Taxes for Americans Living Overseas
“How should I file my taxes” is one of the most common questions we receive from our teachers. Often, the question is asked in a mildly stressed out tone of voice, so if you’re feeling that way you are not alone! We’ll give you a detailed breakdown of all you need to know, but before we say anything else let’s deliver some good news: You will almost certainly NOT need to pay any taxes to the US government.
Now that you’ve digested the above and exhaled, let’s go into the specific details of the law and WHY you are almost certainly exempt from paying taxes:
- First, the US Government (specifically the IRS) provides an exemption from U.S. Income tax of $91,400 for 2009 for Americans living overseas (you can expect this amount to increase slightly in subsequent years, but check to be certain).
- What does this mean? This means if you live abroad and earn LESS than USD $91,400 in a year you are exempt from paying taxes (NOT calendar year, but in any 365 day period). We wish making more than USD $91K would be a problem for most of you in the coming year, but as teachers it will almost certainly not be..
- You need to be living outside of the US for 330 out of any 365 day period. This is called a “presence test”. We know this sounds confusing, so we’ll break it down to something more simple: If you stay abroad for a full year, you qualify and will NOT need to pay any US taxes.
- You should now be clear on the relevant and important rules. You may also be thinking, “If I don’t need to pay taxes, do I still need to file?” The answer is YES, you definitely still need to FILE taxes. EVERY citizen of the United States is required to file a tax return each and every year, regardless of whether they owe the government money or not. Again, good news: The taxes you file will show that you owe ZERO dollars to the US government.
Interested in reading more about tax laws for Americans living overseas? Here’s a link to a PDF of the relevant pages (these are excerpts from publication 54, the official IRS document on tax laws for US Citizens living abroad). If you are REALLY interested, you can read all of Publication 54, although much of it likely won’t apply to you as a teacher.
Last, but not least, some VERY important caveats and further information for those who find this to be a subject of riveting interest:
- The above should NOT be misconstrued as professional tax advice and we are NOT tax professionals! However, the above most likely applies to you. If you have recently won the lottery, have a huge inheritance sitting in the bank or sold a start up for multi-millions then your situation is almost certainly not as simple as described above. Either way, if you have doubts, we suggest you consult a tax professional.
- It’s important to remember that you must be out of the US for 330 days out of any 365 day period. This presence test is the key to qualifying for the $91,400 exemption. If you are present in the United States for ANY reason for more than 30 days, you will no longer qualify.
Questions? You can ask us, but we likely won’t know more than what is written above! If your situation is more complex than what we have described above, we recommend you consult with a tax professional.