Below, we’ll tell you the basics of what you should know about U.S. taxes for digital nomads, including:

• Your U.S. tax responsibilities as a nomad
• How to get caught up on multiple years of back taxes
• Common digital nomad tax penalties and fines (and how to avoid them)
• Tax credits and benefits available to you
• Other financial reporting obligations you might have
• Additional tax considerations, like state taxes and non-U.S. taxes
• How to file your U.S. taxes online

Ready to file? No matter where in the world you are, H&R Block Expat Tax Services brings a tax expert right into your living room (or camper, or bungalow, or wherever you currently call home). Head on over to our Ways to File page to choose your journey and get started.

What digital nomads should know about filing U.S. taxes

1. Yes, American digital nomads must file U.S. taxes, even when working remotely abroad

The most common question we hear is, “Do digital nomads have to file U.S. taxes?”

Yes, if they make over the minimum amount required to file, digital nomads must file a U.S. tax return.

The U.S. taxes Americans based on citizenship, not place of residence. That means it doesn’t matter where you currently live — if you’re legally considered a U.S. citizen and make over the minimum amount of worldwide income, you have a tax obligation as a U.S. tax resident. This is true even if you earn no income within the U.S.

Taxable foreign income for digital nomads includes:

• Wages
• Interest
• Dividends
• Rental Income

Filing taxes as a digital nomad may seem difficult, but H&R Block makes it convenient no matter where in the world you are — whether you want to DIY your expat taxes or file with help from an advisor.

2. Remote workers can catch up on U.S. taxes with Offshore Streamlined Compliance Procedures

If you are a digital nomad and have never filed a U.S. tax return, you may be able to get caught up without being penalized.The IRS has a program to help mistakenly non-compliant filers get caught up penalty-free — Streamlined Foreign Offshore Procedures — which the Expat Tax Advisors here at H&R Block can happily help you with.

To qualify, you must:

1. Have lived in a foreign country for at least 330 days during one of the last three years and not maintained a U.S. abode.
2. Confirm that your failure to file U.S. tax returns and FBAR was not willful.

To catch up on past returns, get started with an Expat Tax Advisor now.

3. Not filing taxes as a digital nomad can result in steep penalties and fines

Trying to wiggle around your U.S. tax filing obligation has steep consequences — and it’s pretty easy to get caught. Thanks to FATCA, many financial institutions around the world exchange U.S. citizens’ financial account information with the U.S. government.

Expat tax penalties can range from a minor fine to penalties upwards of $10,000, and you can even lose your passport if you’re seriously out of compliance with tax regulations.

Bottom line: It’s worth it to file your U.S. taxes each year, even if you’re a digital nomad.

4. There are two tax benefits available to reduce digital nomads’ U.S. tax bill

Worried about paying too much in taxes? You’re in luck — digital nomads have two ways to lower their tax bill and avoid double-taxation: The Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC).

The FEIE excludes your foreign earned income from U.S. income tax, which lowers (or eliminates) your U.S. tax liability. As a digital nomad, you can qualify if you pass either the Bona Fide Residence test or the Physical Presence Test.

Another important tool for lowering your U.S. tax obligation is the FTC. The FTC gives you a dollar-for-dollar reduction of your U.S. tax liability per foreign taxes paid.

Get started on your U.S. taxes now.

5. Americans working overseas must track time carefully to claim certain tax benefits

If you’re a digital nomad, accurately tracking your time in each country will be the key to a smooth tax return. You need to have been on foreign soil for a certain number of full days (full = 24 full hours) to claim tax benefits like the FTC or the FEIE, and if you’re off by even 30 minutes you could be disqualified. For example, time spent on a 12-hour trans-oceanic flight may not count toward your full days because you’re technically in international airspace.

Correctly tracking hours in-country gets more complicated when you cross time zones. It’s worth it to get guidance from an international tax professional, like the ones at H&R Block Expat Tax Services.

6. Self-employed digital nomads may have to pay Social Security tax in the U.S.

If you’re self-employed outside the U.S., you’ll still owe U.S. self-employment tax on foreign earned income. This is true even if you’re able to claim the Foreign Earned Income Exclusion. However, Social Security Totalization Agreements between the United States and many foreign countries might prevent you from having to pay self-employment taxes in both countries.

There may be a problem for digital nomads moving from country to country because of the residency requirements of the totalization agreements — if you’re not taxed as a resident in another country, the totalization agreement will not apply. That’s why it’s worth it to have a tax professional handle the paperwork for you.

Bottom line, if you’re self-employed and not paying self-employment taxes as a resident in another country, you have to pay them in the U.S.

7. Americans (including digital nomads) may have financial reporting obligations in addition to filing U.S. taxes

As a digital nomad, you may have more paperwork to file other than your tax return — if you have a foreign bank account, you might also have to file your Foreign Bank Account Report (FBAR) and FATCA Form 8938.

This includes digital bank accounts. For digital bank accounts, you’d refer to the country the bank is registered in.

You’d file an FBAR (FinCEN Form 114) if the combined balance of all your foreign accounts was more than $10,000 at any point during the calendar year. For example, if you had a bank account in Hong Kong with a balance of $5,000 and an account in Singapore with another $6,000, your total balance in all foreign accounts would be more than $10,000 — meaning you’d have to file an FBAR.

You’d file FATCA Form 8938 if your total combined value of foreign assets is worth more than $300,000 at any time during the year (or at least $200,000 on the last day of the year). If you’re filing a joint return, the thresholds are $600,000 at any time during the year or $400,000 on the last day of the year.

If you’re confused about your FBAR and FATCA filing requirements, it’s best to leave your U.S. expat taxes to seasoned pros who will dig into your specific tax situation to find all your filing requirements.

Get started on your U.S. taxes now.

8. Digital nomads may still have to file U.S. state taxes

Yes, it’s possible you still have to file state taxes even if you’re a digital nomad — it depends on the state you lived in prior to moving abroad. If you are unsure if you have a U.S. state tax obligation, we recommend consulting with an expat tax professional to ensure you stay compliant.

9. There are hundreds of IRS forms and schedules — but these are the most used by remote workers abroad

1. Form 1040: The form each American files during tax season to report income to the IRS.
2. FBAR (FinCEN Form 114): Your Foreign Bank Account Report, used to report any assets in foreign financial institutions to the Financial Crimes Enforcement Network of the U.S. Treasury.
3. Foreign Earned Income Exclusion Form 2555: One of two methods digital nomads can use to avoid being double taxed on income earned abroad.
4. Foreign Tax Credit Form 1116: One of two methods digital nomads can use to avoid being double taxed on income earned abroad.
5. FATCA Form 8938: The form U.S. citizens file to report certain foreign financial assets to the IRS.
6. Form 5471: Informational return for U.S. citizens who are also shareholders, officers, or directors of a foreign corporation.
7. Form 8621: Informational return for U.S. citizens who are also shareholders of a passive foreign investment company, including owners of foreign mutual funds.
8. Form 3520: Informational return digital nomads use to report certain transactions with foreign trusts, ownerships of foreign trusts (including certain private pensions), or large gifts from certain foreign persons.

Ready to file or confused about expat tax forms? Get started online with H&R Block — the experts on U.S. taxes for digital nomads.

10. Digital nomads may still have to file taxes in foreign countries

Your tax residence country is where you are legally considered a resident for tax purposes. If you spent a significant amount of time or made over a certain amount of money in another country, you may have to pay taxes in that country.

It’s not one-size-fits-all, either. For example, American digital nomads in Canada and the U.K. will have different tax obligations than digital nomads in Mexico or Thailand. Before you land to do business in a foreign country, get to know their income taxation laws and residency laws because that will dictate your tax obligation.

How to file taxes as a digital nomad living overseas

With H&R Block, you can file your U.S. taxes conveniently online from wherever you currently call home. Digital nomads have two options: File using our DIY online expat tax service (designed specifically for expats), or let one of our Expat Tax Advisors handle it. Here’s how to file your U.S. expat taxes online:

1. Head on over to our Ways to File page.
2. Pick your journey — with you in control using our online DIY tool or letting a Tax Advisor guide you through the process.
3. Review your return and pay once you’re through your chosen journey.
4. We file your return with the IRS.
5. You sit back and relax knowing your taxes were done correctly.

