US Expat Taxes for Americans Living in the Philippines – What You Need to Know
There are an estimated 105,000 Americans living in the Philippines
Living in the Philippines is an incredible experience for a variety of reasons – the climate, the people, the food, the culture, and the beaches, to name but a few. As an American expatriate living in the Philippines though, what exactly do you need to know regarding filing US expat (and Filipino) taxes?
All US citizens and green card holders who earn more than $12,550 (in 2021, or just $400 of self-employment income or just $5 if you’re married to a foreigner) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or where their income originates.
The good news is if you are already paying income tax in the Philippines, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earned more than US$12,550 (in 2021, or $400 of self-employment income etc), you are required to file Form 1040. While taxes are still due by April 15, expats get an automatic filing extension until June 15, which can be extended further online until October 15.
If you have foreign assets worth more than US$200,000 (per person), excluding your home if it is owned in your own name, you should also file a form 8938 declaring them.
If you had over US$10,000 in total in one or more foreign financial accounts at any time during the tax year, you must also file FinCEN form 114, otherwise known as an FBAR (Foreign Bank Account Report).
“Resident citizens are taxed on all of their income, while foreign residents and non residents are only taxed on their Filipino income.”
– Santander Rio Bank
If you are paying income tax in the Philippines, there are several mechanisms that let you avoid paying tax on the same income to the IRS as well. The two primary mechanisms are the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US income tax if you can demonstrate that you are a Filipino resident, and the Foreign Tax Credit, which allows you a dollar credit for every dollar of tax that you’ve paid in the Philippines. The Foreign Tax Credit is typically a good option if you pay more tax in the Philippines than you would owe in the US, as you can carry the excess tax credits forward for future use. Bear in mind though, even if you don’t owe any tax in the US.
The US and Filipino governments share taxpayer info, and Filipino banks pass on US account holders’ account info to the IRS, so it’s not worth being economical with the truth or hoping to stay below the IRS’ radar. The fines for tax evasion (or incomplete filing or not filing) for expats are high to say the least.
If you’re a US citizen, green card holder, or dual citizen and you have lived in the Philippines for some time but didn’t know you had to file or US taxes, don’t fear: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without facing any penalties. It’s better to do this soon though, before the IRS comes looking for you.
Filipino taxes – what you need to know
Filipino tax returns are due by April 15, the same as for Americans who live in the US. The Filipino equivalent of the IRS is called the BIR (Bureau of Internal Revenue), and the Filipino tax return form is called BIR Form 1700, or BIR form 1701 if you’re self-employed.
Americans living in the Philippines have to file a tax return if they spend over 180 days in a year in the Philippines, or if they don’t know how long they’ll be in the country for.
Filipino income tax rates are relatively high compared to the US, so for many people it will make sense to claim the Foreign Tax Credit. Filipino income tax rates range from 0% to 35%.
We strongly recommend that if you have any doubts or questions about your tax filing situation as a US expat living in the Philippines, that you contact an expat tax specialist.