US Expat Taxes for Americans Living in Luxembourg – What You Need to Know
It has been estimated that there are several thousand Americans living in Luxembourg.
Living in Luxembourg is an incredible experience for a number of reasons, including the friendly locals, the charming architecture, and easy access to the rest of Europe. As an American expatriate living in Luxembourg though, what exactly do you need to know regarding filing US expat (and Luxembourg) 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 Luxembourg, 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.
“Generally, an effectively used abode in Luxembourg or a stay in Luxembourg in excess of six consecutive months results in tax residence, even if the period overlaps two fiscal years or is interrupted by short absences.”
If you pay income tax in Luxembourg, 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 Luxembourg resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in Luxembourg. 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 Luxembourg governments share taxpayer info, and Luxembourg 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/Luxembourg dual citizen, and you have been living in Luxembourg 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.
Luxembourg taxes – what you need to know
Luxembourg residents are taxed on their worldwide income on a scale from 0% to 42%. There is also a solidarity tax of 7% or 9% of income tax paid.
If your only income is from employment in Luxembourg, tax and social security tax will be deducted at source before you’re paid, and if your salary doesn’t exceed 100,000 Euros, you won’t need to file a Luxembourg tax return.
Foreigners living in Luxembourg are considered a resident for tax purposes if their home is in Luxembourg, or if they spend a period in excess of 6 months (not necessarily all in one year) in Luxembourg.
The Luxembourg tax year is the same as the US, which is to say the calendar year. Tax returns are due by March 31st. The Luxembourg tax authority is called the Administration des contributions directes.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Luxembourg that you contact a US expat tax specialist.