No matter where in the world you live and work, there are tax laws that you have to abide by. But what if you are an American living abroad? Does US citizen have to still pay taxes even though they reside outside of the US? In this article, we will discuss whether or not US citizens have to pay taxes when living abroad.
US Citizens Must Pay Taxes No Matter Where They Live
As a US citizen living abroad, you must continue to comply with United States tax laws. That means that even though you may be working and residing in another country, you must still file a federal income tax return each year and report any global income earned through investments or self-employment.
Tax Credits That Help Cover Overseas Expenses
Fortunately, the IRS provides relief from the burden of double taxation for those who qualify by way of a foreign-earned income exclusion and/or foreign tax credit. The Foreign Earned Income Exclusion allows an individual to exclude up to $102,100 (for 2020) of foreign-earned income from their taxable base in the United States. Furthermore, if eligible for such exemption one may also obtain a foreign tax credit for all or part of any non-U.S. taxes paid on income excluded under the FEC exclusion rules.
Additional Tax Considerations For Nonresident Aliens
In addition to filing a federal return on time each year, those with “non-resident alien” status must also make sure they are following applicable local laws in their home country involving taxation and other financial regulations as well. This is particularly important if they are engaging in business activities while overseas which may incur additional costs or liabilities beyond just filing an annual return with Uncle Sam each spring. Additionally, it should be noted that not all countries or entities recognize United States taxpayer IDs or exemptions so it's always best practice for individuals living and/or working overseas to verify local rules before engaging in international transactions of any kind.
Overall Summary
In conclusion, US citizens abroad must take special care to file their American federal returns annually as well as monitor local regulations related to taxation on earnings from wherever they live and work overseas depending upon the jurisdiction involved at all times.
