US EXPATS LIVING ABROAD MUST KNOW ABOUT FILING US TAXES IN 2024
Table of Contents
- Introduction
- Do you need to file a US Tax Return?
- Whats the due date for filing your US Tax Return?
- Claiming Foreign Earned Income Exclusion along with Housing Exclusion
- Claiming Foreign Tax Credit (FTC)
- Do you need to file FinCen Form 114 (FBAR) and FATCA Form 8938?
- What you need to know about the 3rd Stimulus Check?
- What you need to know about Advance Child Tax Credit Payments?
- State Taxes for US Expats
- Mistakes you must avoid on your US Expat Tax Return
US Expats living abroad may experience some difficulty in filing their taxes from a foreign land. However, it’s something that shouldn’t bother you, if you take professional assistance. Irrespective of whether you do-it-yourself or take the professional route, you must be aware of all the Tax implications of your actions or the lack of, may have on your tax return. For US Expats living abroad, being indecisive, ignorant and taking no action isn’t a choice anymore.
In this Blog, we will discuss in detail the things you must remember when you file your US Tax Return in 2024. Let’s dive in!
NOTE: This blog is updated as of November 14, 2023 to reflect the changes for the 2023 Tax year.
Do US Expats living Abroad need to file a Tax Return ?
Yes,Green Card Holders and US Expats living abroad must file taxes for the current tax year to report all wages, interest, dividends, self-employment, rental income on their U.S. tax return.
US Expats (Citizens) living abroad and Green Card Holders are subject to Taxes on their worldwide income, irrespective of their residency. Let’s enshrine this line in the bible or on your passport, because you’d be surprised, that very few taxpayers are even aware of this concept! If your total US taxable income is above a certain threshold, depending on your filing status, or self-employed with income of over $400, you must file your tax return. If you would like to claim a refund on the withholding, because your income was less for the year or to claim a tax credit, you must file a tax return.
(The Table below can be used as an Expat Tax Calculator for the Tax Year 2023)
| Filing Status | Age | Minimum Income requirement |
| Single | Under 65/65 and older | $13,850 and $15,700 |
| Married filing Joint | Under 65/65 and older | $27,700 and $29,550( both over 65) |
| Married filing separately | Any age | $5 |
| Head of Household | Under 65/65 and older | $20,800 and $22,650 |
| Qualifying widow with dependent child | Under 65/65 and older | $27,700 and $29,550( both over 65) |
| Self-employed | Any age | $400 |
If your Gross Income for the year is above the threshold mentioned in the table, you must file your US Tax Return.
What’s the due date for filing your US Tax return?
The due date for the US Tax return is April 15th** of the following year, unless it’s a weekend. The due day for the 2023 Tax year is April 15th, 2024. If you are an US expat living abroad (out of country as of April 15), you are eligible for an automatic 2-month extension to file, ie file by June 15th, 2024. The IRS also allows a six months extension to file your Tax return by completing the Form 4868. Do remember that the extension only applies to filing the Tax Return. Any amount of balance due needs to be paid by April 15th due date after which interests and penalties apply.
STATE TAXES: Along with federal taxes, there are state and local/city/county taxes to be paid. Every state/city/locality has a different set of rules regarding domicile and residency status, once the Taxpayer departs and starts working abroad. The Intent of the taxpayer to return, local ties, ownership of property(home) in that particular state plays a crucial role in determining the residential status in that state. Some states have strict requirements(discussed later) to determine your residential status, meaning it’s difficult to break residency just by moving into another state or country. The States usually follow the same filing due date as federal most of the time.
US Expats Living Abroad Claiming Foreign earned income exclusion (FEIE) and Housing Exclusion
If you are a US expat living and working abroad, you might be eligible for the Foreign earned income exclusion, Foreign housing exclusion or a Foreign Tax Credit (assuming taxes were paid/withheld abroad). For the 2023 Tax year the Foreign earned income for exclusion is $120,000. In addition to this, you can claim Foreign housing exclusion as well, which is subject to some threshold.
BFR: This is a qualitative test, meaning you need to be a bona fide resident of that country, tax home must be in that country, place of work, bank account etc. must be in that country for an uninterrupted period that includes an entire tax year (January 1–December 31, if you file a calendar year return). In the initial year of departure, you will have to satisfy the above test by being a resident of that country the following year to claim BFR. Say that your assignment starts in September 2023, for the tax year 2023, you will have to be a resident in the assignment country for the entire 2024. Your 2023 Tax return will only be filed in January of 2025! Form 2350 needs to be filed for seeking extension of time due to form 2555 – Foreign earned income exclusion.
