Tax Breaks for U.S. Citizens Overseas
The IRS taxes worldwide income of U.S. citizens and resident aliens, allowing the same credits and deductions as those living in the U.S. If working abroad, you cannot claim deductions against excluded housing or foreign earned income. Only expenses related to includible income are deductible.
Items not related to excluded income include:
Your housing deduction isn't allocatable to excluded income, but self-employment tax is.
Key takeaways:
- Report all global income to the IRS, including eligible deductions and credits.
- Prevent double taxation by deducting foreign taxes or claiming a credit.
- Deductions can't apply to excluded income like housing or foreign earned income.
- Children born abroad can be claimed as dependents under specific conditions.
- Proper documentation for dependents is crucial.
Is There a U.S. Tax Credit for Foreign Taxes?
If you pay foreign taxes, you can choose to claim them as an itemized deduction or a Foreign Tax Credit, relieving double taxation. Only income taxes paid or accrued qualify for the Foreign Tax Credit.
The foreign tax credit is based on actual taxes accrued or paid, but not for income that can be refunded.
Is There a Limit for the Foreign Tax Credit?
The credit limit is proportional to foreign taxable income relative to total taxable income and can't exceed actual foreign tax liability.
You can claim without limits if:
- All foreign source income is passive and reported on statements.
- The total qualifying foreign taxes paid is not more than $300 ($600 for joint returns).
- You elect this procedure.
Let the eFile Tax App determine eligibility based on your input.
Start Federal and State Tax Returns
Claiming the Credit for Subsidized Foreign Tax Payments
Subsidies for foreign tax payments disqualify you from claiming a foreign tax credit.
How to Claim an Itemized Deduction?
To claim an itemized deduction, file with eFile.com, and we will complete Schedule A and all your other tax forms based on simple answers to a questionnaire. You cannot claim deductions for taxes on excluded income.
Can Children Be Claimed as Dependents if Not Born in the U.S.?
Children can usually be claimed as dependents if they are citizens or residents of the same country as their parents.
If you were a U.S. citizen at your child's birth, the child is a U.S. citizen even if born abroad. Legally adopted children meet citizenship requirements under specific conditions.
Children must meet one of the following to be claimed:
- A U.S. citizen
- A U.S. national
- A U.S. resident alien
- A resident of Canada or Mexico
Include the Social Security Number (SSN) of each dependent; if you do not have one, then apply for an SSN at a Social Security office or U.S. consulate.
If a child born and passed away in the same year, attach a birth certificate. If the dependent is a non-resident, list their ITIN.
How to Get an ITIN?
To apply for an ITIN, complete Form W-7; it generally takes 6 to 10 weeks to receive one.
Can Moving Expenses Be Deducted?
You can only deduct moving expenses if:
Moving expenses must relate to starting a job in a new location. Only active-duty military can deduct moving expenses for work in a foreign country.
We will help report moving expenses on Form 3903 when filing with eFile.com.
Are there Other Savings with the Foreign Earned Income Exclusion?
Choosing the foreign earned income exclusion disallows claiming a foreign tax credit on that income. You can qualify for an exclusion from a limited amount of foreign earned income and potentially claim a housing deduction if certain conditions are met.
- A bona fide resident of a foreign country for the entire year.
- A resident alien with a tax treaty and bona fide residency.
- Physically present in a foreign country for at least 330 days over 12 months.
If you earn foreign income in a subsequent tax year, you may need to file an amended return.
Do You Pay Social Security Taxes if You Live, Work Abroad?
Check for tax treaties that prevent double taxation on Social Security. You may not have to pay international Social Security Taxes if in a Totalization Agreement with the U.S.
Countries with Totalization Agreements include:
- Australia, Austria, Belgium, Brazil, Canada, Chile, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovak Republic, Slovenia, South Korea, Spain, Sweden, Switzerland, Uruguay, United Kingdom.
What Are Other Benefits of U.S. Tax Treaties?
U.S. tax treaties allow deductions, credits, and lower tax rates. You may qualify for exemptions on income if in a treaty country for a limited time. However, exemptions are discontinued from 2018 to 2025.
Related Foreign Income Links
TurboTax® is a registered trademark of Intuit, Inc.
H&R Block® is a registered trademark of HRB Innovations, Inc.