Do You Need to Pay US Taxes After Moving Abroad?

Are you a US citizen that's recently moved abroad - hoping that you will be able to ignore the tax man from your new foreign abode? Or are you wondering if April 15th will still hold the same dread for you each year? Like anything related to taxes, the answer is very complicated and very boring.

The short answer is that as a US citizen living and working in a foreign country, you are taxed on your foreign-earned income and are still required to file your yearly taxes. In fact, the US is one of the few countries that will pursue your tax obligations no matter where you are in the world. The government has tax treaties with over 40 other countries worldwide, giving them access to their citizen's foreign tax data.

The good news is, unless you're rolling in the dough (making more than the current tax year's tax free earned income threshold - currently $100,800), it's unlikely you'll have to pay the US government any taxes on earnings abroad. This particular exemption is for earned income only, so it does not apply to earnings such as rental income, dividends, interest or capital gains. The trick here is as follows: In order to exclude your foreign earned income, you have to qualify and actually file your taxes. So don't think that if you earn less than the threshold you don't have to file a return.

To qualify for this exemption, you'll need to either be a bonafide resident of a foreign country for an uninterrupted period that includes an entire tax year, or physically present in a foreign country for at least 330 days during a 12-month period.

If this sounds like you, the key things to note are that you'll need to file a Form 2555 or Form 2555-EZ along with your normal 1040 in order to figure out your foreign earned income exclusion. If you think this sounds complicated and you'll need more time to work it out, don't worry, US Citizens living and working abroad are automatically given a 2-month extension to file their taxes and have a deadline of June 15th.

Personally, I file a Form 1040 and a 2555-EZ each year without any difficulties, as I receive a standard salary below the aforementioned threshold. (If I ever make more, don't worry, I'll come back and update this article!)

If this is your first time filing abroad and you're unsure of how to file, or if your income is a bit more complicated than a normal salary from an employer, we'd recommend seeking advice from an accountant who specialises in expat taxes to ensure that you've filed correctly and accurately.

For full instructions on how to file your US taxes while living abroad, you can view the IRS' Tax guide here.