The Tax Responsibilities of US Citizens Living Abroad

U.S. citizens living abroad are typically required to fulfill the same tax responsibilities as U.S. citizens residing in the United States. The filing requirements for income tax, estimated tax, gift tax and estate tax returns are generally the same for U.S. citizens abroad as those living in the United States. If you are a U.S. citizen, your income is subject to U.S. tax regardless of where you live. However, you may qualify to use the Foreign Earned Income Exclusion, which you can use to exclude up to a certain amount of your foreign earnings from your income (the amount was $97,600 in 2013).

Remember, U.S. citizens living abroad also need to report to the IRS their assets if they exceed a certain threshold. Recently with the Foreign Account Tax Compliance Act (FATCA), the IRS has increased its pursuit of tax evasion conducted using offshore accounts and is particularly strict with non-compliance by U.S. citizens living overseas.

Extension to File

U.S. citizens residing overseas, resident aliens residing overseas and members of the armed forces on duty outside the U.S. get an automatic 2-month extension to file their tax returns. This extension is automatic, and does not need to be filed for. These taxpayers have until June 15th to file their tax returns.

To further extend the filing deadline, taxpayers living overseas will need to file for an extension that will give then four more months to file their return. To file for this additional extension, use Form 4868 Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This form must be filed before the 2-month extension period ends, or the IRS will not accept the request for the additional extension and begin to treat any unpaid taxes as tax debt.

Unpaid Taxes

Unpaid taxes, even if you filed your tax return, result in IRS penalties and interest. Any amount of unpaid taxes can also attract IRS collection actions. If you cannot pay your tax bill in full, you must file your tax return and pay as much as you can to reduce the amount of penalties and interest charged on the taxes that remain to be paid.

After the IRS made agreements with many countries under the Foreign Account Tax Compliance Act (FATCA), the reporting requirements of U.S. citizens living overseas and also of foreign financial institutions (FFIs) grew. Therefore, to correctly file your taxes and stay compliant with the U.S. tax rules, taxpayers should consider hiring a tax professional to avoid IRS collection actions and penalties.

FATCA: Who Needs to File

If you have bank accounts overseas or own other offshore assets that exceed the filing threshold, then you must report and/or pay taxes on them. If the total value of your foreign financial assets is below $50,000 in a tax year, and if the total value did not exceed $75,000 at any time during the tax year, then you are not required to file for that year. The filing thresholds are different for married filing jointly.

Failure to file, failure to pay or filing an inaccurate tax return attracts penalties. In an effort to curb tax evasion, the IRS is now charging heavy penalties for tax compliance such as non-reporting of income and assets, and non-payment of taxes. Therefore, now, more than ever, it is important to know your tax duties in the U.S. and fulfill them.

How to File

If your Adjusted Gross Income (AGI) is $58,000 or less, then you can file your tax returns electronically using the IRS free-file service found on the IRS website: If your AGI is more than $58,000, then you can either e-file using commercial tax preparation software or can use the Free File Fillable Form. When purchasing software for tax preparation, make sure that it supports e-filing for foreign addresses.

For paper filing of the tax return, U.S. citizens living abroad must send their tax returns to the following address:

Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301-0215

For the payment of estimated taxes, you may use Form1040-ES and post it to the following address:

Internal Revenue Service
P.O. Box 1300
Charlotte, NC 28201-1300

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