While living outside of the United States as a citizen or green card holder, you are still required to pay U.S. income taxes on your worldwide income.
Foreign Earned Income Exclusion 2023
To ensure that you’re not subject to double taxation on this income, the U.S. government has tax treaties with many countries around the globe. These treaties also allow certain income to receive special treatment, such as reduced tax rates. If you meet certain requirements, you can opt to file Form 2555, Foreign Earned Income Exclusion, with your U.S. income tax return. The foreign earned income exclusion allows you to exclude up to $120,000 of foreign income for 2023, and an additional $105,900 if you are married and your significant other also earns income abroad (while still meeting the qualifying requirements).
Some income does not qualify for the foreign earned income exclusion. Per the IRS, the following types of income are not covered by the foreign earned income exclusion:
- Pay received as an employee of the US government or a related agency
- Pay for work in international waters
- Pay in specific combat zones
- Payments received after the end of the tax year in the subsequent year that services were performed
- The value of meals and lodging that are excluded from income because it was furnished for the convenience of the employer
- Pension or annuity payments, including benefits such like social security
These exclusions can only be claimed by filing a U.S. income tax return and are not automatic if you do not file. By filing your U.S. income tax return yearly you are also ensuring that the statue of limitations remains in effect, protecting yourself from the Internal Revenue Service examining tax returns older than three years. You may also be eligible to claim an additional exclusion/deduction for your foreign housing expenses.
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