Filing Requirements for U.S. Citizens and Resident Aliens Living Abroad


Living Abroad

A U.S. citizen living outside the United States generally must file income tax returns in the same way that the person would if he or she were residing in the United States. This includes anyone holding a U.S. passport, regardless of whether that person is currently in the United States.

Additionally, resident aliens or anyone holding a green card and living in the U.S. also must file. A permanent resident card (a green card) allows a foreign national to live and work in the country on a permanent basis. This also includes anyone who satisfies the Substantial Presence Test. To qualify under the Substantial Presence Test, the IRS requires that the person has been in the U.S. for at least 31 days during the current year and that the person has been in the U.S. for at least 183 days of the past three years.

A taxpayer must file an income tax return if his or her gross income from worldwide sources is at least the following amount (for 2016):

  • Single filer income exceeds $10,350; if over 65 then $11,900
  • Head of household income exceeds $13,350; if over 65 then $14,900
  • Qualifying widow(er) income exceeds $16,650; if over 65 then $17,900
  • Married filing jointly income exceeds $20,700; if one spouse over 65 then $21,950; If both spouses then $23,200
  • Married filing separately any age $4,050

The IRS requires taxpayers to pay tax on "income from whatever source derived." This means the geographical source as well as the source of economic activity. This is why international double taxation can sometimes arise, and why foreign tax credits are typically offered. The purpose of a foreign tax credit is to eliminate "double taxation" of income earned outside the United States. By permitting a credit for taxes paid on income generated abroad, the total tax burden is reduced. Please note, just because a foreign government calls a payment a tax does not necessarily mean the payment qualifies as a tax under U.S. law.

When and Where to File

If, on the regular due date of the return, the taxpayer is a U.S. citizen or resident alien residing overseas, or is in the military on duty outside the U.S., the taxpayer is allowed an automatic two-month extension to file the return and pay any tax due (i.e., to June 15, for a typical-year return). No filing is required to receive the automatic two-month extension. Penalties for late payment are assessed from the end of the two-month period, but interest accrues from the original due date.

The taxpayer may request an additional extension, to October 15, by filing an application for automatic extension of time to file, before the expiration of the original two-month extension.

A U.S. citizen or resident alien living in a foreign country should mail the tax return to:
Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301-0215
USA

Estimated tax payments and Form 1040-ES should be mailed to:
Internal Revenue Service
P.O. Box 1300
Charlotte, NC 28201-1300
USA

Other Filing Requirements

Any amount reported on the return must be translated into U.S. dollars. A yearly average exchange rate can be used for foreign-earned income received regularly throughout the year.

A taxpayer who has an interest in a specified foreign financial asset with a value above the reporting threshold must file Form 8938, Statement of Specified Foreign Financial Assets.

Form 3520 or 3520-A may be required if the taxpayer received a gift from a foreign person or made contributions to or received income from a foreign trust.

If the taxpayer had a financial interest in, or signature (or other) authority over, a bank, securities, or other financial account in a foreign country, and the value of the account exceeds $10,000, the taxpayer may need to file FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR) by April 15.

4 Facts about Taxes for Digital Nomads

Working remotely as a digital nomad, may sound like the ideal employment situation. It is important to keep in mind that if you live outside of the U.S. and either work remotely or in the country where you live, you will still owe federal and possibly state income tax on your earnings.

You Must File by the Tax Deadline
You must file taxes by the deadline whether you're working abroad for a short or long period of time. If you live outside of the United States for less than a year, you likely have a residence in the United States where you receive your W-2s, 1099s, and other income and earnings statements. These statements may also be available online, depending on the employer.

If you're abroad around the tax-filing deadline, filing online with software such as E-file.com is the fastest way to take care of this obligation. You also can file for an extension if needed. The IRS provides direct deposit, so if you are due a refund, you can have access to it whether you're at home or abroad.

If you spend 330 days per year or longer outside the United States, you still have to file a tax return by the deadline, but some of your foreign-earned income may be exempt from taxation.

You Must Report Foreign Income Earned
If you're employed by an organization abroad and receive a paycheck, or you start a business abroad that earns income, you're required to report these amounts. If you have a bank account outside of the U.S., you're required to report it if the balance is greater than $10,000 at any time during the year.

What If You Forgot to File in Previous Years?
One of the biggest challenges digital nomads outside the U.S. face is filing taxes on time. To help such taxpayers catch up, the IRS offers taxpayers living abroad streamlined filing compliance, a process that allows you to certify that neglecting to file wasn't a deliberate act on your part. Using the streamlined process doesn't exempt you from any taxes or penalties, but it helps you get caught up on your tax filings and obligations, and avoid compounding financial penalties and possible criminal penalties.

You Still Have to Pay State Taxes
Keep in mind that working abroad doesn't release you from your state tax obligations either. Each state has its own rules for those living and working abroad. Consult your state tax agency for details about paying, or getting caught up on taxes, to avoid civil and criminal penalties.

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