PPT: This is a quantitative test, where a US Citizen or a resident must live in foreign country for at least 330 days (non-consecutive) over a 365 day period. The 330 full days can be interrupted by periods when you are traveling over international waters or are otherwise not in a foreign country. Assuming a 365 day annual year, a taxpayer can be in the US for a maximum of 35 days in a year to meet the test. Also once 330 foreign days condition is met, then any of the 35 days allowed for US days that are remaining can be rolled back from the beginning of the assignment or the ending of the assignment, thereby extending the qualifying day period,also known as “slide days”.Usually Green card holders follow the PPT method as a safe approach.
Also the choice to claim FEIE is of the taxpayer, on whether to claim or not to claim(remember, we spoke about actions earlier). Once the Taxpayer does decides to claim the exclusion, the taxpayer has effectively elected to claim the exclusions in all future years that the taxpayer qualifies to claim. The taxpayer can revoke the election, however might not claim again for 5 years unless it has special permission from the IRS.
US ExpatS Living Abroad can claim Foreign Tax Credit
Unlike a deduction or an exclusion, a tax credit reduces your tax liability directly dollar-to-dollar. If your assignment is in a high tax country and pays taxes abroad through a withholding system like payroll. You make a Foreign tax credit/deduction on a “Paid basis” through completing Form 1116, or on an “accrued basis” which means you will claim the credit in the period the taxes relate to, not in the year that the taxes are paid. The election to use accrued basis cannot be revoked, hence need to be very careful or consult a Tax adviser before applying it. The unused tax credit will be carried forward for 10 years and can be carried back for a year. Do remember that the IRS does not allow “double benefits” or “double dipping”, it states that you cannot claim a FTC for foreign taxes paid on income that is exempt from tax in the United States. In a Tax year, if you do claim FEIE and FTC, the foreign taxes would be subjected to “scale-down” which reduces your foreign taxes. An optimization is necessary in the year of departure assuming the taxpayer is relocating to a high tax country.
Another concept to remember is called “stacking rule”. The United States, like most countries, follows a progressive tax structure. The higher the income, the more tax you end up paying. Assuming, you took FEIE on your 2022 income of $130,000, the maximum exclusion of $120,000 the remaining $10,000 isn’t taxed at 10%. The stacking rule is applied by figuring the tax on your taxable income without taking FEIE and housing cost exclusions into account and later the tax is figured on the amount of your total FEIE and housing cost exclusions (after taking the correct graduated tax rates and with no other deductions). The difference, if any, between the two amounts is the Taxpayer’s actual U.S. tax liability for the year.
Do us Expats living Abroad file FinCen Form 114 and FATCA (Form 8938)?
If the total balance of all your Foreign bank accounts (not US banks located in US) exceeds the amount of $10,000 at any time of the year, even for a minute! must be reported on the FinCen Form 114. These amounts are only included for reporting purposes and filed with the department of treasury, not the IRS. The due date to file is the same as the tax return due date for the year. See the comparison of these two forms here.
Form 8938 is part of the tax return, is also an informational report, but has different thresholds for reporting based on filing status and US/Foreign Presence as of 31st December of the Tax Year.
The below are the thresholds for Filing FATCA Form 8938 with your tax return.
Filing Status | Taxpayer living in the US | Taxpayer living outside the US. |
Single/Unmarried | $50k on the last day of the tax year, or $75k any time during the year(whichever higher) | $200k on the last day of the tax year, or $300k any time during the year(whichever higher) |
Married Filing Jointly | $100k on the last day of the tax year, or $150k any time during the year(whichever higher) | $400k on the last day of the tax year, or $600k any time during the year(whichever higher) |
Married Filing Separate | $50k on the last day of the tax year, or $75k any time during the year(whichever higher) | $200k on the last day of the tax year, or $300k any time during the year(whichever higher) |
The penalty for non-compliance of these 2 forms are very high, starting from $10k up to $50k for failure to file.
What you need to know about the 3rd Stimulus Check?
This section isn’t applicable for 2022 & 2023 Tax year. Stimulus payments were only applicable for 2020 & 2021.
The American rescue plan act of 2021, authorized the third round of economic impact payments as an advance payment of the tax year 2021 recovery rebate credit. These payments were sent to eligible individuals starting from March 12, 2021. These payments are sent weekly in 2021 as 2020 tax returns are processed. US expats living abroad are eligible for these checks, unlike advance child tax credit payments.
Under the 3rd economic impact payment, taxpayers would get
- $1,400 for an eligible individual with a valid social security number($2,800 for married couples filing a joint return if both spouses have a valid social security number or if one spouse has a valid social security number and one spouse was an active member of the U.S. armed forces at any time during the taxable year)
- $1,400 for each qualifying dependent with a valid social security number or adoption taxpayer identification number issued by the IRS.
The third payment is not restricted to children under 17. Eligible individuals will get a payment based on all of their qualifying dependents claimed on their return, including older relatives like college students, adults with disabilities, parents and grandparents. This is a change from the first two stimulus checks.
