Key information about US Expat Tax


The Internal Revenue Service has their own means of seeking out non-filers and enforcing filing compliance. While it may seem tempting to forgo the filing process while you are out of the country, the repercussions can be extensive and costly. As with a normal U.S. residents, failure to file results in penalties and fees that will continue to accrue for as long as taxes go unfiled. U.S. citizens, even those living abroad, are liable for any penalties that build up, in addition to actual taxes that may be owed. For example, if an expat lives abroad for 5 years and fails to file a tax return during that time, he will be responsible for paying any taxes owed plus any accrued penalties and fees upon his return to the United States. 

There are individuals that may consider changing their national citizenship to avoid paying U.S. taxes. This is also a terrible idea and the IRS is very diligent in seeking out those that attempt to do so. Expatriates who are considered high-income (typically over $500,000 per year) are carefully monitored by the IRS, and the government will assume that an individual has changed his citizenship specifically to avoid paying U.S. taxes unless there is substantial evidence to the contrary. 

Tax liability and filing requirements while living abroad can be tricky, but the U.S. is also conscious of the fact that expats may be paying taxes to a foreign government as well. In these instances, it may be possible to receive a tax credit based on taxes paid to a foreign treasury. Based on the circumstances surrounding your residency and income, you may qualify for certain exclusions and deductions that can greatly reduce, or even erase, your total tax liability as an expatriate. The U.S. government has developed special forms and processes specifically for those individuals living abroad. Naturally, it is advisable to seek the advice of a tax professional if you have questions regarding expatriate tax procedures, and this is especially true for those who will be filing away from home.

There is a very minute group of expatriates who are exempt from the tax return filing requirement. This group is based on age, income and employment status, but always check with a qualified professional before assuming that you may fall into this group, as the consequences of not filing can be extensive if you do not qualify.

To learn more about tax filing abroad for US citizens, visit the IRS website for US citizens and residents abroad: 

The author of this article, David McKeegan, is a director of, a US Income Tax provider that specializes in tax preparation for US expatriates. All information was correct at the time this article was written (February 2011).

There have been a number of changes implemented in the closing moments of 2010 that will directly affect US taxpayers who are living or working abroad. This guide will answer some commonly asked questions about the 2010/2011 US expat tax year. Click here to find the IRS tax form you need to file when you’re living abroad.

Before we get into the changes, a few basics that every American living abroad needs to be aware of:

  • You need to file a US federal tax return each year. There are a handful of exceptions to this rule based on your gross income, filing status and age, but they are few and far between. One common misconception is that you don’t have to file a US tax return if you have filed and paid tax in the country in which you reside. That is not true. You must file a tax return regardless (although having paid tax in your country of residence in most cases will reduce your tax liability.
  • Whether or not you need to file a state return depends on which state you most recently lived in, as each state has it’s own rules.
  • If you have over $10K (at any time of the year, cumulative in all your accounts) in foreign bank accounts, you must report this to the IRS by June 30th using the FBAR form.

The IRS means business

The IRS has increased their focus on overseas accounts over the past several years. According to IRS Commissioner Doug Shulman, “The IRS has made important strides at stopping tax avoidance using offshore accounts. We continue to focus on offshore tax compliance and people with offshore accounts need to pay taxes on income from those accounts.”

This of course refers to the uber-rich who have money in Swiss and Cayman accounts, but also to those of us who for whatever reason choose to live abroad and have a checking or savings account, offset mortgage, retirement savings vehicles, or other similar accounts. The IRS considers any foreign account to be a potential tax avoidance vehicle. You also need to be very careful what savings and investment options you make as these can also be tax traps!

To stay in compliance, you must file your US federal tax return each year, and, if you have over $10K in foreign bank accounts, report these to the IRS as well.

What is the maximum foreign earned income exclusion for 2010/2011?

The first $91,500 in foreign earned income is considered tax-free by the US government, as long as a US return is filed on time. This income needs to be earned. Rental income, dividends, interest, and other similar sources of income are not earned and therefore can and will be taxed.

Are there other deductions for US Expats in 2010/2011?

Yes. There are two additional deductions American’s living overseas which qualified applicants can utilize to receive additional tax relief. The first is the Foreign Tax Credit (Form 1116) which allows you to claim a foreign tax credit on your US taxes for taxes you pay in your host country. The second is the Foreign Housing Exclusion, which allows you to offset some of the costs of your foreign housing costs. To qualify you will need to meet either the bona fide residence test or the physical presence test. Simply stated, a bone fide resident is someone who was in the same foreign country the entire year, while the physical presence rule requires residents to be outside the US for 330 days of any 365-day period.

Will the IRS mail tax forms to my foreign address?

No. In order to cut back on the costs of wasted filing materials, 2011 will be the first year that the IRS does not send out any tax forms in the mail at all. For US expats living overseas, Forms 1040 and all of the schedules can be obtained at a US Embassy, the IRS website, or from an international tax professional. For the sake of your sanity we strongly recommend that you do not try to fill these forms out yourself and especially not by hand.

Are the tax forms the same as last year?

In most cases they are not. Congress added several new laws and stipulations in December of 2010, which actually led to a delay in the printing of new 1040 forms. US Expats definitely need to obtain an official 2011 copy, which will be available in February 2011.

What is the deadline for filing my taxes?

The official deadline to file your federal tax return in 2011 is April 18th (usually, as you know it is April 15th- the delay is due to Emancipation Day that is celebrated in the District of Columbia), but US expats get an automatic extension to June 15th. Even though US expats get the automatic extension to June 15th, if they owe taxes, interest accrues as of April 18th. One other note: several states have extended their filing period to match the Federal requirements, while others have not made an announcement either way. US Expats should verify their state deadline well before April 18th to ensure that they remain in compliance (especially those from California, New Mexico, South Carolina, or Virginia, where Expats are normally required to file state taxes).

What is the earliest I can file my 2010 tax return in 2011?

US Expats that use standard deductions can file immediately, but those who itemize will have a slight delay due to the new tax laws introduced in December of 2010. Anyone who uses Schedule A to itemize should be able to file somewhere towards the end of February. The same would apply to those filing Form 8917 for the Higher Education Tuition and Fees Deduction or the Educator Expense Deduction.

Can US Expats request an additional extension past June 15th for filing federal taxes?

Yes. The automatic extension allows forms to be filed no later than June 15th, but if additional time is necessary then an additional extension can be granted to extend the filing date to October 15th, 2011. This request is almost always granted when it involves a country that has a different filing period than the United States such as the UK, Australia, etc.