US Expat Taxes for Americans Living in Iran – What You Need to Know
It has been estimated that there are several thousand Americans living in Iran.
Living in Iran is an incredible experience for a number of reasons, including the friendly locals, the low cost of living, the history and culture, and the seasons and landscapes. As an American expatriate living in Iran though, what exactly do you need to know regarding filing US expat (and Iranian) 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 Iran, 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.
“The employment income of employees in both the public and private sectors is taxed at progressive rates ranging from 0 to 20% after deducting a basic annual allowance determined by the state annual public budget laws.”
– The Iranian National Tax Administration
If you pay income tax in Iran, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS. The main 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 prove that you are a Iranian resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in Iran. 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 Iranian governments share taxpayer info, and Iranian 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/Iranian dual citizen, and you have been living in Iran 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.
Iranian taxes – what you need to know
Americans resident in Iran are taxed on their Iranian source income on a scale from 0% to 35%. There are separate rates for non-salary income though such as rents, agriculture and windfalls.
Foreigners living in Iran are considered a resident for tax purposes if they spend over 183 days in Iran in a tax year.
The Iranian tax year is different to the US, running from March 21st to March 20th. Iranian tax returns are due by July 22. The Iranian tax authority is called the Iranian National Tax Administration.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Iran that you contact a US expat tax specialist.