Do you want to work abroad but are unsure of how taxes will affect your income? And if so, what are the tax implications of working abroad? The United States is one of the few countries that taxes its citizens even when they’re not living or working in the country. Every year, you must file a U.S. tax return reporting worldwide income and claiming only those deductions and credits that apply to you. 

What About Tax Returns?

Expats, especially in the US, often find themselves taxed twice or even three times. This is because the US requires its citizens to annually file a tax return, regardless of whether they live in the country or not. There are a lot of expatriates that have to deal with complicated tax returns when working abroad. No matter what the country is, getting your taxes done can be quite difficult. But if you are an expatriate, then it gets even more complicated because of special rules. 

If you work abroad, you probably have to pay tax in your home country as well as in the country where you’re working. The good news is that both countries have a tax treaty to make this process easier for workers who are moving back and forth between countries.

But the bad news is that it’s complicated and tedious. And getting it wrong can cost you serious money. So, it might be a good idea to get expert help with your ex-pat tax situation, and not worry if you’ll get in trouble for filing the wrong papers or something.  You need to know what kind of worker you are: a resident or non-resident. A non-resident is someone who lives in one country but works in another. A resident, however, lives and works in the same country.

This distinction is important because of the way different countries tax their residents and non-residents. The U.S., for example, taxes its residents on their worldwide income, while taxing non-residents only on income earned in the U.S.

Tax Planning for Expats 

Americans abroad are required to file two tax returns, one in their country of residence and the other in the United States. The return filed in their country of residence is usually fairly simple, but the American return can be quite complex.

Each person’s situation is different, but the following general guidelines apply:

  • if you have a gross income greater than $100,000 (in 2016) you will likely have to pay U.S. taxes
  • you may be exempt from paying U.S. taxes if your income comes from foreign sources, and you live outside of the U.S.
  • if you are not exempt from paying U.S. taxes, you may be able to claim a foreign tax credit for income taxes paid in your country of residence
  • you may also be required to file a return with the IRS if you have a U.S. bank account, are the beneficiary of a U.S. trust or estate, own U.S. real property, or receive income from a U.S.-based business

What If I Don’t File a Return?

If an ex-pat doesn’t file a tax return, they risk getting into trouble with the IRS. If they don’t file, the IRS will make them do it, and it will cost them even more money than if they had filed on their own.

The IRS has strict requirements for all US citizens and residents to file tax returns and report their worldwide income.

If you are working abroad, it is important to consider tax planning. While many countries have treaties in place with the United States, there may be some circumstances where your income is not exempt from taxation.