An Expat's Guide to U.S. Taxes
For many Americans, working abroad can be an exciting opportunity, but it also brings with it many financial complications. For one thing, you still have to file a U.S. income tax return even if you live outside the country.
If you’re working abroad, or considering the opportunity to do so, keep these things in mind:
- You still have to file a U.S. income tax return every year while you’re living abroad, even if you permanently change your residence. As a U.S. citizen, your income from any country is subject to U.S. income tax, regardless of where you live. And your foreign income will be taxed at the same marginal rate as if it were earned inside the U.S. The only way around this is to renounce your U.S. citizenship.
- But the news isn’t all bad. If your residence is in another country, you may be able to use the Foreign Earned Income Exclusion (FEIE) to exclude up to $120,000 in earned income for 2023 from U.S. taxes. For the purposes of this rule, your tax home is where you are permanently or indefinitely engaged to work. If you live in the U.S. but are given a temporary assignment abroad, you’re not eligible to use the FEIE.
- There are other exclusions and deductions you may be eligible for, including the Foreign Housing Exclusion or the Foreign Housing Deduction, which can be used for expenses related to housing while you’re living abroad. Download Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad for additional information.
- The U.S. offers a foreign tax credit to offset the cost of taxes incurred by other nations on income that is subject to taxation by both countries. You can calculate this yourself using Form 1116, but it can be complicated to complete without the help of a tax professional. Your employer may be able to connect you with an expert on the tax rules for wherever you are working.
- At the very least, you likely won’t have to worry about state taxes. Most states only levy taxes on individuals whose domicile is in that state, so where you lived before moving abroad likely won’t impact future state taxation.
Our office can help you plot out a strategy for handling your taxes while you’re overseas. But be warned, this can be a complex process. Most international employers have professionals who can help expats with tax issues, but if yours doesn’t, it’s worth it to seek out a professional on your own. Once you have that tax strategy in place, we can help you fit it into your overall retirement and investment planning.
The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action. Baird does not give tax or legal advice.