Do I pay foreign income tax if I’m a U.S. citizen working overseas?

Do Americans have to pay foreign income tax while working overseas? It’s a common question, and if you’re one of the millions of U.S. citizens who earns money abroad (or are planning to), you should know two things:

1. In general, yes — Americans must pay U.S. taxes on foreign income. The U.S. is one of only two countries in the world where taxes are based on citizenship, not place of residency. If you’re considered a U.S. citizen or U.S. permanent resident, you pay income tax regardless where the income was earned.

2. While there is no overarching tax exemption for U.S. citizens abroad, the IRS has created a few tools like the foreign earned income exclusion and foreign tax credit that can lower your foreign income tax obligation.

What foreign income is taxable in the U.S.?

If you’re a U.S. citizen (including Green Card holders and Dual Citizens) earning income overseas, you should know that most foreign income is taxable in the U.S., including:

• Wages – Wages include any income paid to you for services or goods sold. This includes if you’re employed by a foreign company or if you’re a self-employed contractor working overseas.

• Interest – Interest includes money earned from a foreign bank account or a CD, for example.

• Dividends – Dividends include payouts on foreign-owned stock.

• Rental Income – Let’s say you bought a house in the Bahamas for a steal, and you turn it into a rental property. You need to pay taxes on that rental income.

If you can count any of those sources as a means of income, you likely have a tax liability to the U.S.

---

We are happy to share with you the invaluable insights and information on tax and accounting in this ever-changing financial landscape. Please note that the information in the article above is for informational purposes only and is subject to change in accordance with evolving tax regulations. Stay informed and stay ahead with us!