US Expat Taxes for Americans Living in South Korea – What You Need to Know
It has been estimated that there are 150,000 Americans living in South Korea.
Americans living in South Korea, whether to work or with the military, will enjoy local highlights including the exotic culture, the delicious food, the health care, and friendly (if shy) locals. As an American expatriate living in South Korea though, what exactly do you need to know regarding filing US expat (and South Korean) taxes?
All US citizens and green card holders who earn a minimum of around $10,000 (or just $400 for self-employed individuals) 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 their income is generated.
The good news is if you are paying income tax in South Korea, 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 earn over US$10,000 (or just $400 of self-employment income), wherever the income originates in the world you have to file IRS form 1040. While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on request until October 15th.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
“Foreign residents who have stayed in Korea for longer than five years during the last ten year period are taxed on their worldwide income.
If you pay income tax in South Korea, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS. The main one is the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a South Korean resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in South Korea. These exemptions can be combined if necessary. Remember though that even if you don’t owe any tax to the IRS, if your income is over US$10,000 (or $400 if you’re self-employed) you still have to file a federal return.
The US and South Korean governments share taxpayer info, and South Korean banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
If you’re a US citizen, green card holder, or US/South Korean dual citizen, and you have been living in South Korea but you didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don’t delay though, in case the IRS comes to you first.
South Korean taxes – what you need to know
South Korean income tax rates range from 6% to 45% of net income after deductions, although foreign workers can opt to pay a 19% flat tax on their gross income. There is also a local income tax of 10% of the national income tax rate paid. Capital gains are taxed separately.
Foreigners are considered residents in South Korea for tax purposes if they spend at least 183 days in South Korea within a tax year.
The South Korean tax year is the same as the American, and tax returns are due by May 31st. The South Korean tax authority is called the National Tax Service.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in South Korea that you contact a US expat tax specialist.