Whenever you are working abroad as a U.S. citizen or as a holder of a permanent resident visa your income earned anywhere in the world is subject to U.S. income taxes. The rules for filing taxes are generally the same even when you are living outside the U.S., but there are some differences you should know about. You must file a return regardless of being paid in a foreign currency and being required to file a return in that foreign country. For tax purposes, U.S. possessions or territories are not foreign countries.
When and Where to File
As a U.S. citizen or permanent resident working abroad, you are allowed a 2-month extension to the filing date, giving you a deadline of June 15th for a yearly return. You may also want to file estimated quarterly taxes. The October 15th deadline still applies for late filing, and you need to apply for this extension before June 15th.
As for where to file, the correct mailing addresses can be found on the IRS website. As with Americans filing at home, you are eligible for free electronic filing if your income is $57,000 or less. Use the free e-filing service on the IRS site to take advantage of this option. You may use DHL, FedEx, or UPS to ensure that you meet the deadlines for filing.
Payment of Taxes
You must pay your taxes in U.S. dollars. Visit the IRS website for information on current exchange rates with the currency you are being paid in. You will be subject to interest and penalties for late payment of your taxes. If you are paying foreign taxes as well as U.S. taxes, you may receive a foreign tax credit or take a deduction on your payment of foreign taxes.
You may be eligible for the foreign earned income exclusion. This eligibility depends on how long you remain working abroad before returning to the U.S. and also on how much you earn. You must have resided for 330 consecutive days in the same country in order to be eligible for the exclusion. The income cap for the exclusion is around $9000 per year. See IRS publication 54 for details and up-to-date information on exclusions. Even if you are not eligible for the foreign earned income exclusion, you must file an income tax return with the IRS.
To Get Help
The IRS can be contacted by email. You may also get personal assistance by going directly to the American Embassies in some cities such as Frankfurt, Germany; London, England; Paris, France; and Beijing, China.
Social Security and Medicare Taxes
You will have to pay social security and Medicare taxes while earning income overseas under certain conditions, such as working for the U.S. Government, working for a U.S. resident, or working for a corporation organized in the U.S. You are also liable if you are working for a foreign affiliate of an American employer. Visit the IRS website for more information on payment of FICA taxes when working in foreign countries. Your employer should contact the Social Security Administration to determine if you should be exempt from paying social security taxes in the country where you are working. Certain countries listed on the IRS website have entered into what are called totalization agreements with the U.S. government in order to avoid double taxation of social security benefits.