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As the 2024 tax year approaches, the IRS has released its end-of-year notice regarding upcoming tax changes. US taxpayers abroad must pay particular attention to these updates, which is where we come in.
Below, we summarize key updates for the 2024 tax year, which will impact your tax filing for the 2025 season. We also review tax brackets and rates from the 2023 tax year, which inform how you file taxes for the 2024 filing season. All of this information, and more, is broken out for clarity. Let’s dive in!
IRS changes 2024: What do tax updates mean for US expats?
2024 tax changes for US expats include adjusted income tax brackets and rates for single filers, married couples filing separately, heads of households, and married couples filing jointly.
This annual update, in response to inflation adjustments and the Consumer Price Index, includes changes to the 22%, 24%, 32%, 35%, and 37% tax brackets. These adjustments aim to counteract bracket creep and reflect the 2017 Tax Cuts and Jobs Act’s long-term impact.
US expats should review their tax strategy to ensure theirs is optimized for their situation. Below, we look at common aspects of US taxation that comprise a useful baseline from which to craft your expat tax strategy.
Minimum filing thresholds and standard deductions: Do you need to file?
While the figures are often the same, the standard deduction and minimum income thresholds required to file a tax return are two different things.
Generally, when your annual income is lower than the lowest standard deduction, a tax return does not need to be filed. However, there is one major exception.
If you earn at least $5 and are married but filing separately, you’ll need to file your tax return.
However, for individuals fitting this profile and under 65, the standard deduction differs from the $5 filing threshold, being $14,600 for the 2024 tax year.
Tax filing can be financially beneficial, even if you’re technically exempt
While some may interpret their financial situation to avoid filing, there are instances where filing a tax return can be beneficial.
Retroactively claiming US stimulus checks
Consider a hypothetical US citizen, Emma, for example. Say Emma is a 45-year-old single taxpayer working in Sri Lanka. She has not filed US tax returns for the past several years, including tax years 2020-2022.
Let’s also assume that Emma’s annual income for 2022 was $10,000, and she has not claimed any of the three IRS stimulus payments that she has a right to claim as a US citizen living overseas. For the 2024 tax year (tax returns filed in 2023), the standard deduction is $13,850, exceeding her total income.
Technically, Emma doesn’t need to file, but if she doesn’t, she effectively leaves $3,200 on the table, plus any refundable childcare credits for which she’s eligible. In Emma’s particular case, it’s strongly in her financial favor to file a US tax return. (Note, we cover 2024 tax changes to the standard deduction in more depth below.)
A note on stimulus refund eligibility:
The above scenario is only possible because our example taxpayer has fallen behind on filing her US taxes and the missing years include tax years 2020-2022. Using a US amnesty program called the Streamlined Procedure (SLP), it is possible to both catch up and claim the stimulus payments. However, if you are not behind on your filing and simply did not claim your stimulus payments on previous tax returns, there is no way to claim stimulus payments post-2021. We cover the SLP in more detail below.
Key 2024 tax changes
The 2024 tax changes include adjustments to the Foreign Earned Income Exclusion (FEIE) and an increase in the standard deduction.
The gift exclusion is increasing and remains notably high for gifts to non-US spouses.
Retirement contribution limits remain largely unchanged.
Foreign Earned Income Exclusion is increasing to $126,500
The Foreign Earned Income Exclusion (FEIE) allows expats to exclude a certain amount of their foreign-earned income from taxable income. This exclusion applies to “earned income,” such as salaries and self-employment earnings. Unfortunately, it does not apply to passive income such as interest and dividends.
Every year, the IRS adjusts the FEIE to account for inflation.
Foreign Earned Income Exclusion Amounts
| Tax Year | Filing Year | FEIE Amount |
|---|---|---|
| 2024 | 2025 | $126,500 |
| 2023 | 2024 | $120,000 |
| 2022 | 2023 | $112,000 |
The standard deduction is increasing
The standard deduction is the amount of your income that is tax-free. Due to inflation, the IRS typically adjusts the standard deduction amount annually.
For tax returns you’ll file in 2025 related to the 2024 tax year, US taxpayers benefit from increased standard deduction amounts.
Of course, the amount you can claim depends on certain factors. These include your marital status, age, and whether you file jointly or individually.
Standard Deduction Amounts for Taxpayers Younger Than 65
| Tax Year | Single or Married Filing Separately | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 2024 | $14,600 | $29,200 | $21,900 |
| 2023 | $13,850 | $27,700 | $20,800 |
| 2022 | $12,950 | $25,900 | $19,400 |
Pro tip:
There is an additional standard deduction available to US taxpayers 65 and older and those who are blind. The additional standard deduction amount for 2024 is $1,550 ($1,950 if unmarried and not a surviving spouse).
A note on claiming itemized deductions as a US expat
Before the Tax Cuts and Jobs Act of 2017, many expats preferred the itemized deductions route. At that time, the standard deduction for single filers was a mere $6,350. However, this amount doubled to $13,000 (for single filers) with the passing of the Tax Cuts and Jobs Act.
This change made the standard deduction far and away the most popular choice for US taxpayers. If you have questions about your situation or the best strategy for you, reach out to a Bright!Tax expert.
The income thresholds within each tax bracket are going up
There are seven income tax rates in the US. These rates have income bands adjusted yearly to account for inflation. It’s important to review these bands annually to understand which income tax bracket corresponds with your income.
If your income remains unchanged, it’s unlikely you’ll move to a higher tax bracket. Adjusting the income bands to neutralize the impact of inflation is almost always financially beneficial to the taxpayer.
