After you leave the United States, whether you have US citizenship or you are a Green Card holder, you will need to keep filing US tax returns each year. Below is a guide to completing your expat tax return as an American citizen abroad.





1 - Do you need to file?

For the 2020 tax season (January 1, 2019 to December 31, 2019) you will need to file if your worldwide income is at least the amount shown below. If you have self-employed income (freelance income), the filing threshold is much lower, $400 in profits.

Single - $12,200

Married filing jointly - $24,400

Married filing separately - $5 (yes, only $5)

Head of household - $18,350

2 - Worldwide income

You will need to report worldwide income on your US tax return (form 1040). This includes income even if it has been taxed in your home country.

A common misconception is that if your income is under the foreign earned income exclusion then you don't need to file. That is not true - you can use the foreign exclusion to stop the US tax, but you still need to file the return to claim the exclusion.

Also, be careful with income that is tax free in your home country - it may be that the US does not recognize the tax free status and you will still need to declare that on the US tax return.



3 - Foreign Tax Credit

If you had income from outside the US and paid tax on that same income, when you complete your US tax return, you can claim a foreign tax credit against any US tax on that foreign income.

The foreign income and tax paid are disclosed on form 1116 - you can then use that form to credit foreign taxes up to the US tax on the same income.

If the foreign tax is more than the US tax, the credit will be restricted - the US will not give you a refund of foreign tax.

If the foreign tax is less than the US tax, you will pay the additional tax, a top up

You need to be a little bit careful with state tax returns - each state has different rules for foreign tax credits. If you are filing a state tax return and you need to report foreign income on that return, you will just need to check the state rules for claiming foreign tax credits.



4 - Foreign Earned Income Exclusion

If you have foreign earned income and your tax home is outside the US, you may be able to claim the foreign earned income exclusion (FEIE).

Foreign earned income includes - salary, wages, bonus, self employed income, commissions

It does not include - dividends, interest, capital gains, gambling winnings, alimony and pensions (normally rental income unless you can show you provide services as part of renting out your property - even then, only a portion can be used for the exclusion)

For the 2020 tax season, the foreign earned income exclusion is a maximum of $105,900. If you have any excess left over, it does not carry forward to the next year.

Note - if you claim the foreign earned income exclusion, you can't claim the additional child tax credit mentioned below.





5 - Foreign Housing Exclusion and Deduction

You can claim the foreign housing exclusion or foreign housing deduction in addition to the foreign earned income exclusion.

Foreign housing exclusion - you can claim this with employed income

Foreign housing deduction - you can claim this with self-employed income

Note - if you claim the foreign housing exclusion or deduction, you can't claim the additional child tax credit mentioned below.



