What American expats living in Spain need to know about US tax

Spain has been a very popular destination for American expats for many years, attracted by its history, beauty, and culture. If you’re also dreaming of moving to Spain from the US as an expat worker or retiree, what do you need to know about your taxes?

Do expats have to pay US taxes if they live in Spain?

Do American expats pay US taxes?  Yes, all US citizens and green card holders are required to file a US federal tax return regardless of where in the world they live or their income is generated.

Is US income taxable in Spain?

Foreigners who spend more than 183 days a year in Spain, or for whom Spain is their main base or center of economic activities or interests, are considered residents for tax purposes. Expats who earn over 22,000 Euros a year from just one employer must file a Spanish tax return.

Do US retirees pay taxes in Spain?

American citizens will also have to file a US  tax return. However, due to a tax treaty between Spain and the United States, you can avoid double taxation. It may be beneficial for you to work with a expat tax advisor to help with unique situations like this.

United States – Spain Tax Treaty

The United States – Spain Tax Treaty covers double taxation with regards to income tax and capital gains tax, however, the benefits are limited for most American expats living in Spain.

The treaty does ensure though that no one will pay more tax than the higher of the two countries’ tax rates, and it also defines where taxes should be paid, which normally depends on where the income arises. The way the treaty allows US expats to avoid double taxation on their income in Spain is by allowing them to claim US tax credits when they file their US tax returns up to the same value as Spanish income taxes that they’ve already paid.

TIN/SSN

As a US Person, to open an account with a Spanish financial bank or institution, you must provide your social security number (SSN). The banks use your SSN to send information about your interest and investment income/losses to the IRS.

Form 1040

The US income tax return is also called a form 1040. If you earned more than US$12,550 (in 2021, or $400 of self-employment income), you are required to file Form 1040.

While any US taxes are still due by April 15, Americans who are living abroad get an automatic postponement of 2 months until June 15, which can be extended further on request until October 15.

FBAR (Foreign Bank Account Report)

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.

The US and Spanish governments share taxpayer info, and Spanish 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 IRS is very harsh in assessing penalties for failure to file FBARs or for incorrect FBAR filings.

Streamlined Procedure

If you’re a US citizen, green card holder, or US Spanish dual citizen, and you have been living in Spain but you didn’t know you had to file a US tax return: there’s a program called the Streamlined Procedure that allows you to catch up on your filing without paying any IRS penalties. 

Need more information about US expat tax in Spain?

American Overseas offers expat tax services for American expats, US persons living and working abroad, and green cardholders.

International taxation is a quite complex and specialized area. Americans Overseas offers a large independent network of US tax accountants and financial planners, specialized for Americans living abroad. Avoid double taxation and choose affordable advice.

Americans Overseas refers to you free of any obligation and free of costs. Whether you’re employed or have a small business, we’ll make your life easier with a good, affordable tax advisor for your specific financial situation.

Contact us for more information