US expat tax regulations can be confusing, even for a tax professional. Thus, it is not surprising that US expats find navigating through the US expat tax laws to be a complicated and often frustrating process. US Expat Tax Law – Filing Requirements – let’s clear the myths…
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US Expat Taxes – Some Common Myths
There are some assumptions that we find expats commonly make. This article’s aim is to clarify these assumptions and hopefully clear up some of the frustration of becoming tax compliant:
Do I have to file a US Tax Return?
- “I do not have to file a US tax return because I live abroad and do not earn any income in the US.”
US Expats – US citizens and resident aliens (“green card holders”) are required to file annual tax returns with the Internal Revenue Service to report their “worldwide” income. Penalties for not doing so can be hefty. The IRS does allow deductions and exclusions, which may result in expats filing their US tax returns with $0 tax due.
- “I work for a foreign employer in the US and do not receive a W-2, so I do not report it to the IRS.”
The IRS requires an income tax return to be filed to report income earned in the US. If you are a US citizen or resident alien, you will be required to report worldwide income from all sources, regardless of where earned. If you are not a US citizen or resident alien and you earned income in the US, you are required to file an income tax return as a non-resident.
How will I be taxed on non-US based Pension Income?
- “My non-US based pension income will have the same tax treatment as US pensions.”
This depends on whether there is a tax treaty between the US and the country where the pension was earned. Generally, if there is a tax treaty in place then, unless stated otherwise in the treaty provision, the country of residence (for the US Expat) will tax the pension or annuity under its tax law. If there is no treaty in place, then tax treatment needs to be assessed. However, this needs to be addressed on a case-by-case basis.
I own a non-US Business, do I need to report it to the IRS?
- “I own a foreign registered corporation and do not need to file tax returns in the US since it is not a US corporation and does not have income from US.”
If you are a US Expat (US citizen or resident alien), you are required to file annual returns to report worldwide income. If you own a foreign corporation, you will be required to file additional forms to report information specific to the corporation. Penalties for not filing the required information are substantial.
- “I do not need to file tax returns because I pay higher taxes in my country of residence.”
Unfortunately, annual income tax returns are required to be filed to report income. Many expats residing in countries with higher tax rates may end up filing $0 tax due income tax returns because the IRS allows a foreign tax credit against foreign earned income.
The US tax law is complicated, however, there are credits and deductions that the IRS allows US Expats to reduce taxable income or tax due specific to requirements being met.
- “The Foreign Earned Income Exclusion (FEIE) means I pay no U.S. tax”
FEIE excludes earned income only (not dividends, interest, capital gains, rental income). For 2025, up to ~$130,000 (indexed annually). Self-Employment Tax and Net Investment Tax cannot be reduced by the FEIE.
- “Foreign income under $100,000 doesn’t need to be reported”
US Expats (US Citizens and Green Card holders) must report their worldwide income regardless of amount. The FEIE is not automatic, a form 2555 must be filed with the income tax return.
What if you were not aware you had to file?
There is help available. There are options for US Expats to get into compliance, some where penalties are waived if eligible. We can assist.