Due to new income limitations, some individuals won’t be eligible for the third check even if they received the first two payments. This payments is not taxable and not reportable on your Tax Return. Having said that, you may need that information to determine whether you are eligible to claim a 2021 Recovery Rebate Credit on your 2021 tax return. This information will help you if you don’t receive a third payment or don’t receive the entire amount this year, because you may be eligible to claim the 2021 Recovery Rebate Credit when you file your 2021 tax return.
What you need to know about Advance Child Tax Credit Payments?
This section isn’t applicable for 2022 & 2023 Tax year.
The ARPA has increased the amount of Child Tax Credits for qualified dependents from $2,000 to $3,000 and up to $3,600 for kids below the age of 6. Children between the age of 6 and 17 can claim up to $3,000 credit. This tax credit is per child and fully refundable, unlike the previous tax years. The Child Tax Credit for 2021 is given in the form of advance payments..aka (Advance Child Tax Credits). 50% of these credit payments will be given out from July 15 onwards, till the end of the year. The remaining credit can be claimed when you file your 2021 Tax return in 2022. The IRS will pay half the total credit amount in advance monthly payments beginning July 15. The other half when you file your 2021 income tax return. The dates for the payments are given below along with the amounts.
Payments Dates | Maximum Payment {Age-(0-5)} | Maximum Payment {Age(6-17)} |
July 15th, 2021 | $300 | $250 |
August 13, 2021 | $300 | $250 |
September 15, 2021 | $300 | $250 |
October 15, 2021 | $300 | $250 |
November 15, 2021 | $300 | $250 |
December 15, 2021 | $300 | $250 |
File your Tax return in 2022 | $1,800 | $1,500 |
If married filing a joint return — must have your main home in one of the 50 states or the (D.C) for more than half the year. Most US Expats living abroad will not be eligible for these Credit Payments. If you did moved out of the US in 2021 before the 1st half of the year, it’s important that you unenroll yourself (both Taxpayer and Spouse) from these payments and save yourself from the headache at the time of filing your Tax Return in 2022.
State Taxes for US Expats
For an US Expat Living abroad who has rental or business/investment/passive income from any of the US State(States which has income taxes), you would most probably have a filing requirement in that state. The type of filing usually depends on the residency rules. Usually for the states, if you are more than half a year away, you are considered as a non-resident. Each state has its own residency rules. For a US expat abroad, not all states allow Foreign earned income exclusion or foreign tax credits.
Few states like California, New Mexico, Virginia, and South Carolina are considered to be difficult, for getting rid of your state tax residency.
If you made an exit from these States, you should, by all means, sever ties you had with these States. That Includes:
- Bank Accounts
- Property Mortgages
- Voter ID
- Driving Licenses
- Utility Bills
- Leases
- Mailing address
- Dependents Living in the state
You need to prove that if you have departed from these States, you will not return to the State. The burden is on You to prove that you won’t make a return. If you are not able to prove it,then you need to file a Tax Return in these States, even if you never resided in these States. These States also Tax Worldwide Income. Since these States only recognize a move to another State as a change of residency (not a move to another country), it’s imperative that US Expats living abroad properly plan ahead and sever State Ties.
Mistakes you must avoid on your US Expat Tax Return
With the ever changing Tax laws, stimulus payments, Child tax credits, unemployment benefits, exclusions and Foreign income reporting disclosures, preparing expat tax returns for the US expats living abroad has never been more challenging. Based on the estimates, there are about 8-9 Million Americans living and working abroad (Covid-19 must have reduced these figures). Out of this number, very few of them file tax returns and the number of people having a balance due is even lower.
Many Expats either try to complete it themselves or hire a Local tax preparer who has little or no prior experience of doing taxes for expatriates. The consumer level software has serious limitations with regards to Tax optimization, delinquent tax filing, FBARs, limited or no foreign reporting forms, the list goes on and on.
If the below-mentioned factors haven’t affected you in any way, by all means, please do enjoy your time abroad and carry on with your taxes the way it’s always been. However, if you feel that you need help from a professional, based on the mistakes you made on your expat tax return discussed below, it’s never too late to take action.
- Do you even have an eligible Tax Home abroad ?
- Which Foreign Earned Income Exclusion Test is right for you?
- Foreign Earned Income Exclusion vs Foreign Tax Credit or Both?
- Not considering Income from Foreign Pension and Filing Form 3520/Form 3520-A.
- Considering Foreign real estate taxes on your Tax Return
- Depreciation for Foreign Rental Property.
- Reporting of Foreign rental Property on Form 8858
- Not reporting Foreign mutual funds
- Not reporting Foreign Corporation abroad where you have a substantial stake?
- Not filing Form 8865 - (Return of US Persons with respect to certain Foreign partnerships) ?
Got Questions? Please let us know here.
DISCLAIMER: The above info should only be considered for the knowledge of US Tax. Every Taxpayers situation is unique, strongly advice you to consult a Tax Professional.