Need help filing digital nomad taxes?

Filing taxes in one country is enough to give anyone a headache, and it only gets more complicated for digital nomads. But no matter where you call home, we bring U.S. tax solutions to you — whether you want to be in the driver’s seat with our DIY online expat tax service designed for U.S. citizens abroad or let one of our experienced Tax Advisors take the wheel. Head on over to our Ways to File page to choose your journey and get started online.

The post Digital Nomad Taxes: 10 Things Americans Abroad Should Know appeared first on H&R Block®.

U.S. state taxation for expats can be confusing for even the most seasoned expats, and the penalties for non-compliance are steep. Below, we’ll walk you through the basics of United States taxes and state residency for expats below and help you get started on your own state tax return.

Ready to file for this tax year? You’ve got two options: Jump in the driver’s seat with our DIY online expat tax service designed specifically for U.S. citizens living abroad or let one of our experienced Tax Advisors take the wheel.

Yes, U.S. citizens may still have to pay federal AND state taxes even if they live abroad.

The fact is, if you are a U.S. citizen or Green Card holder who makes above the general United States filing threshold you are still required to file federal U.S. taxes and report your worldwide income every year regardless where in the world you live. It’s much the same for state taxes, depending on the state.

Expat tax rules say taxable foreign income for U.S. citizens living abroad includes:

• Wages
• Interest
• Dividends
• Rental Income

Before you stress about paying taxes twice on the same taxable income (once to the U.S. and once to your new country) you should know there are tools and benefits available to expats. These benefits and tax credits, such as the Foreign Earned Income Exclusion and Foreign Tax Credit, can help you avoid double taxation.

Want a quick summary of taxes for expats? We distilled what you should know into 20 things you should know about taxes for expats.

Who must pay state taxes as an expat?

“Do I have to pay state taxes while living abroad?”

Great question.

Whether or not you need to file state taxes while living abroad depends on the state you last lived (or were considered a resident of), if you’re still considered a resident of that state, and if you make income in that state.

State residency while living abroad

State residency while living abroad is a tricky topic. Each state has different definitions of who qualifies as a resident and some states (like Florida) don’t even have state income tax requirements. On the other end of the spectrum are states (like New York and California) that require you pay expat state taxes on foreign income.

Some factors that can affect whether you’re considered a state resident for tax purposes include:

• Where your car is registered
• If you have a driver’s license or state ID
• Where you are registered to vote
• If you own any property or have mortgage/lease payments on any property in the state
• If you pay any utility bills in the state
• Where your family lives
• The permanence of your overseas assignment
• Your financial assets and accounts within the state

Even if you don’t qualify as a resident, some states require expats pay taxes if they have any income from that state. Not sure what applies in your situation? Instead of diving into each state’s specifics here, below you’ll find links to each state’s revenue department (and state residency qualifications), so you can jump right to your state in question.

If you’re still unsure about your residency or your state’s qualifications, it’s best to leave your tax filings to an expert.

What’s the best state for expat taxes?

This question is right up there with “what’s the best place to live abroad?” The answer is the same — it depends. The best state residency for expats depends on your life situation, your needs, and what’s most important to you.

States with no income tax for expats

Some states have no income tax. Those states are:

• Alaska
• Florida
• Nevada
• South Dakota
• Texas
• Washington
• Wyoming

States that only tax U.S. expats on interest and dividends

• Tennessee
• New Hampshire

States with other considerations

While all states have rules on residency status and who qualifies, some states have more specific considerations:

• California
• New Mexico
• South Carolina
• Virginia
• New York

Some expats refer to these states as “sticky” states because of the specific considerations. If you’re an expat and also considered a resident of one of these states we highly recommend getting started with an Expat Tax Advisor.

Do expats need to pay state taxes for past years?

If you’re reading this article and just realized you should have been filing and paying U.S. federal and state taxes for expats, don’t panic — we’ve helped thousands of U.S. citizens in this situation. There are special rules, called Streamlined Foreign Offshore Procedures, that let expats catch up on back taxes.

To qualify, you must:

• Have lived in a foreign country without a U.S. abode for at least 330 days during one of the last three years
• Confirm it was an honest mistake that you failed to file U.S. tax returns and FBAR Get started with streamlined filing now.

How to file state expat taxes online with H&R Block Expat Tax Services

Ready to file state taxes as an expat? Here’s how to file your U.S. expat taxes online:

1. Head on over to our Ways to File page
2. Pick your journey — in the driver’s seat with our online DIY tool or letting a Tax Advisor take the wheel.
3. Once you’re through your chosen journey, you review your return and pay
4. We file your return with the IRS
5. You sit back knowing your taxes were done right

Now that you know expats may need to pay state taxes while living abroad, it’s also important to understand that they can be more complicated than filing from within the States. Whichever method you choose to file, you can rest assured that your expat state taxes will be filed accurately, backed by H&R Block’s 100% Accuracy Guarantee.

Get started on your expat taxes now!

The post Do Expats Pay State Taxes? State Tax Guide for Americans Living Abroad appeared first on H&R Block®.

So, if you’re a citizen of another country and you live and work in the United States, you may qualify as a resident alien.

Who is considered a resident alien?

As explained above, you are a resident alien if you are a permanent resident of the United States but do not have citizenship. According to the United States Citizenship and Immigration Services there are three types of resident aliens: 

1. Permanent resident: You have been given the legal and lawful right to live in the U.S. 

2. Conditional resident: If you have applied for residency, usually based on marriage or you’re working under the golden visa process, you will receive a two-year green card.  

3. Returning resident: You are a returning resident if you have been outside the U.S. and are returning. You must apply for re-admission if you’ve been outside the U.S. for more than 180 days. 

There are two different ways to qualify as a resident alien in the U.S.:

1. You pass the Green Card test
2. You pass the substantial presence test

The green card test

For the green card test, you’re considered a resident alien if you are legally living permanently in the United States as an immigrant. You have this status if you have an alien registration card, (known by you and I as a green card). You need to either currently have a green card or have had one in the previous calendar year.

Resident aliens and the substantial presence test

The substantial presence test is pretty much what it sounds like: a test to determine if you’ve spent enough time in the United States to be considered a resident alien. You pass the test if you were physically present in the U.S. at least 183 days over three years, which would include a minimum of 31 days during the current year. This includes:

• All the days you were present in the current year
• 1/3 of the days you were present in the first year before the current year
• 1/6 of the days you were present in the second year before the current year

Resident alien vs nonresident alien: What’s the difference?

If you don’t qualify as a resident alien, you might be considered a nonresident alien. The definition of a nonresident alien is someone who’s legally in the U.S. for a short time or who doesn’t have a green card. The main difference between the two is the paperwork and what income is taxed.

For tax purposes, there are some important differences between resident and nonresident aliens. Your tax obligation as a resident alien in the U.S. is that you report and owe taxes on your entire income (regardless where it was earned). This income is reported using IRS Form 1040. On the other hand, the non-resident alien tax rate only applies to taxes on the income from U.S. sources. You can report domestic income on IRS Form 1040NR or 1040NR-EZ.

Another difference is that, when it comes to tax filing, resident aliens can take advantage of foreign tax credits, while nonresident aliens cannot.

In some cases, you can still be considered a nonresident alien even if you meet the substantial presence test. To qualify, you must:

• Hold certain visas
• Have a closer connection to a foreign country than to the United States.

Dual status aliens

In some cases, you can be considered both a resident and a nonresident alien, known as a dual status alien. These cases usually happen the year you arrive or depart from the U.S.

Resident alien tax implications in the U.S.

A common question our tax advisors get is “what taxes do resident aliens have to pay?” Good question!

All resident aliens need to pay U.S. taxes. Just like a U.S. citizen, you need to report all income, regardless if you earned it in the U.S. or abroad. This includes:

• Interest
• Dividends
• Wages or any other compensation for your services/products
• Income from rental properties
• Royalties
• Other income you receive

If you’re an alien and you leave the U.S., you must get a certificate of compliance that proves you’ve paid your U.S. taxes. If you don’t, you must file and pay at your point of departure. Before you leave, be sure to download or take a look at Form 1040-C or Form 2063 from the Internal Revenue Service to find out what you need to report.

