Before we moved, we met with our tax guy, who told us about the tax rules related to earning money overseas. He prepares US taxes for another client who lives and works abroad, so he’s well-versed in what that entails.
As I understand it, the US is one of like two nations that taxes the income you earn outside of the US. I know. I went to graduate school with a guy who had lived in the UK for a couple of decades and was trying to drop his US citizenship because he was never moving back, but it was really hard because the US likes collecting those taxes. (I’m sure there are other reasons they make it hard, but that’s got to be one of them).
Regardless, no matter how annoying it is, YOU MUST PAY YOUR US TAXES EVERY YEAR.
Good news though: the Foreign Earned Income Exclusion means that as long as you’re out of the country for at least 330 days a year, you’re only taxed on foreign income earned above a certain amount, and that amount is per adult. It’s something like $100,000, so if you’re making less than that each year, you’re fine. Anything above that will be taxed, and it’ll be your responsibility to keep track of that so you have the money available to pay come April next year.
We are lucky that we moved to the UK on January 10; as long as we don’t spend more than 25 days in the US the rest of this year, that income exclusion will apply to us when we file our taxes next year. If you move in the middle of the year, however, or end up spending more than 35 days in the US in any given year, that exclusion will not apply, and you’ll owe taxes on that income.
- If you’re going to be in the US for more than 35 days in a year, you should save some money each paycheck, as you’re going to owe taxes on that next year.
- Make a note on your calendar in February to do your US taxes; the UK has a different tax year, so you won’t be seeing the same reminders that bombard us in the US every February and March.
- If possible, find a CPA to talk to before moving to see if there are other things you should know specific to your own financial circumstances.