In this article, we will discuss the important things to know about US expat taxes. If you want to read our detailed analysis, you can go directly to 10 Things to Know about US Expat Taxes.
5. Foreign Housing Exclusion
Among other benefits of working abroad as a US taxpayer, is foreign house exclusion or deduction. It allows US expatriates to reduce their taxable income by claiming either the housing exclusion or deduction based on their income source. The foreign house exclusion is applicable for employer-paid housing abroad. Self-employed expats can claim the foreign housing deduction to reduce their burden of taxes. However, it is important to consult the IRS resources and conditions for further details. The US residents living abroad can consult Form 2555 to claim the foreign housing exclusion/deduction.
4. Foreign Tax Credit
US expats that have paid taxes to a foreign country or the US and are liable to US taxes, can claim for a credit or deduction on their taxes. Generally, the IRS only qualifies income, excess profit taxes, and war profits for foreign tax credits. If a US citizen living abroad opts for a deduction, it can reduce taxes on their US taxable income with the help of Schedule A on Form 1040.
If tax is imposed on the combined incomes of two or more people, it will be allocated on a pro-rata basis. For instance, if a taxpayer resides in a foreign country with their partner, and is subject to tax on combined incomes, their filing status on their US income tax return will be ‘married filing separately’. The spouse contributing 60% will be entitled to claim 60% of the foreign taxes on their US tax return, while the other 40% will be claimable by the other partner.
Please note that if you are opting for a foreign housing exclusion or foreign income exclusion, you cannot claim the foreign tax credit. US expats can claim foreign tax credits by filing Form 1116 with their US income tax return.
3. Foreign Earned Income Exclusion
Foreign earned income exclusion is one of the most important things to know about US expat taxes. Among the other tax relief options, US expats can cut a portion of their foreign earnings from US taxes. There are specific residency and income requirements to be eligible for foreign-earned income exclusion, excluding government pay and income earned in international waters. According to the recent changes in the tax rules and payments, a total amount of up to $126,500 in foreign income can be excluded in 2024.
IRS provides multiple resources and interactive assistance to help determine eligibility and navigate tax calculations. Filers should consult the Income Tax Worksheet in Form 1040 to claim the foreign-earned income exclusion.
2. The Additional Child Tax Credit
Another benefit provided to US expats abroad includes the child tax credit. It offers financial assistance to families with qualifying children under 17 years old. To qualify for the additional credit, the child must have a valid US SSN and must be a citizen/resident alien/national of the US.
The maximum amount of the refundable credit can reach 1,600 USD, depending on the filer’s income. A full payment will be provided if a household has an annual earning under $200,000. For joint filers, the threshold is $400,000. The additional child tax credit can be claimed with Schedule 8812 on Form 1040.
1. The COVID-19 Stimulus Checks
If you still have not claimed your stimulus payments, this is the right time to demand what is rightfully yours. According to 1040Abroad.com, millions of expats are eligible for the COVID-19 stimulus checks. The US government disseminated three Economic Impact Payments rounds, called stimulus checks for eligible Americans as a relief measure during the pandemic. These checks were distributed among people between April 2020 and December 2021, based on their eligibility.
According to 1040Abroad.com, the first round of Economic Impact Payments provided up to $1,200 per adult and $500 per dependent child. The second round offered up to $600 per individual and dependent. However, the third round provided the individuals and dependents with maximum checks of $1,400, regardless of their age.
If you are liable for US tax, you can still apply for the COVID-19 stimulus checks. As a taxpayer, you are required to file a 2020 tax return to receive the first and second stimulus checks and a 2021 tax return to get the third check. If a taxpayer has dependents, they are eligible to receive up to $3,200 or more. The payment amount depends on the individual’s filing status, number of qualifying children, and adjusted gross income.
To get a stimulus check, the first and foremost condition is to either be a US citizen, a green card holder, or a qualifying resident alien. It is important to have a social security number and not be claimed as a dependent on someone else’s tax return to be eligible for the stimulus checks. The maximum payment amounts are $1,200, $600, and $1,400 in the three rounds respectively. Dependents with an SSN or ATIN qualify for the third round of stimulus checks regardless of their age. The stimulus checks do not have a minimum amount, however, those exceeding certain income thresholds will receive reduced amounts. For instance, if a filer has an adjusted gross income of up to $75,000, full payment will be provided to them. However, for those filing as the head of household, the limit is $112,500, and for married individuals filing jointly, it is $150,000.
US expats must become compliant with taxes to claim potential financial benefits such as their unclaimed stimulus checks and also shield themselves from hefty IRS penalties by filing the taxes before June 17.
You can also look at 15 Tax-Friendly Countries for High-Net-Worth Individuals and 20 Countries with the Lowest Income Tax Rates in the World.
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