Need tax help as a resident alien? Trust the experts at H&R Block

Have any more questions about resident alien status? We are here to help. Get started with virtual Expat Tax Preparation from H&R Block today.

The post What is a Resident Alien? appeared first on H&R Block®.

If these questions sound familiar, you’re not alone — U.S. expat tax rules can be confusing and complicated for even the most financially-savvy Americans.

Despite what you might think, you do have a tax obligation to the United States as long as you’re a citizen — regardless if you’re currently living in Tokyo, Japan or St. Louis, Missouri.

Ready to file your expat taxes? Whether you file expat taxes yourself with our online DIY expat tax service designed specifically for U.S. citizens abroad or file with an advisor, H&R Block is here to help.

Do U.S. citizens pay taxes if they live abroad?

Yes, U.S. citizens have to pay taxes on foreign income if they meet the filing thresholds, which are generally equivalent to the standard deduction for your filing status. You may wonder why U.S. citizens pay taxes on income earned abroad. U.S. taxes are based on citizenship, not country of residence. That means it doesn’t matter where you call home, if you’re considered a U.S. citizen, you have a tax obligation this tax year.

Your expat tax filing requirement doesn’t change even if you’re paid by a foreign employer overseas. In addition to federal income taxes, some U.S. citizens living abroad also need to file state taxes as well, depending on their last state of residence.

Taxable foreign-earned income includes:

• Wages
• Interest
• Dividends
• Rental Income
• Qualified retirement account distributions

Additionally, if you have foreign financial accounts (including bank accounts, investments, and other financial accounts) or assets, you may need to report them. The U.S. requires citizens to disclose international financial accounts that held $10,000 or more at any one time in the year. To do that, you have to file a Foreign Bank Account Report (FBAR). If you have foreign assets with a value greater than $200,000, you may also have to file FATCA Form 8938.

If you’re a U.S. citizen abroad and have never filed a tax return, you can relax. The IRS built in a safeguard for honest expats who truly didn’t know they had tax filing obligation. You can get caught up penalty-free with Streamlined Filing Compliance Procedures. To qualify, you must:

• Have lived in a foreign country for at least 330 days during one of the last three years
• Confirm it was a genuine mistake you failed to file your U.S. tax return and FBAR

How much in taxes do I pay if I work overseas?

Now that you know U.S. citizens have to pay taxes on foreign income, your next question is probably about how much in taxes you pay if you work overseas. You might wonder if you’ll have any money in the bank after paying both your U.S. and host country income tax liabilities!

Fortunately, even though most U.S. citizens working overseas must file taxes, expat tax rules have evolved so most expats don’t actually owe any amount at the end of the year.

Is there a tax exemption for U.S. citizens living abroad?

A common question we hear is, “Do Americans living abroad get taxed twice?”

The short answer is no, Americans do not have to pay taxes twice. While there is no overall U.S. expat tax exemption, there are exclusions and credits to help alleviate the tax burden for U.S. citizens living abroad. These include:

• The Foreign Earned Income Exclusion (FEIE) and Housing Exclusion – The FEIE and foreign housing exclusion allow U.S. expats to exclude up to a certain amount of foreign earned income if they meet certain requirements.
• Foreign Tax Credit – The Foreign Tax Credit allows Americans to claim a dollar-for-dollar credit on foreign taxes paid if they meet certain requirements. Because you may pay a higher income tax in France than you would in the U.S., this may be a better option to choose than claiming the FEIE.
• Tax treaties – To prevent double taxation, the U.S. has tax treaties with individual countries, which dictate how special circumstances are handled (including foreign retirement accounts).

Tax exclusions and credits are just two examples of the many unique tax rules applicable to U.S. expats working overseas, so it could be helpful to work with a qualified and reputable expat Tax Advisor to help manage your worldwide tax burden.

Want to know more? Learn the top 20 things every American overseas should know about U.S. expat taxes.

What are some common tax forms U.S. expats need to know about?

Now that you know you have to file, you should get to know some of the common forms U.S. expats use to file their taxes.

1. Form 1040 – The form every American files during tax season to report income to the IRS. A common question you may have is “Does a US citizen living abroad file IRS Form 1040 or 1040NR?” The answer is, it depends. If you are a nonresident alien, you will file the 1040 NR.
2. Foreign Tax Credit Form 1116 – This is the form you use to claim the foreign tax credit.
3. FBAR (FinCEN Form 114) – If you had more than $10,000 in foreign accounts at any time in the year, you’ll have to report it to FinCEN as well as the Internal Revenue Service. This is the form you use to report foreign accounts to FinCEN.
4. Foreign Earned Income Exclusion Form 2555 – The is the form you use to claim the foreign earned income exclusion.
5. FATCA Form 8938 – How you report assets in foreign financial institutions to the IRS.
6. Form 5471 – Informational return for U.S. citizens who are also shareholders, officers, or directors of a foreign corporation.
7. Form 8621 – Informational return for U.S. citizens who are also shareholders of a passive foreign investment company or foreign mutual fund.
8. Form 3520 – You’ll use this IRS form to report certain transactions with foreign trusts, ownerships of foreign trusts, or if you receive certain large gifts from certain foreign persons.

I’m retiring abroad. What do I need to know?

If retiring abroad in the countryside is your long-term goal, you should first understand how taxes work when retiring abroad:

• Even if you retire abroad you still may have to file a U.S. tax return
• You’ll still have to report money in any foreign financial accounts on your FBAR if you meet the requirements
• If you have a foreign pension or retirement account it may be treated differently than in the U.S.

How to file U.S. taxes as an expat

With H&R Block’s tax preparation services, you have two options to file your U.S. expat taxes: With you in the driver’s seat using our DIY online expat tax service (designed specifically for expats), or by letting one of our experienced Expat Tax Advisors take the wheel. No matter which journey you choose, you get the 100% Accuracy Guarantee from H&R Block.

Here’s how to file your U.S. expat taxes from overseas:

• Head on over to our Ways to File page
• Pick your journey—in the driver’s seat with our online DIY tool or letting a Tax Advisor take the wheel.
• Once you’re through your chosen journey, you review your return and pay
• We file your return with the IRS
• You sit back knowing your taxes were done right

Living abroad? Confused about filing your U.S. taxes?

For U.S. citizens abroad, expat tax rules can be a headache. Have more questions or confused on how expats file taxes? Ready to file? Rely on H&R Block’s American expat tax services. No matter where in the world you are, we’ve got a tax solution for you. Get started with our made-for-expats online expat tax services today!

The post American Expat Tax: What U.S. Citizens Living Abroad Should Know appeared first on H&R Block®.

Imagine this — you’ve been living outside the U.S. for a few years, building a new life in a far–away home away from home. You finally feel like you’ve got the whole living abroad thing down, and book a trip back to the U.S. to visit family and friends.

Imagine your surprise when you get to customs and find out your passport was revoked by the IRS. Alarming, right? It may sound like a scare tactic, but this scenario is a reality for some U.S. expats — and one we want to help you avoid.

Take care of your passport by taking care of your U.S. expat taxes

As a U.S. expat, you likely know where your passport is at any given time and the requirements needed to keep it up to date. Can you say the same about your tax requirements? You should be able to — the IRS recently said it’s following through on plans to implement tax penalties like revoking passports or denying renewals for those with tax debt of $54,000 or more. As a first step, the IRS sends at–risk taxpayers a letter. But as many expats know, international mail can be slow — or not arrive at all.

Then, while your letter is in the mail, your case is also sent to the Department of State. This is what could potentially prevent your return trip. Instead of traveling back to your home abroad, you’re stuck in the States until your situation is resolved, which could take months or years. Meanwhile, you may have a job, family and other responsibilities counting on you abroad.

If you’re thinking there’s no way you could owe that much, consider this: Many citizens living abroad don’t know they have to pay U.S. taxes on foreign income, meaning their unpaid taxes start stacking up. Pile on yearly penalties of $10,000 or more for failing to file returns or other required forms and $54,000 is not so much of a stretch.

