Retiring Abroad and US Tax
Table of Contents
Deciding to move abroad requires a lot of planning, especially regarding your US taxes and understanding your filing requirements once you move. Retiring abroad does not relieve you of US tax reporting requirements – you must continue to report your worldwide income annually.
Do you pay US taxes if you retire overseas?
Even if you live abroad, as a US citizen you are required to pay federal taxes if you meet the filing threshold. The minimum gross income amount that requires you to file (filing thresholds) for the 2022 tax year for those aged 65 or older are:
- Single: $14,700
- Head of household: $21,150
- Qualifying widow(er): $27,300
- Married filing jointly (one spouse is 65 or older): $27,300
- Married filing jointly (both spouses are 65 or older): $28,700
- Married filing separately: $5
The Foreign Earned Income Exclusion, Foreign Housing Exclusion, and Foreign Housing Deduction may be able to provide tax relief. The foreign housing exclusion typically applies to those with an employer, while the foreign housing deduction applies to those who are self-employed. Use Form 2555 to calculate your foreign earned income exclusion and housing exclusion or deduction.
Do expats pay taxes on retirement?
Retirement distributions – except for the ROTH IRA – are considered passive income and are included in your US gross income, but are not eligible for the Foreign Earned Income Exclusion.
Can you live outside the US and collect Social Security?
Retirement pensions, 401(K)s and often Social Security benefits are incomes that remain taxable in the US as a retired expat.
Luckily, the US has tax treaties, or ‘totalization agreements’, with a number of countries. This means that Americans living in these countries will only pay Social Security tax to one country, depending on how long they plan to live abroad.
Countries that the US has a totalization agreement with include:
- Australia
- Austria
- Belgium
- Brazil
- Canada
- Chile
- The Czech Republic
- Denmark
- Finland
- France
- Germany
- Greece
- Hungary
- Iceland
- Ireland
- Italy
- Japan
- Luxembourg
- The Netherlands
- Norway
- Poland
- Portugal
- The Slovak Republic
- Slovenia
- South Korea
- Spain
- Sweden
- Switzerland
- The UK
- Uruguay
Social Security is exempt from state tax when you live abroad.
I want to know more about US taxes abroad
Will I still have state tax filing requirements if I retire abroad?
Typically, the most likely reason for having any state tax filing requirements if you have retired abroad is from US rental properties. Retirement income and Social Security are exempt, so without any rental properties you will be fully exempt from state filing obligations. However, certain states still require filing once you’ve retired abroad, even without any state taxable income.
Financial reporting when living abroad: FBAR
Whether you live in the US or abroad, you will need to file an FBAR (Foreign Bank Account Report) for any foreign registered financial accounts that qualify. This goes for any type of an account with a positive balance: bank accounts, investment and individual pension accounts.
Foreign accounts have to be reported with an FBAR when the aggregate total of the account balances exceeded $10,000 at any time during the year. Any account that a US citizen has signatory authority over, such as business accounts or joint accounts, also qualify for FBAR filing – even if the account isn’t registered in their name.
For example, if you’re an American living in the UK with a savings accounts, current account and a pension account, you would need to look through the statements for each account and pick out the highest balance during the calendar year. Add these three highest balances together and if the sum exceeds $10,000 USD or GBP equivalent, you would have to report all of your accounts on the FBAR. This reporting includes any old empty bank accounts that are still open. FBAR is an ‘all or nothing’ reporting; if you reach the threshold, any open account has to be reported.
The penalties for not filing an FBAR when you are required are steep, starting at $10,000 a year for failing to file or errors in the form that are unintentional. When wilfully failing to file an FBAR, penalties can rise to $100,000 a year, or half of the balances of all the foreign accounts.
Where/when do I file an FBAR?
File your FBARs to FinCen (the financial crimes authority), not the IRS, using FinCen Form 114. File online by April 15, or receive the automatic filing extension until October 15.
FATCA Reporting:
Many American citizens living abroad were unaware of their FBAR filing requirements or thought the IRS would not be able to find out what was in their foreign accounts. When the Foreign Account Tax Compliance Act (FATCA) was made law in 2010, two provisions affected expats.
Every foreign bank and investment firm now provides to the US Treasury account information for US citizens, allowing the IRS to check it against the information provided on FBARs or to see if an FBAR should have been filed but wasn’t.
FATCA created an additional filing requirement for US citizens with foreign financial assets – Form 8938. Americans living abroad with a total value of financial assets abroad exceeding $200,000 at any point during a year must report this by filing IRS Form 8938 with their federal tax return.
If you meet the account thresholds for both the FBAR and Form 8938, you will need to file both.
