All American citizens and green-card holders are currently mandated to file and pay taxes on *all worldwide income*, even if the individual in question resides outside of the United States. Yet, most countries require their residents to pay taxes. This does not usually mean that a physician living outside of the United States will need to pay ‘double taxes’ to the United States and your new home country.
Here are five tips for filing taxes when moving abroad.
- There are mechanisms to prevent ‘double taxation’: The United States has tax treaties with 68 countries, detailing mechanisms to prevent ‘double taxation’, along with certain tax reductions and exemptions. In general, you would pay taxes to your new home country, and claim this amount as a deduction from the taxes paid to the United States. This deduction is called the Foreign Tax Credit, claimed by appending Form 1116 to your US tax return.
- The Foreign-Earned Income Exclusion can reduce your US Tax burden: In 2020, you may exclude up to $107,600 of ‘foreign-earned income’ if you have been present in a foreign country for 330 days; make sure to track your travel time carefully to claim this! If you are working for a Locums company who also pays for housing (a taxable benefit), you may, under certain conditions, also claim a Foreign Housing Exclusion to deduct the taxes that you would owe under this benefit.
- My current understanding is that telemedicine provided to patients in the US from abroad qualifies as ‘foreign-earned income’ as the provider is located outside of the United States, although this may change as it is somewhat controversial.
- The Foreign-Earned Income Exclusion can be claimed via Form 2555.
- You may also need to file a tax return in your former State of residence: Each state has different statutes about who qualifies as a resident; in particular, the states of California, New Mexico, North Carolina, New York, and Virginia may still require you to file a tax return even after you have left, and purging residency status will take extra legwork in these states.
- Don’t forget to file the Foreign Bank Account Report (FBAR) and Foreign Account Tax Compliance Act (FATCA): You *must* file the Foreign Bank Account Report if the aggregate balance of all your foreign bank accounts exceed $10,000 at any point during the year. This is intended to prevent tax evasion, and the penalties are steep – $10,000 for a ‘non-willful’ violation. FATCA states that US taxpayers must declare foreign financial investments that you own, with the lowest threshold being $50,000 if living in the US, and $200,000 if living abroad.
- Many US Tax Credits Still Apply: The Child Tax Credit and other tax credits are worth claiming while abroad.
Bottom Line
As a physician living abroad, you won’t need to pay ‘double taxes’. This tax situation is complicated and would likely benefit from a professional specializing in American expat taxes in your new home country.
Dr. Emeric Bojarski is a Child, Adolescent, and Adult Psychiatrist and founder of Equilibrium Behavioral Health, a tele-psychiatry private practice. He attended Harvard Medical School, completed residency at Yale-New Haven Hospital, and fellowship at Massachusetts General Hospital and Mclean Hospital.
