An American expat’s guide to taxes: 2021 edition

Whether you're living in the United States as an expat or an American living in another country, international taxes can get tricky. Here's what to know for May 17.

Xe Consumer

March 19, 2021 5 min read

Expat in New York in the United States of America

We’re once again in the thick of tax season. In advance of the newly pushed-back May 17 deadline, Americans around the country are compiling their paperwork and preparing to file their 2020 taxes.

Did we say around the country? That is true, but it’s not the whole truth. Because even if you’re not currently in the US, you likely will still need to pay your American taxes. And similarly, even if you’re in the US for the short-term (and not a US citizen), you could still be required to pay taxes in the United States.

There’s almost 2 months left before the filing deadline. Take a moment now to get an understanding of what you might need to do before May.

Do expats living in the US need to pay American taxes?

Potentially. That depends on a few things:

  • Your immigration status

  • How long you’re in the US

  • What you’re doing in the US

US citizens and green card holders are required to file a US tax return if they earn:

  • Over US$12,400 per year (in 2020)

  • US$400 in self-employment income, or

  • US$5 of any income if they’re married to a foreigner but filing separately.

Green card holders as well as holders of nonimmigrant visas who satisfy the substantial presence test are considered “resident aliens” for tax purposes. If you’re considered a resident alien, then you will need to report your income (from all sources) and pay income tax.

What is the substantial presence test?

Not sure if that includes you? We don’t blame you. It can be complicated, and has quite a few exceptions. We’ll do our best to break it down.

To have “substantial presence”, you must be physically present in the United States on at least:

  • 31 days during the current year, as well as

  • 183 days during the 3-year period that includes this current year and the two years immediately preceding.

However, keep in mind that this is how you count the days you were present in the US over the last two years:

  • One-third of the days you were present in the US during the first year before this current year

  • One-sixth of the days you were present in the second year before this current year.

Additionally, you would not count:

  • Days in which you regularly commute to the US to work from a residence in Mexico or Canada

  • Days in which you spent less than 24 hours in the US while traveling

  • Days in which you are unable to leave the US as a result of a medical condition developed while in the US

  • Days in which you would be considered an exempt individual

There’s one final exemption to be aware of. If you meet the requirements for substantial presence, you can still be exempt from US income taxes if you meet these circumstances:

  • If you haven’t applied for a green card,

  • If you are present in the US for under 183 days during this current year,

  • If you have a closer connection with another country than with the US (and can provide proof of this to the IRS), and

  • If you maintain a tax home in said foreign country during the year.

How do you file your taxes as a foreign-born tax resident?

Good news—that part’s simpler. You’ll report in the same way as US citizens, the same tax rules that apply to US citizens will also apply to you, and you can typically claim the same credits and deductions as US citizens.

Additionally, make sure to check in with your home country’s expat tax laws. In some cases, you may need to claim a foreign tax credit so that you aren’t taxed double on the same income. We encourage you to consult with a tax expert if you need additional guidance on what you’ll need to file.

Do Americans living outside the US need to pay American taxes?

Yes, you do. Because the US tax system is based on citizenship (as opposed to other countries that base theirs on residency or where the income is generated), US citizens will need to pay taxes on their income, even if they’re living across the world from the United States.

Filing from abroad is a bit trickier than filing in the United States. There are a number of things that you’ll need to consider, including:

  • Foreign tax credits and exclusions that you could potentially claim to reduce your bill

  • Foreign accounts and assets that you may need to account for

  • Additional taxes like Social Security taxes and state taxes

  • Whether you own foreign real estate or have a foreign-registered business that could be taxed.

We recommend consulting with a tax expert to discuss your situations and your specific filing requirements. We also encourage you to check out a guide to US taxes for expats, such as this one from Bright Tax.

Do you need to convert your income earned?

One important aspect of filing US taxes from overseas is that you’ll need to convert your income earned abroad into US dollars.

As long as you’re consistent in the source that you use, you can use any trusted currency conversion tool to do this. We recommend using the Xe Currency Converter for this purpose. Not only will we give you the trusted mid-market rate, but you can also access historical currency rates if you’re interested in seeing what the rates have been over the past year.

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