Americans living abroad have to file a U.S. federal tax return every year just like Americans living in the States. What are the US tax changes 2022 for Americans overseas?
1. Requirement for Americans living overseas to file US taxes unchanged
The requirements for Americans living abroad to file U.S. taxes, and report foreign accounts, assets, and businesses remain unchanged.
2. US tax filing deadline 2022
While the filing deadline was extended to May 15 in 2021, Americans living abroad receive an automatic extension until June 15 anyway: this will not change for filing in 2022.
3. Tax brackets and rates for filing in 2022
For filing for the 2021 tax year in 2022, tax brackets and rates have been adjusted for inflation, while the standard deduction increases to $12,550.
This means that only Americans whose worldwide income exceeded the standard deduction amount in the 2021 calendar year need to file in 2022, unless they have self-employment income or they are married but file separately, even if filing separately from a non-American spouse.
The tax year 2021 tax brackets and rates for filing in 2022 are as follows:
- 37% for incomes over $523,600 ($628,300 for married couples filing jointly).
- 35% for incomes over $209,425 ($418,850 for married couples filing jointly).
- 32% for incomes over $164,925 ($329,850 for married couples filing jointly).
- 24% for incomes over $86,375 ($172,750 for married couples filing jointly).
- 22% for incomes over $40,525 ($81,050 for married couples filing jointly).
- 12% for incomes over $9,950 ($19,900 for married couples filing jointly).
- The lowest rate is 10% for incomes of single individuals with incomes of $9,950 or less ($19,900 for married couples filing jointly).
4. Foreign Tax Credit on Form 1116
However, Americans filing from abroad can offset U.S. tax on foreign source income if they’ve paid tax on it abroad by claiming the Foreign Tax Credit on Form 1116 when they file their federal U.S. tax return.
5. Foreign Earned Income Exclusion on Form 2555
Alternatively, Americans filing from abroad can claim the Foreign Earned Income Exclusion on Form 2555, for income earned from employment or self-employment, whether they’re paying foreign income taxes or not.
This means that most Americans filing from abroad don’t end up owing any U.S. tax, but it depends on each individual’s circumstances, of course.
6. Foreign Earned Income Exclusion
The maximum amount of income from employment or self-employment from 2021 that overseas residing Americans can exempt from U.S. tax by claiming the Foreign Earned Income Exclusion also rises for filing in 2022 and is $108,700 per person.
7. Proposed US tax changes 2022
President Biden’s proposed tax and infrastructure plans, the Building Back Better Act, contains some changes that will affect Americans living abroad.
If passed in the Senate, Americans with offshore corporations, including hundreds of thousands of expats, will be affected by an effective new GILTI tax rate of 15%, rising from the current 10.5%, for those who claim the 962 Election.
If the corporation already pays foreign corporation tax at a higher rate than 18.9%, then they may be able to still claim an exemption to offset GILTI, though.
8. Increased Additional Child Tax Credit
The increased Additional Child Tax Credit of $3,000/$3,600 per dependent child for the 2021 tax year is unfortunately only available if you spent half of 2021 physically present in the U.S.
For many American parents living abroad who don’t meet these residency criteria, the Child Tax Credit amount is worth $2,000 per child, or, if you have already eliminated your U.S. tax bill by claiming the Foreign Tax Credit, you can receive a $1,400 per child refund.
9. Additional income tax surcharge for high earners
When the Build Back Better act is enacted, it is most likely to affect a group of overseas Americans because of the introduction of an additional income tax surcharge for very high earners, being those who earn over $10 million (or $5 million if you’re married but file separately).
10. Streamlined procedure
If you’ve been living overseas for a while but have never filed your U.S. taxes, there’s an amnesty program called the Streamlined Procedure available that enables Americans overseas to catch up without facing any sanctions.
Need more information about Americans living abroad and US tax changes 2022 ?
Being Americans living abroad ourselves, we learned the hard way about US tax obligation and taxes in the USA, so we are now here to help you.
If you have any questions about US taxes 2022 can contact Americans Overseas. Two dual nationals living abroad founded Americans Overseas. In the costly and exhausting process of finding the right experts, they realised they had not only accumulated a mountain of knowledge but also built up a solid network of tax and legal experts. Do not hesitate to contact us if you have any questions.