If you are a United States citizen who lives and works overseas, you might be wondering if you must pay U.S. income taxes or how you will be taxed. If you are a U.S. citizen or a resident alien who lives elsewhere in the world, regardless of where you live your income received from around the world is subject to U.S. income taxes. There might be exclusions or credits that apply. To learn more about these credits and exclusions, refer to Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
If you live outside the U.S. and you must pay income tax in that country, you will still be required to file a U.S. income tax return while you live and work abroad. The only way to avoid filing U.S. income taxes is to abandon being a green card holder by filing Form I-407 with the U.S. Immigration Service or if under certain circumstances you renounce U.S. citizenship. Details about these processes are in Publication 519, U.S. Tax Guide for Aliens.
If you were a long-term resident of the U.S. who surrendered a green card, you might have tax obligations. For federal tax purposes, you are a long-term resident if you were a lawful permanent U.S. resident for 8 of the last 15 tax years. That timeframe ends with the year your residency ends. If you classify as a long-term resident who surrendered a green card, you must pay expatriation tax.
You might be a dual-status alien if you were both a resident alien and non-resident alien during the same tax year. Dual status doesn’t refer to your citizenship, but your resident status for income tax purposes in the U.S. For the part of the year that you are a resident alien, you are taxed on your income from all sources regardless of which country they are from, but for the time you abandon your green card, you are taxed only on your income from U.S. sources.
Regardless of where you live and work in the world, there are tax professionals who can help you get your taxes filed properly and timely. Failure to meet deadlines and file all the proper documents can result in expensive penalties. It is better to make contact early with a skilled professional, so contact the experienced tax professionals at MKS&H. We would be happy to meet with you at your convenience to discuss the best strategies for your tax filing as a citizen who works or lives abroad.