Here’s what it means to you: If you owe the IRS $54,000 or more and you don’t have a payment plan or other agreement set up, your passport could be at risk.

If this makes you nervous, we get it. You should know the IRS does give you options, such as payment agreements, so you can avoid risking your passport. Plus, you’re not alone — our international tax advisors are experts in helping clients to become compliant and avoid tax penalties in these situations.

Get started on your expat taxes now.

Other U.S. tax matters expats should know about

You might be thinking, “I’ve been filing my taxes; I’m good, right?” Well, maybe, but U.S. taxes for citizens living abroad are tricky and you need to be up–to–speed on the additional expat tax rules. It’s truly a case of what you don’t know might hurt you — and cost you dearly.

• Your foreign pension. Saving for an expat retirement is smart, but the type of foreign pension account you have matters. You may need to file specific forms depending on the account type and value. If they’re not reported correctly or not at all, you may owe large penalties — starting at $10,000 — but may be more. You need a knowledgeable tax advisor to help you figure out what to do in your situation.
• Your bank accounts. Don’t owe the IRS? You still might face penalties if you didn’t file the right paperwork (Foreign Bank and Financial Accounts or FBAR) for your foreign bank account. These penalties can be steeper than tax penalties — $10,000 for each violation.
• The IRS is turning up the heat with enforcement. While the IRS began the program to revoke passports a few years ago, it got more aggressive in 2019 with the involvement of the State Department. This tactic along with FATCA and FBAR reporting rules make it harder for expats to hide. What’s more, the amnesty programs for tax debt, interest and penalties have changed and may continue to change. That said, options available now might not be available in the future.

Get started on your expat taxes now.

How H&R Block can help keep your passport safe and keep your taxes and FBAR in compliance

Here’s the good news. H&R Block’s Expat Tax Advisors can help you keep your passport safe, save money on your U.S. tax filing, and avoid double taxation with our Expat Tax Services.

For example, we can help make sure you’re in compliance, help you navigate tax tools like the foreign tax credit and foreign earned income exclusion, and if you haven’t filed while you’ve been abroad, we can help you get caught up with the IRS amnesty program.

Filing taxes for expats is tricky, so having an experienced tax advisor by your side can make all the difference. Luckily, we help expats all over the world do just that. No matter where in the world you are, we’ve got a tax solution for you. Get started with our made–for–expats online expat tax services today!

The post Can back taxes cost you your passport? In some cases – yes. appeared first on H&R Block®.

Living abroad comes with all sorts of unexpected expenses. You may have prepared for extra medical coverage or currency exchange rates, but what about your U.S. taxes? U.S. tax penalties can have a high price tag for expats, and it can be easy to rack up fines and IRS penalties if you’re unaware all your tax filing requirements while living abroad.

For example, let’s say you’ve lived overseas for five years and you’ve never filed a tax return since moving abroad. Considering failure to file tax returns and FBAR can lead to $10,000 a year or more in fines, it’s quick math to see you could already be over $50,000 in the hole. You can even lose your passport if your penalties are steep enough!

We see these types of situations every day, so if this sounds like you, don’t panic. If you want to avoid tax penalties as an expat, you should:

• Know your filing requirements
• Know when you could be charged penalties
• Know what documentation to keep and how long to keep it
• Know your options for catching up on back taxes with amnesty

Sound intimidating? Don’t worry, we’re here to help. Get started with H&R Block’s Expat Tax Services today!

1. Know your U.S. filing requirements.

To avoid U.S. tax penalties while living overseas, you’ve first got to understand your filing requirements. If you are a U.S. citizen or Green Card holder and you earn over a certain amount of income, you have to file a U.S. tax return, no matter where you live. Not only that, but if you have over $10,000 in foreign accounts at any time of the year, you’ll also have to file an FBAR.

In addition to your tax return and FBAR, these are a few other common forms U.S. expats may have to file or face interest and penalties ranging from $10,000 to over $60,000:

• FATCA Form 8938
• Form 5471
• Form 8621
• Form 3520

These are by no means the end of the list — there are dozens of tax forms U.S. expats may have to use, each with their own penalties. That’s why it may be wise to seek the help of an expat tax advisor if you’re worried about compliance and penalties.

2. Understand when you could be charged with U.S. tax penalties.

The IRS can charge U.S. tax penalties for a variety of reasons, but the most common are:

• Failure to file – If you don’t file your U.S. expat taxes and FBAR by the final due date without an extension (automatic extension to June 15 for your tax return and October 15 for your FBAR) you could be hit with failure-to-file fines. If you owe taxes and you fail to file, fines start at 5% and go up to 25% of unpaid tax—and that doesn’t include fines and interest on the owed amount. There isn’t a penalty for filing taxes late if you owe nothing, but you won’t have access to your refund until you file.
• Failure to pay – If you don’t pay your taxes owed, you’re subject to failure-to-pay fines. First, you’ll accrue interest on the unpaid balance until you repay it in full. Second, you’ll be fined the late payment penalty of 0.5% of the tax you owe for each month it’s late, up to 25%. It doesn’t stop there, though—penalties for serious tax evaders and major delinquency can result in a revoked passport and even jail time. There is a tax penalty for underpayment, so if you submit your taxes on a quarterly basis be sure you’re paying enough.
• Dishonored check – If your tax payment check bounces or your linked accounts are deficient, you may be fined for a dishonored check.

FATCA and FBAR penalties

On top of your tax returns, you’re required to report money in foreign accounts if it’s over a certain amount. You do this with your FBAR (FinCEN Form 114)and FATCA Form 8938. FATCA and FBAR penalties for non-compliance are more severe than failing to file a tax return.

If you meet the requirements and willfully fail to file an FBAR you can be fined up to the greater of $124,588 or 50% of the total balance in all your overseas accounts.

If you meet the requirements and fail to file FATCA Form 8938 you can be fined from $10,000 up to $50,000 if you don’t act timely.

These are compounding penalties — meaning if you willfully ignore the IRS and FinCEN and don’t file for 10 years, you could owe the better part of $500,000 in fines and penalties (not to mention lose your passport and even face jail time).

3. Keep these documents to help avoid tax penalties as a U.S. expat.

A great way to avoid penalties is to have the records to back you up. You should keep the below documentation for at least three years:

• Paystubs/pay slips
• Tax assessment document if you don’t have a W-2 (your P-60 from the U.K., or an Australian PAYG payment summary, for example)
• Previous U.S. tax returns
• Income taxes paid overseas
• Overseas housing cost
• Interest paid on mortgages
• Interest paid on property taxes
• Dependent education expenses
• Student loan interest and principal payment
• Medical & health insurance expenses
• Proof of time spent in-country

Don’t head for the shredder just yet — there are situations where the IRS suggests you keep these records up to indefinitely, so it’s best to ask a tax advisor about your specific situation.

4. Learn what to do if you’re a U.S. citizen abroad who’s never filed taxes or FBAR

If you’re a U.S. citizen abroad who has never filed a tax return or FBAR while living abroad, don’t stress—if it was an honest mistake there’s an option to get caught up with amnesty through the Streamlined Filing Compliance Procedures and Delinquent FBAR and Information Report Procedures. To qualify, you must:

1. Have lived in a foreign country for at least 330 days during one of the last three years and not maintained a U.S. abode.
2. Confirm that your failure to file U.S. tax returns and FBAR was due to an honest misunderstanding of your responsibilities.

If you do qualify for Streamlined Filing Compliance Procedures, you will need to:

1. File income tax returns for the prior three delinquent tax years.
2. File an FBAR (FinCEN Form 114) for the prior six tax years.
3. Complete a statement of explanation detailing why your tax returns and FBAR weren’t filed.
4. Pay the tax and interest due for the last three years.

Avoid fines and IRS penalties on U.S. taxes with the help of H&R Block’s Expat Tax Services

If you want to avoid fines and penalties during tax season, hiring the right expat tax advisor is key. Not only are there dozens of forms and schedules specific to expats, but you’ve also got tax provisions specific to each country to worry about.

