Expatriate Tax Law

U.S. tax laws that apply to Americans living abroad (expatriates) are outlined below. To learn about ExpatCPA tax services for expatriates please click here.

INCOME EARNED ABROAD

As a U.S. citizen or resident alien, your worldwide income is generally subject to U.S. income tax regardless of where you are living. Also, you are subject to the same income tax filing requirements that apply to citizens or residents living in the United States. However, several income tax benefits might apply if you meet certain requirements while living abroad. You may be able to exclude from your income a limited amount of your foreign earned income. You also may be able either to exclude or to deduct from gross income certain housing expenses. To claim these benefits, you must file a tax return and elect the exclusion.

You may be able to claim a tax credit or an itemized deduction for the foreign income taxes that you pay. Also, under tax treaties or conventions that the United States has with many foreign countries, you may be able to reduce your foreign tax liability

You may qualify for the foreign earned income exclusion (up to $97,600 for 2013) on income earned while working abroad. However, you must file a tax return to claim the exclusion. In general, foreign earned income is income received from services you perform outside of the United States (including Puerto Rico, Northern Marina Islands, Republic of the Marshall Islands, Federated States of Micronesia, Guam and American Samoa). While not all of these governments are part of the United States, they have special tax status. Excluded from gross earned income is your allowance housing costs that are over a certain base amount. Generally, you will qualify for these benefits if your tax home (defined below) is in a foreign country, or countries, throughout your period of bona fide foreign residence or physical presence and you are one of the following:

  1. A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes a complete tax year;
  2. A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year; or
  3. A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

TAX HOME

Generally, your tax home is the area of your main place of business, employment, or post of duty where you are permanently or indefinitely engaged to work. You are not considered to have a tax home in a foreign country for any period during which your abode (the place where you regularly live) is in the United States. However, being temporarily present in the United States or maintaining a dwelling there does not necessarily mean that your abode is in the United States.

A foreign country, for this purpose, means any territory under the sovereignty of a government other than that of the United States, including territorial waters (determined under U.S. laws) and air space. A foreign country also includes the seabed and subsoil of those submarine areas adjacent to the territorial waters of the foreign country and over which it has exclusive rights under international law to explore and exploit natural resources.

WAIVER OF TIME REQUIREMENTS

You may not have to meet the minimum time requirements for bona-fide residence or physical presence if you have to leave the foreign country because war, civil unrest, or similar adverse conditions prevented you from conducting normal business. You must, however, be able to show that you reasonably could have expected to meet the minimum time requirements if the adverse conditions had not occurred.

TRAVEL RESTRICTIONS

If you violate U.S. travel restrictions, you will not be treated as being a bona fide resident of, or physically present in, a foreign country for any day during which you are present in a country in violation of the restrictions. (These restrictions generally prohibit U.S. citizens and residents from engaging in transactions related to travel to, from, or within certain countries.) Also, income that you earn from sources within such a country for services performed during a period of travel restrictions does not qualify as foreign earned income, and housing expenses that you incur within that country (or outside that country for housing your spouse or dependents) while you are present in that country in violation of travel restrictions cannot be included in figuring your foreign housing amount.

Eiffel Tower Tax returns for expatriate US citizens