Could US expats be entitled to tax refunds?

by Ray Clancy on February 13, 2013

Could US expats be entitled to tax refunds?

Americans living abroad may believe that paying income taxes to their host country is enough but it could actually pay them to file a US tax return as well, according to expat tax experts. The US is one of the only nations in the world that requires its citizens to file taxes on money earned while living in another country, says Greenback expat tax services.

It points out that if you earn income anywhere in the world, as a US citizen, you will likely be obligated to pay American taxes as well. However, this is not necessarily a bad option as many expats could be entitled to a refund. Indeed, the Internal Revenue Service pointed out in a recent memo that ‘even if you are not required to file a tax return, you may still want to file. You may get a refund if you’ve had too much federal income tax withheld from your pay or qualify for certain tax credits’.

The memo gives five good reasons to file a tax return. It points out that if you were employed by an American company for any part of the tax year and your employer withheld federal taxes, if you paid estimated taxes to the IRS, or if you have discovered you overpaid your taxes in previous years, it’s possible that you have a refund due. The IRS says those who earned less than $50,270 in 2012 should complete a return as 20% of taxpayers who qualify for the Earned Income Tax Credit fail to claim it – the average credit for 2011 was $2,200.

There are other tax credits which expats can also benefit from such as the child tax credit, the American Opportunity Credit which applies to students and the health care tax credit. Greenback also says that are other good reasons for expats to file their American taxes which can reduce or eliminate the potential amount you may owe on foreign earned income.

Quote from ExpatForum.com : “I was wondering if you had any useful information and tips on doing US Tax Returns and what the requirements are for foriegners living in the US that you could add to this very informatitive post?”

Under the Foreign Earned Income Exclusion qualifying US citizens living abroad may elect to exclude up to $97,600 of their foreign income on their 2013 US expat taxes, or up to $95,100 for tax year 2012. The Foreign Housing Allowance enables applicants to deduct up to 30% of the Foreign Earned Income Exclusion (FEIE) they claim on qualified housing costs in a foreign country and those living in a city that has a high cost of living may be able to claim more. ‘This can greatly reduce the amount of American taxes you might owe,’ said a Greenback spokesman.

The Foreign Tax Credit is an expat tax credit designed to reduce the burden of double taxation on foreign incomes. US citizens may elect to claim a credit on their American taxes for foreign income taxes paid, added the spokesman.

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