Tax Considerations When Living Overseas

Photo: Migmac
Photo: Migmac

 

For some Americans, living and working overseas comes with a military assignment or corporate transfer. Others will pull up stakes on their own. If you’re an American who is living overseas, you face a unique set of circumstances that other taxpayers don’t. If this will be your first tax year overseas, here are some things to keep in mind for tax filing day:

  • The deadline is more flexible. Typically, you have until April 15th to file without penalty. If you’re living and working overseas, the deadline extends to June 15th. If you’re facing some unique circumstances (such as military service) you may be able to extend til October 15th.
  • If you’re paid in foreign currency, you must convert it to American currency when filing your taxes. The IRS offers an online conversion chart for that purpose.

Submitting Your Tax Return

Even though you’re overseas, the IRS still expects you to submit your tax return on your own if you can’t afford a CPA or licensed tax preparer to do it for you. There are three options:

  • Mailing a paper return to the current address on the IRS website.
  • Utilizing the FreeFile program, the IRS’s free online tax filing portal
  • If you’re working overseas for a large firm, see if they offer tax filing services for their employees.
  • Utilizing a tax preparation company based in your host country.

Challenges

As an American worker overseas,  you might be faced with a higher tax base since your host country may also tax your earnings as a foreign worker. If your host country also has social programs, you may be taxed for those as well, even though you are not a citizen of your host country. For example, countries that have socialized health care may assess a tax of 30 to 40 percent of your paycheck in order to cover those services.

At the same time, Uncle Sam here in the U.S. will want his share of your pay, so you face the possibility of not only a higher tax base and less wages to live on.

Even with those challenges, working overseas does have its rewards and advantages. You get to see and experience a country and its people in ways that reach beyond the media portrayals here in the U.S., and you are exposed to a different lifestyle and culture from your own.

If you will be working overseas in the near future, it pays to check in with a tax pro regarding your overseas tax obligations and challenges. There will be less surprises when tax filing day rolls around, and you will be better equipped to file your return on time, even while away from the U.S. Just make sure your tax pro is familiar with tax issues faced by U.S. employees overseas, and can help you address those challenges with minimal “sticker shock” on tax day.

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