November 18, 2020

By Joshua Ashman, CPA & Nathan Mintz, Esq.

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US Expat Teachers in Global Demand

For many US teachers, the opportunity to teach abroad can mean a greater diversity of students, new life-changing experiences, altruistic pursuits, and in many cases a higher salary and healthier and happier lifestyle.

For this reason, the amount of teachers working abroad has increased significantly over the past decade. English teachers, in particular, are in more demand than ever. In this regard, an estimated 250,000 native English speakers work as English teachers abroad in more than 40,000 schools and language institutes around the world.

Due to this year’s COVID pandemic, many expat teachers who planned earlier returns to the US may find themselves continuing to work abroad, perhaps using Zoom classes or other means to stay employed and in touch with students.

As with any US expat, the tax implications for teachers working abroad should not be ignored. Understanding the expat tax basics is a good place to start. In order to see the big picture, in this blog, we give 5 key tips for US citizen teachers working overseas.

Tip # 1 – US Expat Teachers Are Still Subject to US Taxes

Often, US citizens without in experience in international tax issues believe that moving overseas means that their US tax obligations end. This is a fundamental error in understanding how US taxes work.

The US tax system is quite in unique in how it taxes its citizens. US citizens, even those residing outside the United States, are subject to US tax reporting on their worldwide income. As such, US teachers working abroad must annually report all of their income to the IRS (even income from non-teaching activities) no matter where the income is sourced.

Tip #2 –Tax Benefits for US Expat Teachers

The good news for US expats teaching abroad is that both US domestic tax law and tax treaties (assuming the teacher works in a country that has a tax treaty with the US) contain provisions that are designed to prevent “double taxation,” or taxation on the same income in both countries. These include the foreign earned income exclusion (“FEIE”), foreign housing exclusion (“FHE”), and foreign tax credit (“FTC”).

These provisions, in many cases, can reduce or even eliminate the US federal income tax that would otherwise be due by the expat taxpayer. Keep in mind, however, that even if no US tax is owed, a US tax return still generally must be filed by the teacher and the failure to do so can result in severe penalties.

Tip #3 – US Expat Teachers May Have Enduring State Tax Obligations

Assuming you resided in a state that taxes income prior to moving abroad, you may have a state tax return obligation while teaching abroad.

The extent of your state tax obligations will depend on how long you intend to and actually live and work abroad, and the particular state you lived in prior to moving overseas.

Each state has different approaches, with some being more aggressive, some less aggressive and some in between.

Tip #4 – US Expat Teachers Should Get Reimbursed for Working Expenses

If you have expenses from teaching abroad, the best thing to do is not pay them yourself, or if you do, have your employer reimburse you.

This is because in most cases, you will utilize the standard deduction, instead of itemizing your deductions, given the high amount of the deduction (for the 2020 tax year, the standard deduction is $12,400 for single filers and $24,800 for married joint filers).

However, even in the event that you do itemize, under the Trump Tax Reform of 2017, starting with the 2018 tax year, unreimbursed job expenses are no longer deductible.

Tip # 5 – Use Professional Help to File Tax Returns Abroad

Filing from abroad is not an easy matter. The international tax rules can be nuanced and easily misunderstood by a non-professional. Qualification for the foreign earned income exclusion, for example, is not a straightforward matter, and will depend on a number of factors that a professional can review with you.

With the increased focus of the IRS on international tax compliance, it’s more prudent than ever to consider using professional help to prepare your income tax return from abroad. If you would like to hear how Expat Tax Professionals can ensure that your tax return filing is on time and accurate, please feel free to contact us.

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