We are here to help. Thousands of Americans overseas have already discovered the benefits of using H&R Block’s Expat Tax Services. Whether you file expat taxes yourself with our online DIY expat tax service designed specifically for U.S. citizens abroad or file with an advisor, H&R Block is here to help. Ready to file? Head on over to our Ways to File page to check out your options.

The post How to Avoid U.S. Tax Penalties while Living Overseas appeared first on H&R Block®.

It’s a fairly common question for expats, especially expats who’ve just found out they need to file one at all. Yes, if you’re a U.S. citizen or Green Card holder and you’ve held a combined $10,000 or more in foreign (non-U.S.) accounts at any one time in the tax year, you likely need to file FinCEN Form 114, also known as a Foreign Bank Account Report (FBAR).

Below, learn how to file a standalone FBAR and how to file your FBAR and U.S. taxes together. Ready to file? H&R Block Expat Tax Services makes filing your FBAR and staying compliant with your financial reporting obligations a snap. File your expat taxes and FBAR together with our online Expat Tax Services.

How to file an FBAR alongside your U.S. expat taxes

Need to file an FBAR alongside your U.S. expat taxes? H&R Block Expat Tax Services makes it simple to file your FBAR and U.S. taxes together. Here’s how:

Whether you file yourself or with an advisor, you can trust H&R Block Expat Tax Services for all the following:

• Federal tax preparation and filing
• State tax return preparation and filing
• FBAR filing (Report of Foreign Bank and Financial Accounts)
• Past-due FBAR and tax returns from prior years, including Streamlined Compliance filings
• Free extension filing
• H&R Block’s 100% Accuracy Guarantee
• We even offer local assisted tax return preparation in select countries If you file with an advisor, your expert will prepare your return and will be available to answer any questions you may have.

Ready to get started? File an FBAR only or go the traditional route and file your U.S. taxes and FBAR together.

FBAR (FinCEN 114) filing requirements and due date

Your FBAR due date for the calendar year you’re reporting is the same as your tax filing deadline, but you can always see up-to-date deadlines on our expat tax deadline page. If you’re required to file an FBAR, you must file one every year.

FBAR requirements state that if you are a U.S. Citizen or Green Card holder (including Accidental Americans) and you’ve held a combined $10,000 or more in non-U.S. financial accounts at any one time in the tax year, you need to file FinCEN Form 114. For a smooth submission process, have these documents and information handy:

• Legal name on the foreign account(s)
• Type of account
• The name and address of the institution or other person with whom the account is maintained
• The maximum value (converted to USD using the end of year exchange rate) in each account during the FBAR reporting period
• The number and/or other designation of the account

Ready to get started? File your U.S. taxes and FBAR together.

FBAR filing cost

When you add FinCEN Form 114 to your assisted tax return, FBAR filing costs $99 and includes the same attention to detail and 100% Accuracy Guarantee as our Expat Tax Prep Services.

What if I’ve never filed an FBAR before?

Yikes! If it turns out you’ve accidentally skipped filing your FBAR in years past, don’t panic. Submitting a Foreign Bank Account Report isn’t exactly an everyday occurrence, and it’s easy to overlook if you weren’t aware of compliance laws.

If you were honestly unaware of your FBAR filing requirement, the time to act is now. The IRS and FinCEN have a few disclosure programs that offer amnesty to Americans who have made an honest mistake in overlooking their filing obligations, including Streamlined Filing Compliance Procedures.

Streamlined compliance procedures allow Americans to get caught up on back taxes and delinquent FBARs with amnesty in order to avoid the large penalties that come from willfully not filing — penalties that can range anywhere from a few hundred dollars to a few hundred thousand dollars for serious offenders. All in all, it makes financial sense to be sure you’re up to date on all your reporting requirements.

If this all seems overwhelming, don’t stress — we’ve got your back. When catching up on multiple years of FBAR filings, choose to file your taxes and FBAR with an advisor, and our international tax advisors can help you decide on the best course of action for your unique situation.

Unsure how to file an FBAR or if you need to? H&R Block’s Expat Tax Services has your back.

Need help filing your FBAR or expat taxes? Don’t stress — taxes for expats are complicated, but H&R Block Expat Tax Services has your back. Get started and either file an FBAR on its own or file your U.S. taxes and FBAR together.

You may be interested in:

• Filing an FBAR from the UK
• Filing an FBAR from Canada
• Filing an FBAR from Australia
• Filing an FBAR from France
• Filing an FBAR from Germany
• Filing an FBAR from Japan

The post How to file an FBAR appeared first on H&R Block®.

Not everyone can claim the Foreign Tax Credit, and there are pros and cons of choosing the Foreign Tax Credit over the Foreign Earned Income Exclusion. Learn the basics below, and if you’re ready to file Form 1116 for the Foreign Tax Credit, head on over to our Ways to File page to get started.

What is the Foreign Tax Credit?

The Foreign Tax Credit (FTC) is one method U.S. expats can use to offset foreign taxes paid abroad dollar-for-dollar. Tax credits in general work like this: If you owe the U.S. government $1,500 in taxes and you have a $500 tax credit, you’ll end up only owing $1,000 — and the Foreign Tax Credit is no different. If you’ve already paid income taxes to a foreign country, the FTC gives you a credit to use on your U.S. taxes, lowering your U.S. tax liability. The maximum credit amount you’re allowed to claim depends on your worldwide income and how much in taxes you’ve already paid. We’ll run through some examples further down.

Who can claim the Foreign Tax Credit?

Who is eligible for the foreign tax credit?  In general, you’re eligible for the credit if you’re a U.S. citizen or resident who earns foreign income abroad and already paid income taxes to your country of residence.

Often expats will owe no U.S. tax if working in a country with a higher tax rate than the U.S., like China, but the rules are complex depending on the country where you live and the foreign tax credit limitations. That’s why it’s crucial to make sure to check with your expat tax advisor about which foreign taxes you can use to maximize your FTC.

Foreign Tax Credit income limits & rules for U.S. citizens abroad

There are a few foreign tax credit limitations for U.S. expats — you can’t just claim it on any income earned abroad. To get your maximum credit amount and income limit you’ll divide your foreign-sourced taxable income amount by your total taxable income, then multiply that result by your U.S. tax liability.

There are four stipulations to be able to claim the credit:

• The tax must be imposed on you
• You must have paid or accrued the tax
• The tax must be the legal and actual foreign tax liability
• The tax must be an income tax (or a tax in lieu of an income tax)

The tax must be imposed on you

If paying taxes to your resident country isn’t mandatory, you won’t qualify for the FTC. The tax must be imposed on you—for example, if you live in Australia and Australian taxes are automatically deducted from your paycheck, that is considered to be an income tax imposed on you.

You must have paid or accrued the foreign tax

You must have already paid or accrued the foreign tax. If you haven’t paid it, accrued it, or are not responsible for paying it, you won’t qualify.

The tax must be the legal and actual foreign tax liability

This is pretty self-explanatory. If you pay taxes to a foreign country, in order to use the FTC the tax must be a legal tax and you must be required to pay the tax. If, for example, you’re a digital nomad that has no current country of residence and thus no imposed income taxes, you wouldn’t be able to claim the FTC.

The tax must be an income tax

In order to claim the FTC, you must have paid income taxes to a foreign country. The IRS states the following types of foreign taxes are not eligible for the FTC:

• Taxes on excluded income (for example, if you’ve already used the foreign earned income exclusion)
• Taxes refundable to you
• Taxes paid to a foreign country deemed to support international terrorism
• Taxes for which you can only take an itemized deduction
• Taxes on foreign mineral income
• Taxes from international boycott operations
• A portion of taxes on combined foreign oil and gas income
• Taxes related to a foreign tax splitting event
• Social security taxes paid or accrued to a foreign country with which the United States has a social security agreement.

Be careful — the IRS has stipulations on what counts as a foreign “income” tax. For example, up until recently, foreign tax credit rules stated Americans living in France couldn’t claim a tax credit on French Generalized Social Contribution Taxes. Why? Because the IRS didn’t consider them income taxes. The IRS has since changed its stance and now U.S. expats in France may claim the FTC to offset these French taxes. Another example is the solidarity tax that supplements income taxes in Germany.

