US Expat Taxes for Americans Living in Hungary – What You Need to Know
It has been estimated that there are several thousand Americans living in Hungary.
Living in Hungary is an incredible experience for a number of reasons, including the history, the architecture and culture, the cuisine, and having the rest of Europe on your doorstep. As an American expatriate living in Hungary though, what exactly do you need to know regarding filing US expat (and Hungarian) 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 Hungary, 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.
If you pay income tax in Hungary, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS.
“Income derived from employment activity performed in Hungary can qualify as domestic-source income, even if it is paid from abroad. In the case of income paid from abroad, income tax can be due whether or not the income has been transferred (e.g. electronically, by bank-to-bank transfer) or brought into the country in cash.” – PwC
The main exemptions 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 prove that you are a Hungarian resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in Hungary. 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 Hungarian governments share taxpayer info, and Hungarian 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/Hungarian dual citizen, and you have been living in Hungary 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.
Hungarian taxes – what you need to know
Hungarian residents are taxed on their worldwide income at a flat rate of 15% for all income types. Non-residents are taxed at the same rate but only on Hungarian sourced income.
Foreigners living in Hungary are considered a resident for tax purposes if their permanent home or center of vital interests is in Hungary, or if they spend over 183 days in Hungary in any 12 month period that overlaps with a tax year.
The Hungarian tax year is the same as in the US, which is to say the calendar year. Income tax returns are due by May 20th, though an extension is available until November 20th. Spouses are required to file separately. The Hungarian tax authority is called the National Tax and Customs Administration.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Hungary that you contact a US expat tax specialist.