Here’s how the income bands look for single filers for the tax year 2023 (the return you’ll file in 2024) and the tax year 2024 (the return you’ll file in 2025).
Income Tax Rates, Single Filers
| Tax Rate | Tax Year 2024 | Tax Year 2023 |
|---|---|---|
| 10% | $1 to $11,600 | $1 to $10,999 |
| 12% | $11,601 to $47,150 | $11,000 to $44,725 |
| 22% | $47,151 to $100,525 | $44,726 to $95,375 |
| 24% | $100,526 to $191,950 | $95,376 to $182,100 |
| 32% | $191,951 to $243,725 | $182,101 to $231,250 |
| 35% | $243,726 to $609,350 | $231,251 to $578,125 |
| 37% | More than $609,350 | More than $578,125 |
The example we’ve highlighted here is for single filers. Notably, for the 2023 tax year (the tax return you will file in 2024), the federal income tax brackets are the same as the corresponding year for single filers. (Except for the top two (35% and 37% tax brackets.)
Check out the IRS website for the 2024 tax changes in the tax bands for other filers, notably, those married filing jointly.
What is the annual gift tax exclusion for 2024?
The gift tax exclusion amount for the 2024 tax year is increasing to $18,000. This means you can make a tax-free gift of up to $18,000 to anyone in 2024.
Here’s how this amount has been changing over the years:
Annual Gift Tax Exclusion
| Tax Year | Gift Tax Exclusion |
|---|---|
| 2024 | $18,000 |
| 2023 | $17,000 |
| 2022 | $16,000 |
Gifting to a non-US spouse
The annual amount that one may give to a spouse who is not a US citizen will increase to $185,000 in 2024.
The maximum amount you can contribute to a retirement plan is increasing
As an expat, your retirement account options may look different than for your family and friends in the US. It’s important to be aware of the vehicles available to you, as well as stay abreast of the maximum contribution limits.
Below we detail contributions by investment vehicle, including IRS 401(k) changes. The following table applies to US taxpayers who are younger than 50. If you’re 50 or older, you may put up to $30,500 into all of the vehicles in the table below, excluding IRAs.
| 401(k) | IRA | 403(b) | Most 457 plans | |
|---|---|---|---|---|
| Tax Year 2024 | $23,000 | $7,000 | $23,000 | $23,000 |
| Tax Year 2023 | $22,500 | $6,500 | $22,500 | $22,500 |
Note: There are certain changes coming into effect for US taxpayers with Roth 401(k)s as a result of the Secure 2.0 Act, signed into law in late 2022. These should be carefully reviewed with an accountant familiar with your circumstances.
Catch-up contributions also get their yearly update
Catch-up contributions refer to the allowance for those 50 and older who continue to use IRS retirement vehicles such as the IRA to save more money.
For 401(k), 403(b), and most 457 plans, the IRS increased the maximum catch-up amount to $7,500 in 2023. This means that if you’re 50 and older, you could save up to $30,000 last year. This is the regular contribution limit plus the catch-up contribution limit. These figures remain unchanged for the 2024 tax year.
The limit for catch-up contributions remains unchanged for IRAs at $1,000.
Electric vehicle (EV) tax credit 2024 changes
As part of the Inflation Reduction Act of 2022, Americans filing for the 2023 tax year benefitted from clean vehicle tax credits of up to $7,500 if they purchased qualifying electric vehicles. The 2024 Electric Vehicle Tax Credit is claimed using Form 8936.
Do expats qualify for the EV tax credit in 2024?
The legislation stipulates that the qualifying electric vehicle must be used in the United States. Unfortunately, this aspect of the provision prevents most Americans living abroad from taking advantage of the change. However, you can speak to your tax advisor if you have questions about how purchasing an electric vehicle in North America may benefit you from a tax perspective.
Were there COVID stimulus payments in 2022?
US taxpayers were eligible to claim three stimulus payments in total. Two of them require taxpayers to have filed their 2020 tax returns. One requires filing a tax return for 2021. Typically, if you are up-to-date on your US taxes and did not claim the stimulus payments, you will not be able to claim them post-2021. However, if you have not filed for certain tax years, including 2020-2022, you may still be eligible to claim stimulus payments.
If you would like to claim your stimulus payments but are concerned about your eligibility because you are behind in your taxes, you may still be able to retroactively claim your stimulus payments. (This, as well as any additional credits you might qualify for.)
Two birds with one (penalty-free!) stone:
Many US expats who need to file late may be able to catch up on US taxes in 2024 and claim stimulus payments.
For US taxpayers living abroad who are not currently tax-compliant i.e., they have not filed US tax returns for one or (perhaps many) more years, the IRS created a specifically designed amnesty program.
This program is called the Streamlined Compliance Procedure (SLP). The SLP requires certain eligibility criteria, which can typically be obtained by working with a specialist in US expat tax services. If you are a US expat taxpayer who has fallen behind on US tax filing and, by extension, has not claimed any or all of the available stimulus payments, you could become tax compliant and receive all tax refunds for which you are eligible in one fell swoop.
Good to know:
In general, the IRS usually gives individuals up to three years to file the relevant returns for which the claim for a refund is being made.
Child Tax Credit in 2024
The Child Tax Credit (CTC) is available to US citizens based both in the US and abroad, and the 2024 CTC is up to $1,700 per child. This is an increase of $100 from 2023 when the refundable portion of the CTC was $1,600 per qualifying child.
Note that there are income limits and other criteria associated with successfully claiming the CTC. Understanding the basic expat provisions is an important start, and yet working with experts in expat tax will ensure tax strategy is integrated into your compliance.
