IF YOU’RE A U.S. citizen working in a foreign country, you will face all kinds of financial hassles—many of them unavoidable. Don’t want to add to your headaches? Try to keep your finances as simple as possible, by limiting the number of financial institutions you deal with and the number of investments you own.
Even though you work abroad, you have to file a U.S. tax return each year declaring your worldwide income. The filing deadline is typically June 15, not April 15. You can avoid having your income taxed twice—by both the U.S. and the country where you live—by claiming a credit for foreign taxes paid and by taking advantage of the foreign earned income exclusion, which is $105,900 in 2019 and $107,600 in 2020. Still, you could suffer some double taxation, because you might not receive credit on your U.S. tax return for all taxes you paid abroad.
To crack down on tax evasion, Congress passed the Foreign Account Tax Compliance Act (FATCA) in 2010, which requires foreign financial institutions to report U.S. account holders. Some foreign banks, which don’t want to deal with the reporting requirements, have stopped opening accounts for U.S. citizens. Those moving abroad can also find it tough to get credit cards, cell phones, internet service and mortgages, because they don’t have a credit history in the country where they’re now working. Because of the hassles of borrowing, you may find it easier to pay cash—assuming you can afford to.
Every year, if you have more than $10,000 in all foreign accounts combined, you have to fill out a Foreign Bank and Financial Accounts report, otherwise known as FinCen Form 114 and sometimes just Fbar. The report is filed with the U.S. Treasury. The deadline was recently changed to April 15, from June 30, though you can request an extension to Oct. 15. There’s also a requirement to report foreign financial assets under FATCA, though the threshold is $50,000 and sometimes higher, depending on your situation. The FATCA requirement is met by filing Form 8938 with your U.S. tax return.
U.S. citizens working abroad sometimes have difficulty opening a bank account in the U.S. because they don’t have a U.S. address. Some U.S. banks have even taken to closing accounts owned by those living overseas, though there’s no law that requires a U.S. citizen to have a U.S. address.
If you work for a foreign company, you may not be contributing to Social Security. That means you should probably save extra on your own to ensure a comfortable retirement. Even if you pay Social Security and Medicare payroll taxes, you likely won’t benefit from Medicare coverage if you choose to remain overseas during retirement.
For further information, check out the resources available at AmericansAbroad.org.
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