US Tax Returns for Americans Living Abroad

Do I have to file if I have little or no US income?

US citizens and green card holders living abroad generally use the same federal filing tests as people living in the US. Count worldwide gross income before any foreign earned income or housing exclusion; having no US-source income does not remove a filing requirement. If you live in Canada, see Americans living in Canada for the two-country filing sequence (IRS: Publication 54).

The general filing threshold depends on filing status, age and income. If your spouse is not a US resident, check married to a nonresident before choosing a filing status. A separate rule requires a return if net self-employment earnings reach $400, even when gross income is below the usual threshold. If your income falls below the applicable tests, you may still file to claim a refund. The foreign earned income exclusion is claimed on a filed return, usually with Form 2555; it does not make qualifying income disappear from the filing test (IRS: Publication 54; IRS: figuring the exclusion).

When is my return due?

An eligible person abroad gets an automatic two-month extension to file and pay without a late-payment penalty, but interest on unpaid tax runs from the regular due date. For a calendar-year return, these are the usual dates; a weekend or legal holiday can move a deadline (IRS: Publication 54).

Form 2350 delays filing while you complete a qualification period; it does not delay payment or guarantee that you will meet the test (IRS: Publication 54; IRS: Form 2350). Keep your estimated tax calculation even if you extend.

Is foreign income taxed by the US?

US citizens and resident aliens report taxable income from worldwide sources. Foreign wages, freelance income, interest, dividends, rent and gains can therefore enter a US return; a foreign earned income exclusion or foreign tax credit may reduce income tax if its conditions are met (IRS: U.S. citizens and resident aliens abroad).

For pay from work, the source is generally where you physically perform the services, regardless of your employer's address or where payment lands. Split pay for US and foreign workdays if you work in both places. Foreign investment income is still reportable, but it is not foreign earned income for the exclusion (IRS: what is foreign earned income).

Who qualifies for the foreign earned income exclusion?

You need foreign earned income, a tax home in a foreign country, and either the bona fide residence test or the physical presence test. Your tax home is generally the area where you mainly work, not your mailing address. A US home does not automatically prevent a foreign tax home, but stronger family, economic and personal ties in the US may do so (IRS: tax home in a foreign country).

The residence test is not satisfied merely because you spent a calendar year abroad; the IRS examines the whole situation. The presence test counts days regardless of why you traveled, but an illness or employer recall does not normally waive missing days. Forced departure because of war, civil unrest or similar conditions can qualify for a waiver if the country and departure date are on the IRS list and you otherwise meet its conditions (IRS: bona fide residence; IRS: physical presence; IRS: exceptions to the time tests). Keep a dated travel record and evidence of where you lived and worked.

How much can I exclude, and which pay counts?

The maximum foreign earned income exclusion is $132,900 per qualifying person for a full qualifying year; a partial qualifying year reduces the limit. Claim it with Form 2555, after calculating any foreign housing exclusion. Each claimant completes a separate Form 2555 with the signed return; both spouses sign a joint return. Generally make the election by the filing deadline, including extensions, though amended and late returns can qualify under IRS rules (IRS: figuring the exclusion; IRS: choosing the exclusion).

The exclusion covers income tax, not every tax. It also does not lower the tax bracket used on income that remains taxable. For a business whose income comes from both your services and invested capital, only the part treated as pay for your services may qualify; Form 2555 has allocation rules (IRS: foreign earned income exclusion; Form 2555 instructions).

What is the foreign housing exclusion or deduction?

A qualifying worker may exclude or deduct eligible foreign housing costs above a base amount, subject to a location-based limit. Ordinary taxable salary can support the housing exclusion; a separate employer allowance is not required. Self-employment earnings can support a housing deduction. If you have both, the housing amount may be split (IRS: Publication 54).

For a full qualifying year, the base housing amount is $21,264 and the standard cap on expenses counted is $39,870. Some locations have different caps in the IRS housing notice; a shorter qualifying period changes the calculation. These are limits on the calculation, not amounts automatically excluded.

Reasonable rent, utilities other than phone charges, insurance and certain lease or repair costs may count. Buying a home, mortgage principal, purchased furniture and meals do not. Keep the lease, payment records and employer pay details. Form 2555 figures any housing exclusion before the earned income exclusion. A self-employed person's housing deduction is limited to foreign earned income left after both exclusions; an unused amount may carry to the next year only (IRS: Publication 54; Form 2555 instructions).