Some expats live in countries that do not have an income tax, like the UAE, but have other forms of taxes. If you paid foreign taxes in lieu of income taxes, you still may be able to offset them with the FTC. Taxes that qualify must be a foreign levy imposed in place of an income tax. Each scenario in each country is different, so we recommend you leave the Foreign Tax Credit limitations and rules to the experts.

Foreign Tax Credit Carryover

One nice thing about claiming the FTC is the foreign tax credit carryover. In summary, if you don’t use the full tax credit amount you’re allowed, your unused amount can carry over to the next tax year or carry back to the previous year. If you were short on credits in the previous year, your leftover amount must be carried back.
For example, if you have a $500 carryover amount and in the previous year you were short $600 in credits on foreign income, you must carryback that $500 to that previous year instead of carrying it forward. If you are allowed to carry it over, your tax credit carryover can be carried over for up to 10 years.

Calculating your Foreign Tax Credit and carryover amount

To get your maximum credit amount you’ll divide your foreign-sourced taxable income amount by your total taxable income, then multiply that result by your U.S. tax liability.

Here are two examples:

Let’s say you’re a U.S. citizen who moved to Germany for a teaching job. You have a salary of $60,000 and paid $26,400 in taxes to the German government. You also have $10,000 in U.S. trust income. At the end of the year, you have a U.S. tax liability of $16,000.

To calculate your allowable foreign tax credit amount, you’d take:

$60,000 (Foreign sourced taxable income)
Divided by
$70,000 (your total taxable income)
= .86

You’d then take that .86 and multiply it by your U.S. tax liability ($16,000) = $13,760. You could receive up to $13,760 as an FTC. The difference between $26,400 (German taxes paid) and $13,760 is your Foreign Tax Credit carryover amount, and you can carry that over for up to 10 years. So, in this case, you’d have a carryover credit of $12,640.

Now, say you’ve left Germany, and have a teaching job in the UAE, which has no income tax. You earn the same income of $60,000, and you still get $10,000 in trust income from the U.S. At the end of the year, you owe the U.S. government $16,000 in taxes, which you can offset with your carryover amount of $12,640. After applying your rollover amount, you’d only end up owing $3,360 in U.S. taxes.

Not fond of heavy math? Simply file with an Expat Tax Advisor and let them do the hard work for you.

The Foreign Tax Credit vs. the Foreign Earned Income Exclusion: Pros and Cons

The FTC isn’t your only tool to offset U.S. taxes. The Foreign Earned Income Exclusion (FEIE) lets you deduct foreign income from your yearly tax filing like any other deduction, while the FTC lets you claim a dollar-for-dollar tax credit to reimburse you for taxes already paid to your host country.

Many expats ask us which is better, using the tax credit or the foreign income exclusion. The pros and cons of the Foreign Tax Credit depends on your specific situation, your assets, and where you’re now living.

A big difference between the two is what counts as income.

The FEIE only applies to income from your wages. The FTC applies to gross income from all sources, including passive income like interest or dividends. However, it only works if you pay taxes to the country you now reside in.

Different situations have different stipulations and consequences, which is why our Tax Advisors always do a thorough analysis to find out which form would benefit you the most. If you’re unsure which form to use, we strongly recommend you leave it to the professionals (like us!).

These are some of the factors our Tax Advisors consider when choosing between the FTC and the FEIE:

• Your income type and source
• Your housing expenses
• Your future plans for life and work abroad
• Your dependents and their U.S. citizen status
• Whether you pass the Bona Fide Residency Test or the Physical Presence Test
• Your current country of residence and their local tax laws
• Your foreign tax liability to your country of residence

Confused about filing Foreign Tax Credit Form 1116? Trust H&R Block to handle your expat tax filing for you.

Have more questions about foreign tax credit limitations or rules? Ready to file Form 1116? Whether you file expat taxes yourself with our online DIY expat tax service designed specifically for U.S. citizens abroad or file with an advisor, H&R Block is here to help.

The post The Foreign Tax Credit: Income Limits, How the Credit Works, and Who Can Claim It in 2023 appeared first on H&R Block®.

If you earn foreign income, not understanding your U.S. tax obligation can lead to some serious consequences. To help you out, we distilled the basics of U.S. taxes for expats down to 20 things you should know.

And remember, no matter where in the world you are, we’ve got a tax solution for you—whether you want to DIY your expat taxes or file with help from an advisor.

Basics of Taxes for Expats

1. Do expats pay taxes? Yes, you file a U.S. tax return if you’re a U.S. citizen and make over the general income threshold — regardless if you live abroad or Stateside.

The most common question we hear is, “do expats pay taxes?”

This might come as a surprise to you, but yes — if you earn over a certain amount of income (domestic and foreign) and are a U.S. citizen, you have to file a U.S. tax return. The United States is one of only two countries that taxes based on citizenship, not place of residency. That means it doesn’t matter where you hang your hat — if you’re legally a U.S. citizen, you have a tax obligation to the U.S.

Taxable foreign income for U.S. citizens living abroad includes:

• Wages
• Interest
• Dividends
• Rental Income

How do you file taxes as an expat? The same way you would if you were stateside. The main difference is what forms you have to fill out.

2. Most American expats do not end up owing U.S. taxes

While yes, U.S. citizens file a yearly tax return even if they live abroad, U.S. expats don’t usually end up owing anything.

While there is no overarching tax exemption for U.S. citizens living abroad, there are a variety of mechanisms in place to prevent Americans from being double taxed on foreign-earned income. In most situations, U.S. expats can offset foreign-earned income with:

• The Foreign Tax Credit (FTC)
• The Foreign Earned Income Exclusion (FEIE)
• The Foreign Housing Exclusion

We’ll dive more into these (what they do, how to qualify, etc.) further down.

3. Expats might still have to file U.S. state taxes

Do U.S. citizens living abroad need to file state taxes? It’s possible. Living overseas doesn’t automatically exclude you from paying state taxes — it depends on the state you lived in prior to moving abroad. If you are unsure if you have to pay state taxes while living abroad, we recommend consulting with an expat tax professional to ensure you stay compliant.

Expat Tax Deadlines and Penalties

When are taxes due for expats living abroad? What happens if you’ve never filed? Understanding your expat tax deadlines and the associated penalties that come with non-compliance will be key to avoiding fines, fees, and nasty surprises from the IRS.

4. Expats can receive tax penalties for not filing

Yes, even though you live abroad, you may still have to file your U.S. taxes, and there are penalties for being non-compliant. The best way to avoid tax penalties is to make sure to file with a service that offers a 100% Accuracy Guarantee, like H&R Block Expat Tax Services does.

5. FBAR and FATCA penalties can add up to $50,000 if you willfully don’t file

FBAR and FATCA penalties are steep if you knowingly fail to file. If you meet the requirements and you’re found willfully failing to file an FBAR you can be fined up to the greater of $124,588 or 50% of the total balance in all your overseas accounts.

If you meet the requirements and fail to file FATCA Form 8938 you can be fined from $10,000 up to $50,000 if you don’t act timely.

These are compounding penalties—meaning if you willfully ignore the IRS and FinCEN and don’t file for 10 years, you could owe the better part of $500,000 in fines and penalties (not to mention lose your passport and even face jail time).

6. Expats can eventually lose their passport for failing to file

You read that right: Penalties for serious tax evaders and major delinquency can result in a revoked passport and even jail time. The IRS can charge U.S. tax penalties for a variety of reasons, but the most common are:

• Failure to file – If you owe taxes and you fail to file, fines start at 5% and go up to 25% of unpaid tax—and that doesn’t include fines and interest on the owed amount. There isn’t a penalty for filing taxes late if you owe nothing, but you won’t have access to your refund until you file.
• Failure to pay – If you don’t pay your taxes owed, you’ll accrue interest on the unpaid balance until you repay it in full. Then you’ll be fined the late payment penalty of 0.5% of the tax you owe for each month it’s late, up to 25%.
• Dishonored check – you may be fined for a dishonored check.

