Taxing the Expats

Keys to the City: How Americans living abroad can file taxes

Services | Vienna Review | February 2012

U.S. citizens living abroad are required to file income tax returns. The United States is in fact the only industrialized country in the world that taxes its citizens’ income overseas. Now, in hopes of upping federal tax revenue, the IRS is heightening controls abroad.

Americans working abroad have long been protected, at least to some extent, by the  Foreign Earned Income Exclusion (FEIE), under which those who earn less than $92,900 (in 2011) are not required to pay income tax on their foreign-earned income.

The U.S. Congress has recently re-classified FEIE as a "tax expenditure," putting it back on the table for debate. However, without the FEIE, the effective double taxation will dissuade American firms overseas from hiring U.S. nationals, the non-profit organization American Citizens Abroad (ACA) argues, and many Americans will not be able to afford to take a job abroad.

Another key component of the federal government’s push for heightened U.S. taxpayer compliance is the Foreign Account Tax Compliance Act (FATCA), which requires U.S. citizens to report the peak level of investment and savings accounts in foreign banks in any tax year, which became law in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act.

Tax experts argue that through FATCA (which sounds ironically close to "Fat Cat", a perjorative term used to describe the extremely wealthy) American citizens abroad are being disproportionately punished by laws aimed at money launderers and people using offshore investment for the purposes of tax evasion.

See also "FATCA: The Long Arm of the U.S. Tax Law" in TVR Mar. 2012.

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