Should I use the exclusion or the foreign tax credit?

Compare both on the complete return before electing the foreign earned income exclusion. The foreign tax credit, generally claimed on Form 1116, can reduce US income tax on income taxed by another country; the exclusion removes eligible foreign work income from US taxable income. Test the exclusion when foreign income tax on your pay is low or absent; test the credit when you pay substantial foreign income tax or the additional child tax credit matters. Neither result follows from the foreign tax bill alone (IRS: foreign tax credit; IRS: choosing the exclusion).

The exclusion and credit can coexist for different income, such as foreign taxes on wages above the excluded amount. Each exclusion election continues until revoked. To revoke, attach a statement naming the election to the return or amended return for the first year you stop claiming it; claiming a credit for tax on income you could exclude also revokes it. Choosing the same exclusion again within five tax years requires IRS approval (IRS: Publication 54). Gather foreign tax returns, pay statements and details of any prior Form 2555 election before choosing.

Do I still owe US self-employment tax abroad?

Foreign earned income excluded from income tax still counts when calculating US self-employment tax. A self-employed US citizen or resident generally files if net self-employment earnings reach $400 and uses Schedule SE, unless an applicable Social Security agreement assigns coverage elsewhere (IRS: Publication 54).

An agreement may assign your work to one country's system, but its result depends on the country and work pattern. If it exempts you from US self-employment tax, obtain the foreign certificate of coverage and attach a copy to your US return as proof (Social Security Administration: international agreements). Keep foreign social insurance records and the certificate with your tax records.

Does my old state still tax me?

Moving abroad does not by itself settle state residency or state-source income. Each state has its own rules; check the state where you lived and any state where you still work, own rental property or receive other state-source income.

California shows why the separate check matters. Its residency test depends on all the facts, including whether an absence is temporary or transitory. Some people leaving under an employment-related contract qualify for a California nonresident safe harbor; check its absence, visit, income and purpose conditions. A California resident is generally taxed on worldwide income, while a nonresident may owe tax on California-source income. California does not allow the federal foreign earned income exclusion, housing exclusion or housing deduction; make the relevant California adjustment when applicable (California FTB: resident status; California FTB: federal and state adjustments). Keep records of your move, home, family ties and workdays by state.

What does a green card holder abroad file?

A green card holder generally remains a US resident for tax and files Form 1040 on worldwide income while that status continues. Living abroad alone does not end the duty. A green card holder who is not a citizen or national of a treaty country cannot use bona fide residence for Form 2555, but may qualify through physical presence (IRS: international individual tax questions; IRS: foreign earned income exclusion).

A green card holder who qualifies for and claims residence in another country under a treaty's tie-breaker files Form 1040-NR; Form 8833 may also be required. For a long-term resident, that choice can trigger US expatriation rules; see exit tax for green card holders before making it (IRS: international individual tax questions).

Example

Illustrative only; all amounts are US dollars. A US citizen lives and works abroad all year, has a foreign tax home and meets the physical presence test. She receives $100,000 in wages for work performed there and $2,000 of bank interest, with no housing claim or deductions tied to the wages. She reports $102,000 before the exclusion. On Form 2555, her qualifying wages are $100,000, below the annual limit, so she can exclude all $100,000; the $2,000 of interest remains reportable before deductions. The exclusion alone does not establish whether she owes US income tax.

Different for you?

• You live in Canada: follow Americans living in Canada for the two returns and treaty issues.
• You have foreign accounts or other reportable assets: check foreign account reporting separately from income tax.
• You are married to someone who is not a US resident: see married to a nonresident before choosing a filing status.
• You missed prior returns: see catching up on missed US returns.
• You bought funds abroad: see funds bought outside the US for their separate tax and reporting rules.
• You own a company abroad: see US owners of foreign companies for company reporting.
• You may give up citizenship or a green card: see exit tax before taking that step.
• You have mixed US and foreign workdays, housing costs, self-employment or an election to change: gather travel dates, foreign returns, pay records, housing receipts and coverage certificates for cross-border tax review.