A lot of Americans choose to live and work overseas for years at a time. These people are known as expatriates – people who live around the world, but maintain their US citizenship. Living abroad for a few years or during retirement can be an amazing way to expand your horizons and save money, but it also comes with the annoyance of paying US taxes, even on money that you earn abroad.
The US is one of very few countries that requires its citizens to pay taxes on foreign earnings. Of course, you don’t have to pay taxes on the first hundred thousand dollars in foreign earnings each year, and there are a few other exemptions. But for those lucky people who are enjoying the rich life abroad, they need to be extra careful about properly filing with the IRS.
In recent months, the IRS began requiring that expatriates report not only their income, but also money earned on savings and investments overseas. Properly reporting income is already a tough job due to the complexities of the US tax code. In fact, it’s so complicated that people who live overseas get a few extra months to file their taxes every year. And this new condition only makes things harder.
Scariest of all, Congress has approved a provision that will allow the IRS and the State Department to revoke the passports of people who owe too much in back taxes. This means that if you live abroad and make a substantial mistake on your taxes or fail to file, you could lose your passport.
Some people who live overseas are unaware that they must pay US taxes in addition to the foreign taxes that they pay. It can be hard enough paying taxes in a foreign country where you are not fluent in the local language. Imagine trying to translate your Thai tax documents to figure out exactly how much you owe the US government. There’s also the issue of double taxation, which plenty of expatriates are not happy about. But the main concern surrounding this new taxes and passports policy is the fear that it creates. Many expatriates say that they feel like they’re being treated like criminals when they haven’t done anything wrong.
Check out this article from Bloomberg to learn more about the passport / taxes situation. We recommend reading the whole article if you are an American living overseas or if you know one.