U.S. Taxpayers Working and Living Abroad
Ready to File Your U.S. Tax Return?
Who Should File?
The United States taxes U.S. citizens and resident aliens on worldwide income. U.S. citizens and resident aliens who work and live abroad and/or receive non U.S. sourced income are generally subject to the same filing requirements and filing deadlines as those who receive income from within the United States.
When to File?
U.S. citizens and resident aliens automatically qualify for a two month extension to file AND pay their income taxes if they are (1) living outside of the United States and Puerto Rico and they are employed outside of the United States and Puerto Rico or (2) military personnel stationed outside of the United States or Puerto Rico at the time the tax return is due. To claim this automatic extension, you must include a statement with your tax return explaining how you qualify for the automatic extension, when you file your tax return within the two-month extension period. If you do not file the tax return within the automatic two-month extension period, you may request an additional four months by filing form 4868.
In general, taxpayers are allowed an automatic six months from the regular due date to file the tax return. Form 4868 must be filed to request the six month extension. Please note that only the automatic two-month extension grants additional time to pay. You will not receive an extension to pay if you extend the due date to file beyond the initial automatic two-month extension period.
Foreign Tax Credit, Foreign Earned Income Exclusion and Foreign Housing Deduction/Exclusion
U.S. citizens and resident aliens who receive income from sources outside of the United States may also be subject to taxation by the country in which the income is derived. This results in the potential for double taxation of income received from sources outside of the United States. Taxpayers can reduce U.S. taxes paid on foreign sourced income by choosing the following elections as allowed and subject to limitations.
Foreign Earned Income Exclusion- under certain circumstances, taxpayers can exclude from U.S. income a limited amount of foreign earned income. For 2020, the exclusion is limited to the lesser of $107,600 or the foreign income earned, per individual. Taxpayers can elect to exclude foreign earned income by attaching form 2555 when filing their U.S. tax return.
Foreign Housing Deduction/Exclusion- taxpayers may also exclude/deduct from U.S. income a limited amount of expenses paid for housing. Wage earners and self-employed taxpayers report this exclusion (wage earner) or deduction (self-employment) by filing form 2555 with their U.S. tax return.
Foreign Income Tax Credit- taxpayers can elect to claim a tax credit for foreign income tax paid on foreign sourced income, by attaching form 1116 to their U.S. tax return. However, taxpayers cannot claim a credit for foreign income taxes paid on income which has been excluded from U.S. income. Taxpayers can only claim a credit for foreign income which has NOT been excluded from income on the U.S. tax return. If you do not use the entire credit, you can carryback one year and then carryforward for 10 years. Carry forward and carryback rules do not apply to IRC section 951A income (GILTI- Global Intangible Low Taxed Income)
Originally posted February 2020. Updated April 2021.
RM Martin | 04/27/2021