US Expat Taxes for Americans Living in Spain – What You Need to Know
There are an estimated 95,000 Americans living in Spain.
Living in Spain is an incredible experience for a variety of reasons – the culture, climate, food, and wine to name but a few. As an American expatriate living in Spain though, what exactly do you need to know regarding filing Us expat (and Spanish) taxes?
All US citizens and green card holders who earn a minimum of $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 Spain, 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 at least US$10,000 (or $400 for self-employed individuals), you have to file form 1040. While taxes are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further online until October 15th
If you have foreign 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 and declare them.
If you had a total of at least US$10,000 in one or more foreign 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.
If you pay income tax in Spain, there are several ways you can reduce or avoid paying tax on the same income to the IRS too. The two primary ones are 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 demonstrate that you are a Spanish resident, and the Foreign Tax Credit, which gives you a dollar tax credit for every dollar of tax you’ve paid in Spain. The Foreign Tax Credit is normally a better option if you pay more tax in Spain than you would owe to the IRS, as you can carry the excess credits forward for future use. Be aware though that even if you don’t owe any tax to the IRS, if your income is over US$10,000 (or $400 for self-employed individuals) you still have to file a federal return.
“The Spanish system for direct taxation of individuals is mainly comprised of two personal income taxes: Spanish PIT, for individuals who are resident in Spain for tax purposes, and Spanish non-residents’ income tax (NRIT), for individuals who are not resident in Spain for tax purposes who obtain income in Spain.”
The US and Spanish governments share taxpayer info, while Spanish banks pass on US account holders’ account info to the IRS, so it’s not worth hiding or being ‘economical’ with the truth on your return. The penalties for tax evasion for expats are severe to say the least.
If you’re a US citizen, green card holder, or US/Spanish dual citizen, and you have been living in Spain 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 get up to date with your filing without facing any penalties. Don’t delay though, in case the IRS find you first.
Spanish taxes – what you need to know
Foreigners who spend more than 183 days a year in Spain, or for whom Spain is their main base or center of economic activities or interests, are considered resident for tax purposes. Expats who earn over 22,000 Euros a year from just one employer must file a Spanish tax return. Those who earn less, but from either more than one source, or not from employment (e.g. from rental income), also have to file a return. The Spanish filing deadline is June 30th, however if you wish to pay your tax by direct debit in instalments you must file by June 25th.
There are several deductions available, including a personal deduction, a deduction for married couples, and for those with children.
The Spanish tax authority is called the Agencia Tributaria, and the tax return form is called Modelo 100.
Spanish residents must also declare assets outside Spain using form Modelo 720 if the assets have a combined total value of more than 50,000 Euros.
Spanish income tax rates are relatively high compared to in the US, so for many people it will make sense to claim the Foreign Tax Credit. Spanish income tax rates range from 19% to 45%.
We strongly recommend that if you have any doubts or questions about your tax filing situation as a US expat living in Spain that you contact an expat tax specialist.