All Americans whose global income exceeds IRS minimum thresholds are required to file US taxes, including expats.
Minimum filing thresholds can be surprisingly low, starting at just $5 for Americans who are married and elect to file separately from their spouse (such as many American expats who are married to a foreigner).
When they file, many expats claim a provision called the IRS Foreign Earned Income Exclusion, which allows them to exclude up to $105,900 (in 2019) of their earned income from US tax.
Others choose to claim another provision called the US Foreign Tax Credit, which lets them reduce their US tax bill by the same value as the foreign taxes that they’ve paid abroad. As long as they claim one of these two provisions, the majority of expats don’t end up owing any US tax.
This year however, whether US expats claim the Foreign Earned Income Exclusion or the Foreign Tax Credit when they file their 2019 tax return could make a difference as to whether they receive a Coronavirus relief stimulus payment or not.
This is because stimulus checks are being paid to Americans whose adjusted gross income as reported on their most recent tax return is below $99,000 ($198,000 for married couples).
An expats who earns $105,000 for example and claims the Foreign Earned Income Exclusion will have an adjusted gross income of zero, owe no US tax, and be eligible to receive a stimulus check. If the same expat instead claimed the Foreign Tax Credit on the other hand, their adjusted gross income may remain above $99,000, in which case they wouldn’t receive a check.
Katelynn Minott is a managing CPA and partner at Bright!Tax: “Claiming the Foreign Earned Income Exclusion is a great way for expats to reduce their US tax bill, most often to zero. This year, there may be an added incentive to claim it though, as it may help their eligibility for an Economic Impact Stimulus Payment, too.”
Every expat’s situation is different, and almost all expats benefit from advice from an expat tax specialist to ensure that they file their US taxes to their optimum benefit.
Bright!Tax has created a guide for expats claiming the Foreign Earned Income Exclusion which can be found at https://brighttax.com/blog/irs-foreign-earned-income-exclusion-us-expats-guide/.
Company Name: Bright!Tax US Expat Tax Services
City: New York
State: New York
Country: United States