Get to know the authorEach year the IRS adjusts tax brackets, the Standard Deduction, and exclusion thresholds for inflation. Last week the IRS announced the new figures for 2020.
These will be applied to the year from January 1st to December 31st 2020, the 2020 tax year, for which expats (along with Americans living stateside) will file in 2021. The rates for 2019 tax year for filing in 2020 were actually announced a while ago.
2019 and 2020 tax rates and brackets
Although most expats don’t end up owing US taxes, as long as they file a federal return and claim one or more of the exclusions and credits available to them, some expats do owe US tax, and they should note that US income tax rates aren’t changing in either 2019 or 2020.
Tax brackets have been adjusted for inflation however as follows:
| 2018 | | | 0 – $9,525 at 10% | | | $9,526 – $38,700 at 12% | | | $38,701 – $82,500 at 22% | | | $82,501 – $157,500 at 24% |
| 2019 | | | 0 – $9,700 at 10% | | | $9,701 – $39,475 at 12% | | | $39,476 – $84,200 at 22% | | | $84,201 – $160,725 at 24% |
| 2020 | | | 0 – $9,875 at 10% | | | $9,876 – $40,125 at 12% | | | $40,126 – $85,525 at 22% | | | $85,526 – $163,300 at 24% |
| 2018 | | | $157,501 – $200,00 at 32% | | | $200,000 – $500,000 at 35% | | | $500,501+ at 37% |
| 2019 | | | $160,726 – $204,100 at 32% | | | $204,101 – $510,300 at 35% | | | $510,301+ at 37% |
| 2020 | | | $163,301 – $207,350 at 32% | | | $207,351 – $518,400 at 35% | | | $518,401+ at 37% |
The above figures are for individual filers. For married filers and head of household tax brackets, see here.
2019 and 2020 deductions and exclusions
Possibly the three most important tax reducing provisions for many expats are the Standard Deduction, the Foreign Earned Income Exclusion, and the Child Tax Credit.
“The Internal Revenue Service (IRS) has announced the annual inflation adjustments for the year 2020, including tax rate schedules, tax tables and cost-of-living adjustments.” – Forbes
The Foreign Earned Income Exclusion is one of the primary ways that expats can avoid paying US taxes, as it lets them exclude up to the first around $100,000 of their earned income from US tax. To claim the Foreign Earned Income Exclusion, expats have to file Form 2555 when they file their federal return.
The 2018 Standard Deduction amount was $12,000. It rises to $12,200 for 2019, and $12,400 for 2020.
The Foreign Earned Income Exclusion threshold for 2018 was $103,900. It rises to $105,900 for 2019, and $107,600 for 2020.
The Child Tax Credit remains $2,000 for all three years, with the refundable part that many expat parents can claim as a payment also staying the same at $1,400 per child.
US tax filing for expats
All Americans, including expats, are required to file a federal return, reporting their global income.
Expats may also have to file a foreign tax return and pay taxes in their country of residence. To avoid double taxation, expats can claim either the Foreign Tax Credit, which allows them to claim US tax credits up to the value of foreign taxes that they’ve paid, or the Foreign Earned Income Exclusion mentioned above, when they file. Which is preferable to claim depends on the details of each expat’s circumstances. Expats who don’t file on the other hand are considered to still owe US taxes.
Expats may also have to report any foreign registered bank and investment accounts that they have by filing an FBAR (Foreign Bank Account Report), as well as any foreign registered business interests.
Expats who are behind with their US tax filing because the weren’t aware that they have to file from abroad can catch up under an IRS amnesty program called the Streamlined Procedure.
Expats who have any questions about their US tax situation should consult an expat tax specialist, who can ensure that they remain compliant, avoid penalties, and minimize their tax bill in both the short and long term.
