Frequently Asked Questions

The Frequently Asked Questions (FAQs) and answers below deal with the basics of filing for US taxpayers overseas. Due to the complexity and frequency of changes to the tax code, these questions should serve as guidelines. We have made every effort to ensure that the information provided is accurate and up-to-date; however please drop us a note or consult your tax preparer if you need information confirmed or if you have questions.

What do I need to know if this is my first time overseas?

Please review the FAQS below. More detailed information is contained in the questions below.

Do I have to file a tax return?

In general, all US taxpayers (Us citizens and resident immigrant aliens), whether living in the US or abroad, are required by law to file an annual US tax return. If you are supposed to file and do not, you could be subject to civil penalties or criminal prosecution under U.S. federal law. Even if you are certain that you owe no tax, you are still required to report your income and show why you do not owe tax. Only if your worldwide income is LESS than the sum of your standard deduction and personal exemption(s) are you exempted from filing. For tax year 2019 a single taxpayer must file if worldwide income exceeds $12,200 or if your self employment income exceeds $400. However, there are reasons why you may want to file a tax return even if it is not required.

Are state tax filings required?

Each state maintains individual requirements with regard to residency and non-residency status and subsequent filing requirements. Normally if you are moving overseas for an indefinite period that will exceed one year you file a part-year state return the year you move overseas, and in future years you file non-resident state returns if you have income taxable to the state (rental property, ownership in an S Corporation with offices in the state, etc.). Once you have lived overseas for an entire calendar year you qualify as a bona fide resident overseas for federal tax purposes. However you may still need to file a resident state return depending on your last state of residence in the US.

If you are moving overseas on a temporary basis you continue filing a resident state tax return. You may or may not have to pay state tax on your foreign earned income, depending on the state. Not all states recognize the federal foreign earned income exclusion.

In some states, even if you move overseas for an extended, indefinite, period of time, the state still requires that you file resident state tax returns and pay state tax on all income (in cases where the federal foreign earned income exclusion is not recognized) or on income other than excluded foreign earned income. To escape state tax liability in these cases you must normally give up the indices of state residency (registration to vote in the state; state driver license; principal residence unless it is rented out). An example of a state that does not recognize the foreign earned income exclusion is California. Examples of states that presume you remain a resident unless you give up indices of state residency are Colorado and Virginia; both of these states recognize the foreign earned income exclusion. For specific information contact your tax preparer.

Is it true that I don't have to pay any taxes if I live overseas?

It may be possible to claim certain credits (Foreign Tax Credit) and exclusions (Foreign Earned Income Exclusion, Foreign Housing Exclusion) depending on your individual tax situation. All US taxpayers are required to file a tax return reporting their worldwide income annually, regardless of location or source of the income. Qualifying for such credits or exclusions will normally substantially reduce or eliminate any US tax liability.

When do I need to file my tax return?

The normal filing deadline is April 15th of each year (depending on the day of the week – If April 15th falls on a Saturday the filing deadline will be April 17th). Taxpayers resident overseas on April 15th have an automatic extension of time to file until June 15th. No extension request is necessary to qualify for this extra 60 day extension. However any tax owed is ALWAYS due on the normal return due date; there are no extensions for paying. US taxpayers resident overseas pay interest only for payments received between April 16th and June 15th; payments received after June 15th are subject to both interest and penalty.

How is my overseas income documented if my employer does not issue a W-2?

Your employer should be able to give you a statement of the salary and taxable benefits you have received for the year. Otherwise you must document your salary and benefits from your contract documents, bank deposits, or other similar evidence.

What do I do if my employer overseas is a US company?

It may be possible to claim certain credits (Foreign Tax Credit) and exclusions (Foreign Earned Income Exclusion, Foreign Housing Exclusion) depending on your individual tax situation. All US taxpayers are required to file a tax return reporting their worldwide income annually, regardless of location or source of the income. Qualifying for such credits or exclusions will normally substantially reduce or eliminate any US tax liability.

What if I am self-employed?

Self-employment income is still reported on a US Form 1040 Schedule C; however depending on the country in which you live you may be subject to local (foreign) social security and may not be able to participate in the US Social Security system by paying self-employment tax. A listing of countries with Social Security Totalization Agreements is available at our Social Security Fact sheet. If there is no Social Security Totalization agreement you must pay US self-employment tax on net income from self-employment.

What if I have not filed a return in many years?

While US taxpayers are normally required to file returns annually, the IRS has a forgiveness program that allows a taxpayer to file the previous three years of returns and pay any tax due. This returns the taxpayer to a favorable status with the IRS.

How do I qualify for the Foreign Earned Income Exclusion?

General guidelines regarding the foreign earned income exclusion can be found in IRS Publication 54.

What does earned income include?

Income that must be reported, even if eligible for the Foreign Earned Income Exclusion, includes salary and wages as well as commissions, bonuses, professional fees, and tips; the fair market value of lodging if provided in kind or the amount of any housing allowance (with some exceptions for assignment to isolated areas); use of a car provided by your employer or a car allowance if paid in cash; cost of living allowances; overseas differentials; family separation allowances; tuition for dependents at overseas/private schools; and home leave allowances.

What is the Foreign Tax Credit?

A foreign tax credit is a credit that may be claimed against US tax owed if you paid income tax to a foreign government on income earned overseas. You may elect to claim a foreign tax credit in addition to the foreign earned income exclusion and the foreign housing exclusion if you income exceeds these limits; or you may elect to claim a foreign tax credit in place of the foreign earned income and foreign housing exclusions. It is important to consider the consequences of the selection made, and if you subsequently change your method you are generally restricted from changing back for a period of five years.

Do I need to report money I have in a foreign bank or financial account?

While reporting of foreign investments is not part of the Internal Revenue Code, it is a US Treasury Department requirement if the combined value of your foreign investments at any time during the year exceeds $10,000. Investments include foreign bank accounts; foreign trusts; overseas investment accounts; and foreign retirement accounts if there is a guaranteed payment from the account and if the investor exercises any level of control over the investment. The report is done using form 114 (also know as the FBAR). Instructions for completing the form and the form itself can be downloaded at the IRS website, www.irs.gov.