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Tax Law Updates For Americans Overseas In 2022



Tax Law Updates For Americans Overseas In 2022

2021 is ending and 2022 is coming. Post-holiday is tax filing season and Americans living abroad need to file their taxes. Just like Americans living in the United States, federal tax returns are filed every year. However, applying from abroad is more complicated. Below is new information about the taxes collected abroad for 2022 that Americans file with the United States.

Some things stay the same

First, it might be helpful to look back at what’s not new for Americans overseas in 2022.

Americans living abroad must submit US tax documents and report that foreign accounts, assets, and businesses remain unchanged. This year there was hope that President Biden’s tax reform might be accompanied by some kind of exemption for Americans living abroad, but that has not materialized.

While the filing deadline has been extended to May 15, 2021, Americans living abroad will be automatically extended to June 15 anyway, and that’s unlikely to change in 2022.

What’s new in 2022?

Tax returns are due in spring 2022, and for the tax year 2021, tax brackets and rates have been adjusted for inflation, while the standard deduction has been increased to $12,550.

This means that only Americans with global income above the standard deduction in the calendar year 2021 will need to file a return in 2022, unless they have self-employment income or are married but filing separately, even with a non-US spouse.

The tax brackets for the tax year 2021 and tax rates for 2022 filings are as follows:

  • 37% on income over $523,600 ($628,300 for married couples filing jointly).
  • 35% on income over $209,425 ($418,850 for married couples filing jointly).
  • 32% on income over $164,925 ($329,850 for married couples filing jointly).
  • 24% on income over $86,375 ($172,750 for married couples filing jointly).
  • 22% on income over $40,525 ($81,050 for married couples filing jointly).
  • 12% on income over $9,950 ($19,900 for married couples filing jointly).
  • The minimum tax rate is 10% for singles earning $9,950 or less ($19,900 for married couples filing jointly).

However, if a US person claims a foreign tax credit on Form 1116 when filing US federal returns and pays taxes abroad, they can offset the US tax refund on the foreign source income. Alternatively, they can use the Foreign Earned Income Exclusion on Form 2555 for employment or self-employment income, whether or not they pay foreign income taxes. This means that most Americans who apply from abroad end up with no US debt. Taxes, but of course, it depends on the situation of each person.

The amount excluded through the Foreign Earned Income Exclusion will also increase to $108,700 per person in 2022.

Proposed Tax Changes

ince President Biden took office, Congress has wrestled with his tax and infrastructure plans. However, the final Build Back Better Act contains some changes that will affect Americans living abroad.

If passed as mandated by the November 2021 House bill, Americans with offshore corporations, including hundreds of thousands of foreign nationals, would be subject to an effective new GILTI rate of 15%, up from the current 10.5%, for those claiming 962 elections. If the company already pays foreign corporate tax at a rate higher than 18.9%, they can still apply for an exemption to offset GILTI.

Unfortunately, the $3,000/$3,600 Additional Child Tax Credit for each dependent child in the 2021 tax year is only available if you were physically present in the U.S. for half of 2021. For many U.S. parents who live abroad but do not meet this residency criterion, the child tax credit is worth $2,000 per child, or, if you have offset your U.S. tax liability by using a foreign tax credit for a refundable$1,400 tax rebate per child.

Americans living abroad should be aware that the IRS will receive a substantial increase in investment in the Build Back Better Act, one of the stated goals is to improve its enforcement of U.S. tax laws on taxpayers who live outside the U.S., as such it is more important than ever to be in compliance, and don’t forget to file your FBAR and form 8938.

Proposed Tax Changes

Since President Biden took office, Congress has grappled with his fiscal and infrastructure plans. However, the final Build Back Better Act contains some changes that will affect Americans living abroad.

If passed as required by the November 2021 House bill, Americans with offshore corporations, including hundreds of thousands of foreign nationals, would be subject to a new effective GILTI rate of 15%, up from 10.5%. If companies already pay foreign corporate taxes at a rate higher than 18.9%, they can still apply for an exemption to offset GILTI.

Unfortunately, the additional child tax credit of $3,000/$3,600 per dependent child for the tax year 2021 only applies if you were physically present in the U.S. for half of 2021.

For many U.S. parents who live abroad but don’t qualify for this residency, the child tax credit is worth $2,000 per child or, if you canceled your US citizenship when claiming the foreign tax credit, $2,000 per child Children provide a tax refund of $1,400.

Americans living abroad should know that the IRS will be investing heavily in the Build Back Better Act, one of its stated goals is to improve its ability to enforce internationally, so don’t forget to file your FBAR!

What happens if you did not file your tax return in 2021?

If you have been living abroad for a while and have not kept up with your US tax returns, there is an amnesty program called the Streamlined Foreign Offshore procedure that allows you to get up to date without facing penalties.

Have a question? Contact Olivier Wagner, 1040 Abroad.

Olivier Wagner

Certified Public Accountant, U.S. immigrant, expat, and perpetual traveler Olivier Wagner preaches the philosophy of being a worldly American. He uses his expertise to show you how to use 100% legal strategies (beyond traditionally maligned “tax havens”) to keep your income and assets safe from the IRS. Before obtaining my U.S. citizenship and traveling all over the world, he was born and raised in France. His experience learning the intricacies of the U.S. immigration process combined with his desire to travel freely lead me to specialize in taxes for Americans living and working abroad. He helps Americans Abroad file their taxes and devise strategies that make sense for their lifestyle. These strategies encompass all aspects of registering an offshore business, opening a bank account abroad, and planning out new residencies and citizenships. He is operating the accounting firm 1040 Abroad. 1040 Abroad exists to help you make sense of an incredibly large world of possibilities. Find out more by visiting www.1040abroad.com

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