U.S. Citizens Living Abroad: Tax Exemptions and Exclusions
U.S. citizens and residents are subject to U.S. income taxation on their worldwide income. As a U.S. citizen living abroad, the same rules apply. You’re therefore required to file a tax return with the IRS and report your foreign income. However, because you live abroad, you may be able to claim certain exemptions and exclusions on your U.S. tax return.
Deduction for Personal Exemption
The deduction for personal exemptions is suspended (i.e. reduced to $0) from tax year 2018. For tax years before 2017, U.S. citizens married to nonresidents are generally considered “Married, filing separately”, and can therefore not claim an exemption for their spouse. However, you can choose to have your spouse treated as a U.S. resident for all U.S. federal income tax purposes.
Foreign Earned Income Exclusion
U.S. citizens living abroad may be able to claim the Foreign Earned Income Exclusion. If you qualify, you will not pay tax on up to $112,000 of your foreign wages and other foreign earned income in 2022. The IRS adjusts the exclusion amount for inflation each year. In addition, taxpayers may also exclude employer-provided housing amounts or deduct non-employer provided housing costs.
Please note you can only exclude ‘earned income’. You can not exclude unemployment benefits, social security income, pension income and other unearned income.
Foreign Tax Credit
You can claim a credit for income taxes paid to a foreign country on your foreign income to offset your U.S. tax. However, you can’t claim a Foreign Tax Credit for foreign taxes that relate to the amount excluded under the Foreign Earned Income Exclusion.
Every taxpayer can use either the standard deduction or itemize deductions. The standard deduction amounts for tax year 2022 are $12,950 for individuals, $19,400 for heads of household, and $25,900 for married couples filing jointly. If you itemize, you can deduct (part of) your actual expenses. Deductible expenses are medical expenses, certain taxes, and contributions.
If you’re a U.S. citizen living abroad, contact us with any questions you have about exemptions and exclusions. We specialize in preparing U.S. tax returns for U.S. citizens living abroad and we have offices in Denver, Colorado, as well as in Germany, Switzerland and the Netherlands.