Americans abroad: 5 things to know about your US expat taxes in 2023
No matter where in the world you are, the American tax return follows you as an expat. Nathalie Goldstein, CEO of MyExpatTaxes and an IRS enrolled agent, explains five things you need to know about filing your US expat taxes in 2023.
For most Americans, living outside the United States brings adventure and new experiences. One typical American experience will however follow you wherever you go. That experience is the annual tradition of filing a US tax return. It’s well known that Americans living in the US need to file a return, but it may be news to some that even Americans living outside the United States need to report their annual income to the IRS.
As an IRS enrolled agent, my goal is to help make the US tax system a little easier for expats to navigate. To help start your year off right I’ve put together five things you need to know about filing your US taxes from abroad in 2023.
1. Chances are, you'll have to file a US tax return
No matter whether you live in the States or abroad, as an American - if you're single - you need to file a US tax return in 2023 if you made 12.950 US dollars or more in 2022.
If you are married to a non-US citizen, you’ll probably want to file as married-filing-separately. Doing so will keep your spouse’s financial information off of your tax return. The downside is you will need to file if you made as little as 5 dollars in 2022. If you choose to file as married-filing-jointly, you’ll need to file a tax return if you and your spouse’s combined income was at least 25.900 dollars.
Anyone who is self-employed needs to file a US tax return if you made 400 dollars or more in net self-employment profit 2022, even if overall you are under the filing threshold. This is because you also could be subject to self-employment taxes, so be sure to file and pay by April 18, 2023. Paying on time means you’ll avoid any late penalties.
2. Chances are, you won't have to pay US taxes
On the bright side, even if you have to submit a tax return, you probably won't need to pay any US taxes. Why? Two reasons: First is the Foreign Earned Income Exclusion and second is the Foreign Tax Credit.
The Foreign Earned Income Exclusion (FEIE) is the most popular way that expats avoid double taxation. In 2023, when filing your 2022 tax return, you can exclude up to 112.000 dollars of foreign-earned income. Be warned though: if you are a parent abroad and plan to claim child tax credits, you won’t be eligible to get any child credit related refunds if you use the FEIE. Instead, we suggest using the Foreign Tax Credit (FTC).
If you’re living in a high-tax country like most European countries, the FTC is another great way to avoid double taxation. By using it, the IRS lets you credit the taxes you paid to your resident country toward your US taxes.
3. You might get a refund
Even brighter! Even if you live outside the US and pay zero US taxes, you could still be eligible for a tax refund from the IRS. The most common way expats will see a refund in 2023 is from Child Tax Credits. If you have qualifying dependents who were under the age of 17 on December 31, 2022, you can receive up to 1.500 dollars per child as a refund.
The second most popular way Americans abroad will see money back from the IRS is via stimulus payments. While there were no additional stimulus funds offered in 2022, we know there are still expats out there who never claimed their 2020 or 2021 payments. If you’re one of those expats, you’ll need to file a tax return for the years in question.
4. You can still catch up on missed tax returns
Lots of expats are nervous about completing a tax return and therefore bringing themselves to the attention of the IRS after having missed a couple of years of returns. Don't be. The IRS has introduced a tax amnesty program for Americans living outside the United States who didn’t realize they needed to file a tax return.
The process is known as the Streamlined Procedure. All you have to do is fill out tax returns for the past three years, plus FBARS for the last six years. Even if you haven’t filed for several years, the IRS will consider you tax-compliant once you complete the process. The plus side is that most expats going through this Amnesty Procedure in 2023 will end up getting refunds from their back taxes!
5. You could need to file an FBAR
Aside from your US tax return, you might also have to file an FBAR. An FBAR, or Federal Bank Account Report, is how you report your foreign accounts. You’ll need to file an FBAR for any year in which you have a total of 10.000 dollars held in any number of foreign accounts.
Since the FBAR is reported to the Financial Crimes Enforcement Network (FinCEN) and not the IRS, your tax status will have nothing to do with your FBAR. Filing an FBAR is easy and can be done online in a matter of minutes, whether directly through FinCEN or a service like MyExpatFBAR – which guides you through the process step-by-step and submits everything electronically.
Although no one likes taxes and the burden to file as an American abroad is certainly annoying, Nathalie’s goal is always to make filing as simple as possible. Anyone looking to file their US taxes should seek out a tax professional who specializes in expats, as traditionally tax software isn’t optimized for Americans Abroad. That’s why she created MyExpatTaxes - to make filing your US taxes easy and affordable!