If you are a U.S. citizen or Green Card Holder who lives and works outside the United States, you still have a requirement to file your US individual income tax return annually and include your worldwide income on the tax return.
Whether you are living within the United States or abroad, your worldwide income is subject to U.S. income tax. However, certain exclusions and foreign tax credits are available to individuals which can help reduce or completely eliminate US tax liability.
Tax filing due dates
While the normal US tax filing deadline is April 15th, as a U.S. person living abroad you are entitled for an automatic 2-month extension until June 15th for the filing of your US tax return without the need to request an extension. If additional time is required, an extension until October 15th can be requested by filing Form 4868 with the IRS.
It is important to note however that the extension is available for filing of the tax return only. Any tax liability has to be settled by April 15th or interest will start to accrue on the tax payment due from April 15th onwards.
Foreign Earned Income Exclusion and Foreign Tax Credits
Foreign Earned Income Exclusion
As a U.S. person living outside the United States, there are chances that you may qualify for foreign earned income exclusions (FEIE) and / or foreign income tax credits. Both help in reducing or eliminating US tax liability. For reference, please check Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad for more information. The said publication discusses special tax rules for U.S. persons working abroad and have earnings in foreign countries.
Furthermore, if you meet the requirements, there is a possibility that you qualify for the foreign earned income exclusion and foreign housing deduction. If eligible, you can exclude up to around $105,000 (annually adjusted for inflation) from your income and not have to pay any tax on this income. In addition, there are additional deductions available if renting a home in a foreign country. In order to be qualified, you must be one of any of the following:
- An American citizen who is a valid resident of a foreign country or countries for the whole period that includes an entire tax year,
- A U.S. resident alien who is a citizen of a particular country or countries where the United States has an income tax treaty and a valid resident of a country other than the United States for a period that includes an entire tax year,
- An American citizen or a green card holder who happens to be physically present in a foreign country or countries for at least 330 days during any period of 12 consecutive months.
Foreign Tax Credits
If you are working in a foreign country and paying income taxes on your earnings in the said foreign country, you can claim credit for the taxes paid on your US tax return by filing foreign 1116 with your US tax return. Depending on how much tax is paid in a foreign country and what your tax liability is on your US tax return, you could potentially reduce or completely eliminate your US tax liability.
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