US International Taxation of Individuals
US taxpayers (citizens, residents and permanent residents i.e. green-card holders) are taxed on their worldwide income, no matter where in the world they reside. US taxpayers living abroad will generally not owe tax to Uncle Sam on their foreign-sourced income (see Your US Tax Liability) where that income is taxed by the foreign country, or where the individual's earned income is less than the Foreign Earned Income Exclusion. However, even if no tax is owed to the IRS, US persons must still file an annual US tax return if they exceed the normal filing thresholds.
If you are a US taxpayer living abroad, especially if you are residing in the UK, there are several things that you should know to ensure you are in compliance with the international taxation rules and regulations of the IRS. The first has been mentioned above; if you are a US citizen or green-card holder and have gross income above the normal Form 1040 filing thresholds, you should be filing a tax return with the IRS, even if you do not receive any income from, or hold assets in, the US. How much tax will you owe? See our page on Your US Tax Liability for a brief explanation of how your worldwide income will be subject to US tax.
As well as an income tax return, there are several obligations for information returns that you may incur whilst living abroad. The most common of these is the requirement to file a Form 114 Foreign Bank Account Report (FBAR, "eff-bar"). You must file an FBAR annually if you have foreign bank accounts or other foreign financial accounts that you own or control which exceed $10,000 in aggregate value at any time during the year.
Alongside the FBAR, since Tax Year 2011 the Foreign Account Tax Compliance Act (FATCA) has been in force for individuals. The ultimate purpose of FATCA is to ensure US taxpayers pay the right tax on their foreign financial assets, and it does this by forcing foreign financial institutions to report information to the IRS in a similar way as domestic ones. For individuals, this means including Form(s) 8938 with your 1040 tax return if you meet the relevant filing thresholds. See our FBAR & FATCA page for more details on Form 114 and Form 8938.
Furthermore, there are also rules relating to which types of non-US financial assets you may hold. Many non-US financial assets fall foul of the Passive Foreign Investment Company (PFIC, "P-fick") rules. A PFIC is essentially any foreign mutual fund or investment vehicle, or any other company that derives the majority of its income from passive sources. The PFIC rules are designed to restrict US taxpayers from holding foreign mutual funds, rather than domestic ones, to delay or reduce US income tax that would otherwise be owed. Please see our PFIC information page for more details.
If you are a US taxpayer living abroad, especially if you are residing in the UK, there are several things that you should know to ensure you are in compliance with the international taxation rules and regulations of the IRS. The first has been mentioned above; if you are a US citizen or green-card holder and have gross income above the normal Form 1040 filing thresholds, you should be filing a tax return with the IRS, even if you do not receive any income from, or hold assets in, the US. How much tax will you owe? See our page on Your US Tax Liability for a brief explanation of how your worldwide income will be subject to US tax.
As well as an income tax return, there are several obligations for information returns that you may incur whilst living abroad. The most common of these is the requirement to file a Form 114 Foreign Bank Account Report (FBAR, "eff-bar"). You must file an FBAR annually if you have foreign bank accounts or other foreign financial accounts that you own or control which exceed $10,000 in aggregate value at any time during the year.
Alongside the FBAR, since Tax Year 2011 the Foreign Account Tax Compliance Act (FATCA) has been in force for individuals. The ultimate purpose of FATCA is to ensure US taxpayers pay the right tax on their foreign financial assets, and it does this by forcing foreign financial institutions to report information to the IRS in a similar way as domestic ones. For individuals, this means including Form(s) 8938 with your 1040 tax return if you meet the relevant filing thresholds. See our FBAR & FATCA page for more details on Form 114 and Form 8938.
Furthermore, there are also rules relating to which types of non-US financial assets you may hold. Many non-US financial assets fall foul of the Passive Foreign Investment Company (PFIC, "P-fick") rules. A PFIC is essentially any foreign mutual fund or investment vehicle, or any other company that derives the majority of its income from passive sources. The PFIC rules are designed to restrict US taxpayers from holding foreign mutual funds, rather than domestic ones, to delay or reduce US income tax that would otherwise be owed. Please see our PFIC information page for more details.
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