7. Live abroad and never filed taxes? You can get caught up on multiple years of expat taxes with Streamlined Filing Compliance Procedures

It’s common for dual citizens and Americans living and working overseas to overlook their tax obligations—many don’t even know they have to file U.S. taxes. If you’re a U.S. citizen abroad who has never filed a tax return, you’re in luck — the IRS understands it’s a confusing topic and generally shows lenience with genuine mistakes. You can get caught up on multiple years of U.S. expat taxes with the Streamlined Filing Compliance Procedures. To qualify, you must:

• Have lived in a foreign country without a U.S. abode for at least 330 days during one of the last three years
• Confirm it was an honest mistake that you failed to file U.S. tax returns and FBAR

Ready to start your multi-year filing? Get started on Streamlined IRS Filing with H&R Block — the experts on U.S. taxes for expats.

8. Your 2023 U.S. expat taxes are due April 15, 2024, with an automatic extension to June 17, 2024

The deadline to file your U.S. tax return is April 15, 2024, but U.S. citizens abroad are granted an automatic extension to June 17, 2024. If you end up owing taxes, the deadline to pay tax due is April 15, regardless if you live stateside or abroad.

9. You can apply for a tax and FBAR extension to extend your U.S. expat tax deadline to October

Even if the country you’re living in has a fiscal year-based tax system (like taxes for expats in the U.K. and Australia) U.S. taxes are still reported on a calendar-year basis. If you need an extension to get more time to gather information before the end of your resident country’s tax year, we can help you file Form 4868 to extend your deadline to October 15. The deadline for requesting an extension is June 17.

Tax Benefits for U.S. Citizens Abroad

What happens if you have to pay taxes in the country you’re now living? How do you avoid double-taxation? The U.S. has a few benefits and treaties to help prevent double-taxation and a heavy tax burden on U.S. citizens living abroad. Get to know them, because not understanding them or claiming them incorrectly can result in penalties and over-taxation.

10. U.S. expat tax treaties, the Foreign Earned Income Exclusion, and the Foreign Tax Credit help prevent Americans from being double taxed on income earned abroad

You’ve probably wondered how much foreign income is tax-free in the U.S. Because the U.S. taxes based on citizenship, the government provides American expatriates with a variety of aids to prevent them from being double taxed — once by the U.S. and once by the country they’re living in. These aids include:

• Tax treaties – To prevent double-taxation on income, U.S. taxes for expats are offset by income tax treaties with more than 70 countries. Not all tax treaties are the same—different countries have different agreements.
• The Foreign Earned Income Exclusion – The FEIE is the most common and broadest aid to prevent double-taxation. You qualify if you live and work overseas and pass either the Bona Fide Residency test or the Physical Presence Test. If you qualify, you can exclude up to $112,000 for tax year 2022, and $120,000 for 2023.
• Foreign Tax Credit – The Foreign Tax Credit is used to claim a dollar-for-dollar credit on foreign taxes paid on income from your expat job. If you live abroad and you have to pay taxes or have acquired a foreign tax liability, you may qualify.

Ready to file? Get started with H&R Block — the experts on U.S. taxes for expats.

11. You need to be careful when deciding between the Foreign Earned Income Exclusion vs. the Foreign Tax Credit

Choosing whether to claim the FEIE, FTC, or both will have a substantial impact on the outcome of your tax return, and you should consider all of your options carefully before filing. For example, if you had been using the FEIE but decide to switch to the Foreign Tax Credit you may find yourself locked out of the FEIE for five years.

Big factors U.S. expats should consider when choosing between the FEIE or the FTC include:

• Your income type and source
• Your housing expenses
• Your future plans for life and work abroad
• Your dependents and their U.S. citizen status
• Whether you pass the Bona Fide Residency test or the Physical Presence Test
• Your current country of residence and its local tax laws
• Your foreign tax liability to your country of residence

Having trouble choosing between the two? We’ll help determine the best choice for your situation when you choose to file with help from an advisor.

12. To claim the Foreign Earned Income Exclusion, you need to file Form 2555 and pass either the Bona Fide Residency test or the Physical Presence Test

To qualify for the Foreign Earned Income Exclusion, you have to pass one of two tests: The Bona Fide Residency Test or the Physical Presence Test. To pass, you have to have lived abroad for a certain number of days and have had limited connections with the U.S. If you qualify, then you’ll have to file Form 2555 to claim the FEIE.

13. If you want to pass the Bona Fide Residency or Physical Presence Test you need to track your time carefully

This trips up a lot of American expatriates looking to claim the FEIE. In order to claim the FEIE you need to pass either the Bona Fide Residency Test or the Physical Presence Test. Tracking your time is essential because you could fail the Physical Presence Test if you’re off by even a few hours. To qualify, you must have been in a foreign country for 330 full days out of the year—the “full days” is where U.S. expats get tripped up. If, for example, you’re on a 12-hour trans-oceanic flight, those 12 hours may not count toward your full 330 days because you’re technically in international airspace.

To qualify as a Bona Fide Resident, for the first year you need to have been living in a foreign country for an entire tax year, which is where many expats get confused. If you go back to the U.S. to visit family for a month, the time you spend in the U.S. does not count.

As with most overseas tax situations, there are a variety of different stipulations and considerations, so it’s always smart to let an expat tax professional help you navigate U.S. taxes while living abroad.

Expat Tax Forms and other Foreign Financial Reporting Requirements

Taxes for expats include other reporting requirements than just telling the IRS about your salary. If you have foreign financial assets and investments, you may have additional forms and filing requirements.

14. You may need to file an FBAR, FACTA Form 8938, or both if you have foreign assets or investments

Filing taxes as a U.S. expat isn’t easy — many tax forms seem identical and knowing which is which can cause you a headache. For example, take your FBAR (FinCEN 114) and your FATCA Form 8938 — you may have to fill out one, none, or both. A big difference between the two is that the FATCA Form 8938 gets sent to the IRS and your FBAR gets sent to FinCEN, the U.S. Treasury Department’s Financial Crimes and Enforcement Network.

Learning the FBAR and FATCA filing requirements should be at the top of your U.S. expat taxes to-do list, because making a mistake can lead to penalties ranging from hefty fines to jail time.

15. There are hundreds of IRS forms and schedules — but these are the most commonly used when filing U.S. taxes for expats

1. Form 1040 – The form every American files during tax season to report income to the IRS.
2. FBAR (FinCEN Form 114) – Your Foreign Bank Account Report, used to report any assets in foreign financial institutions to the Financial Crimes Enforcement Network of the U.S. Treasury.
3. Foreign Earned Income Exclusion Form 2555 – One of two methods for U.S. expats to avoid being double-taxed on income earned abroad.
4. Foreign Tax Credit Form 1116 – One of two methods for U.S. expats to avoid being double-taxed on income earned abroad.
5. FATCA Form 8938 – How you report assets in foreign financial institutions to the IRS.
6. Form 5471 – Informational return for U.S. citizens who are also shareholders, officers, or directors of a foreign corporation.
7. Form 8621 – Informational return for U.S. citizens who are also shareholders of a passive foreign investment company.
8. Form 3520 – Informational return expats use to report certain transactions with foreign trusts, ownerships of foreign trusts, or if you receive certain large gifts from certain foreign persons.

Ready to file or confused about expat tax forms? Get started with H&R Block—the experts on U.S. taxes for expats.

Expat Taxes and Your Family

Many expats live overseas along with their family, which can present a few challenges when it comes to filing taxes. For example, if your spouse is a non-resident alien, or if you’re claiming benefits like the child tax credit, you may have additional or different forms to file.

16. Married someone overseas? You can file a joint tax return with a non-resident alien spouse — but it comes with other U.S. expat tax implications

Marrying a non-American while overseas is commonplace for Americans overseas, and taxes for expats aren’t top-of-mind when walking down the aisle.

You have a few different tax return options when you’re married to a non-resident alien spouse and each option has major implications. For example, if you choose to file jointly with your NRA spouse by making an election to treat them as a U.S. person, they may be required to pay U.S. taxes on their entire income and be subjected to additional reporting.

Be careful when choosing how to file your U.S. expat taxes – tax law is difficult (at best) for most Americans to understand and adding a foreign spouse to the mix doesn’t make it any easier. Because making a mistake can lead to years of financial regret, it’s always best to leave it to someone who’s an expert in U.S. taxes for expats.

