tax Guide for Americans introduces the primary tax considerations applicable to overseas citizens.
