Ask Stacy: Do I Have to Pay Taxes If I’m Not in the US?

Photo (cc) by Bluedharma

Facebook co-founder Eduardo Saverin made headlines recently when he renounced his U.S. citizenship ahead of Facebook going public. The owner of 4 percent of the company, Saverin was born in Brazil and holds U.S. citizenship. But he currently lives in Singapore.

Why renounce his citizenship? According to Bloomberg, his spokesperson said, “Eduardo recently found it more practical to become a resident of Singapore, since he plans to live there for an indefinite period of time.” But the assumption is he really did it to avoid a potential tax bill in the hundreds of millions when Facebook went public.

Which brings us to today’s question: If you’re a U.S. citizen living outside the country, do you still have to pay U.S. income taxes? Here’s a recent email…

My son has been living out of the country for the last five years but is moving back to the states next month. He said he just found out he was supposed to be filing and will have to pay even though he had no income in the States. Could he be responsible to pay when there’s no income? How should he handle this? Thank you.
– Debbie

Before we get to Debbie’s answer, let’s take a quick trip down memory lane. The following is a 45-year-old tax protest song from a group you’ll recognize. The anger that inspired these lyrics is well-founded: When they wrote this song, these guys were in the 95 percent tax bracket – meaning after a certain point, they kept only 5 cents of every dollar they made. (Hence the first line: “Let me tell you how it will be…there’s 1 for you, 19 for me.”)

If you’d like to learn more about the history of that famous song protesting British income taxes, you can read about it here. In the meantime, let’s get to Debbie’s question. Or rather, two questions…

If you live outside the U.S., do you have to file and pay taxes?

While reading IRS rules and regs will often make your eyes cross, they’re quite clear on this issue. From this page of the IRS website:

If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside.

While that sounds like trouble for Debbie’s son, all is not lost. Depending on what he earned, the Foreign Earned Income Exclusion and Foreign Housing Deduction can reduce the amount of taxes he owes to zero.

For example, if he meets the requirements, the Foreign Earned Income Exclusion allows him to exclude $91,400 of foreign earnings for 2009, $91,500 for 2010, $92,900 for 2011, and $95,100 for 2012. The Foreign Housing Deduction can also reduce his taxable income.

Put these things together and many workers living abroad won’t owe Uncle Sam a dime. You can read more about all this in the thrilling page-turner, Publication 54: Tax Guide for U.S. Citizens and Resident Aliens Abroad, available free for download here.

What do you do if you haven’t filed taxes for years?

This answer is also straightforward: You simply file taxes for the years you missed. Ask any tax pro and you’ll learn failing to file taxes for years at a time isn’t rare. You can find the tax forms for the applicable years, fill them in, and file them. To get the forms, do a search at IRS.gov. For example, here’s the list of Form 1040s for dates going back to 1999.

If you didn’t owe any taxes for past years, you’re in the clear – no harm, no foul. If you did, however, you’ll be subject to interest and penalties.

If I were in Debbie’s son’s place, I’d probably hire a pro to help with all this. I’d take my time, interview several, and ask how experienced they are with this exact situation. Then I’d hire the most experienced pro at the lowest cost – and leave it to them.

This is especially true if penalties and interest are going to come into play, because a seasoned tax pro with IRS connections may be able to explain the situation and get some interest and penalties reduced or eliminated.

Bottom line? If you’re a U.S. citizen living and working overseas, Uncle Sam still may not charge you for income you earn outside the country, but he still wants to hear from you.

Got more money questions? Browse lots more Ask Stacy answers here.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
6 Investing Tools That Help You Diversify
6 Investing Tools That Help You Diversify

Here’s how you can lend to startup businesses, fund social causes or get in on investments once available only to the very rich.

Have You Heard of This Best Place to Retire in 2020?
Have You Heard of This Best Place to Retire in 2020?

The best place to retire in America is one you likely are not familiar with.

20 Generic Brands That Amazon Created
20 Generic Brands That Amazon Created

Amazon’s growing collection of private brands offers everything from toilet paper and coffee to motor oil and clothing.

9 Houseplants That Remove Toxins From Your Indoor Air
9 Houseplants That Remove Toxins From Your Indoor Air

These plants may also do everything from reduce the amount of dust in your home to improve your productivity.

5 Products You Should Never Buy Generic
5 Products You Should Never Buy Generic

Generic products are a great way to save money, but sometimes the brand-name version is clearly superior.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

8 Tips for Retiring Comfortably on Social Security Alone
8 Tips for Retiring Comfortably on Social Security Alone

It’s never too early to start learning how to live well while living on less.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

The Next 5 Groups Who Will Get the COVID-19 Vaccine
The Next 5 Groups Who Will Get the COVID-19 Vaccine

The CDC has unveiled a schedule that likely will determine who gets the next doses.

11 Generic Products You Should Buy at Costco
11 Generic Products You Should Buy at Costco

Not all generics are worthwhile, but these are among the best from Costco’s Kirkland Signature brand.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have all of these documents that are crucial to their golden years — especially during a pandemic.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

Can a Divorced Widow Claim Her First Husband’s Social Security Benefits?
Can a Divorced Widow Claim Her First Husband’s Social Security Benefits?

The rules are complicated when it comes to eligibility for survivors benefits.

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

11 Huge Retirement Costs That Are Often Overlooked
11 Huge Retirement Costs That Are Often Overlooked

Does your retirement budget account for all of these costs?

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.