Get started on your expat taxes now.

17. Claiming children as dependents on your expat taxes has both perks and drawbacks

If you live abroad with your family, you may be wondering about claiming the child tax credit. First off, understand that while you’re living abroad your eligibility can differ. For example, if you claim the FEIE, you’re not able to claim the refundable portion, meaning the child tax credit by itself will not lead to a refund on your return.

Taxes for Expats Retired Abroad

18. If you retire abroad, you may still have to pay U.S. expat taxes on your retirement income and social security payments

That’s right, just because you’ve retired abroad doesn’t mean you’re off the hook for your taxes. Depending on the type on income you have, you may need to still have to file and pay U.S. taxes. This is the same for estate taxes for U.S. citizens living abroad. Make sure you understand the rules of 401(k) and IRA withdrawals overseas so you avoid hefty penalties.

19. Foreign retirement plans or certain investment accounts owned abroad may not be treated the same as their U.S. counterparts

You need to be careful when selecting or transferring your 401(k) abroad. International retirement plans may be treated differently than their U.S. counterparts, drastically changing your tax liability. For example, some foreign pensions and overseas accounts require more documentation than others to stay in compliance.

It’s critical to understand 401(k) and IRA rules abroad and know exactly what forms fit your situation, because misreporting or filing the wrong expat tax forms may incur large penalties starting at $10,000. If you have either international retirement plans or investment accounts overseas, you should always use professional U.S. expat tax services so you don’t accidentally miss a form and end up owing more tax.

U.S. Expats and Coronavirus

20. In 2020 and 2021 U.S. government enacted emergency COVID–19 benefits for U.S. taxpayers, including three Economic Impact Payments (EIPs), or Stimulus Checks

In 2020 and 2021 the U.S. government enacted three rounds of legislation to boost the economy and provide relief for affected Americans. Included are three stimulus payments unemployment benefits, child tax credit expansions, and other provisions to provide relief. Expats that fall within the income threshold and have a Social Security number qualified for the benefits. If you didn’t receive your stimulus payments you can still get the money you’re owed in the form of a recovery rebate credit. See more in the IRS’ Fact Sheet.

Get help with U.S. taxes for expats with H&R Block’s Expat Tax Services

Confused about how taxes for expats work? We don’t blame you. But relax, we live for this stuff, and your H&R Block Tax Advisor will know exactly what to do with your specific situation.

Ready to file your U.S. expat taxes? Get started with H&R Block’s Expat Tax Services today! If you’re a multi-year filer, after you answer a few basic questions you can schedule a phone consultation with your tax advisor to confirm your price and have any questions answered.

The post 20 Things Americans Overseas Should Know about Taxes for Expats appeared first on H&R Block®.

To make it easier on you, we’ve answered a few of the most common question we get about dual citizenship taxes.

Ready to file your U.S. tax return as a dual citizen? Get started now.

What is dual citizenship?

Before we dive in, let’s clarify what dual citizenship means for tax purposes. Being a dual citizen means that a person is considered a citizen/national of two countries at the same time, and is subject to both country’s tax laws. Something to remember is that each country has its own laws dictating who qualifies as a citizen. For example, some countries (like the U.S.) may consider you a dual citizen if you were born within that country’s borders, regardless of your parents’ nationalities.

Do dual citizens pay U.S. Taxes?

The most common question dual citizens ask is whether they have to pay taxes to both countries if they don’t live in the U.S. The answer is, it’s possible.

As it turns out, as long as you are a citizen or resident alien of the United States, you must file U.S. taxes if you meet the filing thresholds. This applies even if you have dual citizenship and pay taxes to another country or don’t currently live in the States.

The U.S. is one of two countries in the world that taxes based on citizenship, not place of residency. That means it doesn’t matter where you live — if you’re a U.S. citizen, you file taxes. This is true even if you earn no income in the U.S.

Do dual citizens file tax returns in both countries?

It depends. Each country is different, but for the most part, U.S. expats must file both U.S. taxes and taxes for their country of residence.

For example, let’s say you have Canada/U.S. dual citizenship, living in Canada. Since you are considered a resident of Canada and earn Canadian income, you’d likely have to file a Canadian tax return and pay taxes on your Canadian income.

How can a dual citizen avoid dual taxation?

Don’t worry — just because you have a U.S. tax filing obligation doesn’t mean you’ll be double-taxed or subject to dual taxation. The U.S. has a few options designed to ease the tax burden on dual citizens, including tax treaties, the Foreign Tax Credit, and the Foreign Earned Income Exclusion.

Tax Treaties

The U.S. has entered into tax treaties with more than 50 countries around the world. Among other things, they serve to clarify what income is taxable by which country and therefore they affect whether or not you can take a tax credit, tax exemption, or qualify for a reduced tax rate.

The Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion (FEIE) is the most commonly used tool to lower U.S. dual citizen taxes. It excludes some or all of your foreign earned income on your tax return, therefore lowering (or completely eliminating) your U.S. tax obligation. If you qualify, you’re able to exclude up to $107,600 of foreign earned income in 2020. You qualify if you live and work outside the U.S. and pass either the Bona Fide Residency test or the Physical Presence Test.

For example, say you’re a German/U.S. dual citizen who was born to a German parent in the U.S., now lives and works in Munich, Germany, and has a total German income of $105,000. You would be able to exclude all that income from your U.S. taxes, lowing your U.S. tax obligation to $0 (you may still owe German taxes).

The Foreign Tax Credit

Another important tool for lowering your U.S. tax obligation is the Foreign Tax Credit (FTC). The FTC gives you a dollar-for-dollar credit on taxes already paid to another qualifying country on items of foreign income.

Do I owe U.S. back taxes if I’m an Accidental American or didn’t know I had to file?

If you were born in the U.S. or have a U.S. parent, you may be considered a dual citizen of the U.S. and have a U.S. tax obligation.

Take Boris Johnson, former Prime Minister of the U.K., who is one of thousands of Accidental Americans that had to pay back taxes to the U.S.

Johnson was born in New York while his parents were working there and moved back to the U.K. when he was five years old. He didn’t know he was subject to U.S./U.K. dual citizen taxes until many years later, when the IRS requested that he pay a capital gains tax on the profit of selling his North London home.

To avoid a similar situation, make sure you’re either caught up on your U.S. taxes or verify you don’t have a tax obligation. If you find out you do in fact have a tax liability and you haven’t been paying, you’re in luck.

If you’ve never filed U.S. taxes as a dual citizen and just found out you need to, don’t panic. The IRS is pretty understanding when it comes to not filing because you honestly didn’t know you had to, and they have a program to help you get caught up — Streamlined Foreign Offshore Procedures.

Streamlined Foreign Offshore Procedures helps U.S. dual citizens get compliant with prior year filings while helping reduce penalties. To qualify, you must:

• Have lived in a foreign country for at least 330 days during one of the last three years and not maintained a U.S. abode.
• Confirm that your failure to file U.S. tax returns and FBAR was due to an honest misunderstanding of your responsibilities.

What else should I know about U.S. dual citizenship taxes?

If you’re a dual citizen, filing your U.S. taxes may not be the end of your paperwork. U.S. citizens are required to report money in foreign accounts if the total amount is more than $10,000.

The U.S. enacted the Foreign Account Tax Compliance Act (FATCA) to increase transparency of U.S. citizens with foreign bank accounts, and your FBAR serves a similar purpose. One difference between the two is you submit FATCA Form 8938 to the IRS while you submit your Foreign Bank Account Report (FBAR) with FinCEN, the U.S. Treasury Department’s Financial Crimes and Enforcement Network.

If you’re confused about your FBAR and FATCA filing requirements, it’s best to leave your tax filing to the experts at H&R Block.

Need help? Trust the dual citizenship tax experts at H&R Block Expat Tax Services

Paying taxes in one country is enough to give anyone a headache, and it only gets more complicated for dual citizens. That’s why it’s crucial you leave your U.S. expat taxes to seasoned pros who will dig into your specific tax situation to find the most beneficial filing options. No matter how complicated your dual citizenship taxes are there’s an expert Tax Advisor waiting to help. Start your U.S. taxes today!

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