Filing US taxes as an American living in Switzerland in 2022: A guide

Madeline Beuoy, tax accountant and Managing CPA at Bright!Tax, a leading provider of US expat tax services, explains US tax requirements for Americans living in Switzerland in 2022.

Switzerland is a great place for Americans, with interesting cities and culture, beautiful landscapes, and the rest of Europe on your doorstep. One of the main questions that Americans living in Switzerland ask is, “do I have to file US taxes in Switzerland as an American?” 

The short answer is yes: all Americans have to file US taxes, including those living in Switzerland. This is because the US taxes all of its citizens, regardless of where they live. The minimum income threshold by the IRS applies to both worldwide income and US income earned by Americans, so if your:

• Worldwide income exceeded 12.550 US dollars in 2021, regardless of what currency it was received in
• Was more than 5 US dollars if you’re married to a non-American but file separately
• Totalled more than 400 US dollars of self-employment income

Then you have to file a US federal tax return.

The United States - Switzerland Tax Treaty

The United States and Switzerland do have a “tax treaty”, however, this doesn’t prevent Americans living in Switzerland from having to file US taxes. Instead, it allows American expats in Switzerland to claim tax credits in order to offset Swiss taxes to prevent double taxation.

Swiss income taxes vary greatly by canton and can be higher than American income taxes. If your taxes are higher in Switzerland, this usually means paying Swiss taxes first, then filing your US return and claiming the US Foreign Tax Credit on IRS Form 1116. The Foreign Tax Credit gives US tax credits worth the equivalent value of Swiss income taxes paid. For most Americans living in Switzerland, this will wipe out their US tax bill.

Americans living abroad have an automatic 2-month filing extension past the traditional April 15 deadline, and can request a further extension until October 15, which should give plenty of time to file and pay Swiss income taxes first.

There are some circumstances when it’s better to pay US income tax and then claim Swiss tax credits, such as if you have unearned, US-sourced income, such as from American rents or investments. If all your income is earned, you may also claim the Foreign Earned Income Exclusion on IRS Form 2555. This allows you to exclude the first 108.700 US dollars of your earned income from US income tax.

The Foreign Tax Credit and the Foreign Earned Income Exclusion can’t be applied to the same income, though. Furthermore, it may be preferable to claim one rather than the other. For example, American expat parents who claim the Foreign Tax Credit may also claim the US Child Tax Credit, which will give them a 3.000 US dollar tax refund per child for the 2022 tax year, even if they owe no American taxes. However, this credit isn’t available if you claim the Foreign Earned Income Exclusion.

Special provisions in the US - Switzerland tax treaty

As part of the United States - Switzerland Tax Treaty, there are many special provisions that American expats must take into account. There are also special provisions for students and retirees that can be claimed.

Self-Employment Tax

Self-employed Americans in Switzerland also have to pay US self-employment taxes, which can’t be reduced by the Foreign Tax Credit or the Foreign Earned Income Exclusion. There is however a US - Switzerland double social security tax treaty, called a Totalization Agreement, that means expats in Switzerland won’t pay both sets of social security taxes, and that the contributions they do make can be applied to both country's systems.

Other US reporting requirements for Expats

Americans living in Switzerland also have to report their financial accounts registered in Switzerland to Uncle Sam, by filing an FBAR (Foreign Bank Account Report). This only applies if you have assets worth over 10.000 US dollars in your non-US registered financial accounts at any time during 2021, including savings, checking, pension, and brokerage accounts.

Swiss banks will also send your balance and contact information to the IRS, so it’s an important reporting requirement. There’s no extra tax implications relating to filing FBARs. Another requirement is reporting non-U.S. registered financial assets on IRS Form 8938 if you had over 200.000 US dollars in total at the end of the year, or over 300.000 US dollars at any time in 2021.

If you have Swiss-registered businesses, trusts, mutual funds, you also have to report them. If you haven’t been filing U.S. tax from Switzerland in previous years because you didn’t know you had to, you can catch up using an IRS amnesty program called the Streamlined Procedure without facing IRS penalties.

The convoluted ins and outs of U.S. filing and reporting from abroad mean that it’s almost always worth seeking help from an expat tax specialist, who will consider your whole situation and ensure that you remain compliant and also file in your best interests.