Live and work overseas? Don’t forget to pay U.S. taxes

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Working overseas can make your U.S. taxes difficultA few years ago, I worked for a company based in Taiwan. Whenever I received a check from this company, taxes paid to Taiwan were deducted. Then, during tax time in the United States, I was required to report that income, even though it was earned working for a foreign company. The good news is that I received a tax credit for the money paid to Taiwan’s government.

My situation was fairly straightforward; I lived in the United States and the income from the foreign company wasn’t very large. Others face a more daunting situation related to their residency in a foreign country.

“Americans who work overseas can have a complex tax filing situation in the United States,” says Andrew Poulos, principal of Poulos Accounting and Consulting, Inc., in Atlanta.

For the most part, if you are a U.S. citizen, the government expects you to report all of your income on your tax return — no matter where it was earned.

Foreign income exclusion

Just because you report the income, though, doesn’t mean that you have to pay taxes on it.

“The foreign income exclusion is $97,600 for 2013,” says Poulos. “A U.S. person can earn up to that amount of income and have it be tax free if they meet either the bona fide residence test, or the physical presence test.”

In order to qualify for the foreign income exclusion, citizens need to prove their long-term residence in the country. This is done one of two ways:

  1. Bone fide residency: According to Vincenzo Villamena, a CPA specializing in expat taxes, it’s possible to prove that you are a true resident of another country by maintaining all the trappings of residency, including buying a home, maintaining a visa, and “essentially settling in a foreign country.”
  2. Physical presence: An easier way to qualify for the foreign income exclusion is to make sure that you spend 330 days abroad out of a 365-day period.

Any income that exceeds the foreign income exclusion amount is taxed by the U.S. government. However, the tax is offset by the foreign tax credit. This means that expats need to fill out the appropriate paperwork associated with the income exclusion (if they qualify) and fill out the paperwork associated with the foreign tax credit. This can ease the pain a little bit.

Other tax issues to consider

Before heading to another country to work, it’s important to understand some of the issues that might crop up. Villamena points out that foreign pensions need to be reported on as well as income that contributed to a home country mandatory provident fund, like the arrangements in Singapore, India, Australia and Hong Kong.

“Will they pay Social Security taxes?” Villamena says. “Does their home country have a Social Security totalization agreement with the United States?”

These are questions that should be answered before moving to another country in order to further a career.

Villamena also reminds his clients that foreign accounts worth more than $10,000 in aggregate need to be reported on the FBAR form.

When it comes to your taxes as a U.S. citizen living and working abroad, the important thing to understand is that the government expects you to report your income and most of your assets. You might not be taxed on all of it, but the government likes to keep tabs on its citizens.

(Photo: Flickr user Nomadic Lass)

{ 6 comments, please add your thoughts now! }

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6 Responses to “Live and work overseas? Don’t forget to pay U.S. taxes”

  1. Forgetting or not knowing that you have to pay US taxes will come back to haunt you most likely. If you did forget, I would file a return ASAP to get it corrected. I am glad that you didn’t have these problems Miranda.

  2. Michael says:

    Great article Miranda! Along the lines of the foreign income exclusion and working overseas, I think expats would benefit greatly by understanding the foreign housing exclusion. Would you be able to offer your thoughts on this deduction and how it can benefit expats in countries like Singapore or Tokyo which have much higher cost of living requirements. Thanks.

  3. Kostas says:

    It’s pretty crazy how many people actually believe that they will get away with it. Forgetting or just not understanding are one thing, but those who purposely skip it are just plain foolish.

  4. Mike says:

    Hi Miranda,

    Would you happen to know the best (cheapest) place that I can get my FICO scores without joining a credit club ?
    Basically, I just want to pay a few bucks and get the score.


  5. Miranda says:

    Hi Mike,

    Each of the three major credit bureaus offers their versions of the score for between $5 and $17, depending on what you are doing (like if you go through for your free report, some of the bureaus add on the score for $5 or $7). You can also get a three-score from for $19.95. That’s probably the best deal. Each of the three major bureaus has its own version of the FICO score, if that’s what you’re looking for. Going right to and getting all three in one is probably the best deal if all you want is your score.

  6. Peter says:

    Thank you for the article, but you never explained what your tax resolution was. My wife and I live IN the USA and work online via Taiwan. The company pays us and takes a substantial amount monthly for Taiwanese taxes. No accountant will help us. Previously we lived out of country for 10 years so it was relatively straight forward. So are we considered self-employed as some have suggested? Wouldn’t seem so since we do not make the schedule and taxes are retained.

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