Bonjour! As an American who has just relocated to the picturesque streets of Paris, you’re busy soaking up the City of Light’s infinite charm – from the splendor of the Eiffel Tower to the aromas of freshly baked baguettes wafting from boulangeries. Amid all this excitement, it’s easy to forget your tax obligations back home, but it’s crucial to remember – even in Paris, Uncle Sam still wants his share.
Yes, even as an expat, you’re required to file your annual U.S. tax returns with the Internal Revenue Service (IRS). But don’t despair, Mon Ami, your new expat status could also come with benefits like the Foreign Earned Income Exclusion (FEIE). Let’s shed some light on these nuances and how you can manage your U.S. taxes right from your quaint Parisian balcony.
No Escape from Uncle Sam
No matter where in the world you reside, if you’re a U.S. citizen or a resident alien, your worldwide income is subject to U.S. income tax. This is true regardless of whether you live inside or outside the U.S., receive a foreign income, or pay taxes in a foreign country. So, while your tastebuds explore the finest French cuisine, don’t let your financial obligations back home simmer on the back burner.
The Silver Lining: Foreign Earned Income Exclusion (FEIE)
Luckily, the U.S. tax system has provisions to prevent the dreaded double taxation. Enter the Foreign Earned Income Exclusion (FEIE). Qualifying U.S. taxpayers living abroad can exclude a certain amount of their foreign-earned income from their U.S. taxable income. As of my knowledge cutoff in September 2021, the exclusion limit was about $108,700. The exclusion applies to wages, salaries, professional fees, and other amounts as compensation for personal services rendered by the taxpayer.
Who Can Claim the FEIE?
To claim the FEIE, you must:
- Have foreign earned income
- Your tax home must be in a foreign country
- You must be one of the following:
a. A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
b. A U.S. resident alien who is a citizen or national of a country with which the U.S. has an income tax treaty in effect, and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year
c. A U.S. citizen or resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
How to File U.S. Taxes While Living in France
Don’t worry about hopping on a transatlantic flight just to file your U.S. taxes. Here are the steps you can follow from your French abode:
- Gather all relevant documents: This includes your W-2 or 1099 forms from U.S.-based employers, foreign income documents, and records of housing expenses if you plan to claim the Foreign Housing Exclusion or Deduction.
- Calculate your income: Tally your worldwide income for the tax year, taking into account any earnings from U.S. and French sources.
- Determine if you qualify for the FEIE: Consult IRS Form 2555 to find out if you qualify for the FEIE. If you do, follow the instructions on the form to calculate your exclusion.
- File your taxes: You can use the IRS Free File program if your income is below a certain threshold. If your income is above this limit, you can e-file using commercial tax software, hire a U.S.-based tax preparer, or send your tax return by mail.
Remember, if you’re living abroad, the deadline to file your tax return is automatically extended to June 15. However, any tax due must still be paid by April 15 to avoid interest charges.
Relocating to Paris is a dream come true for many. While tax obligations might seem a nuisance in this idyllic new life, staying ahead of them will prevent any unwanted surprises. Enjoy the French charm, savor the wines, and rest assured that with some organization, your tax responsibilities need not be a source of stress. Au revoir and happy tax filing!