Does a US Citizen Still Pay US Taxes When He Retires to a Foreign Country?

Retiring overseas doesn't mean avoiding U.S. taxes.

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Whether you dream of retiring in a favorite vacation spot, or you want to spend your retirement in a place where your dollar goes farther, retiring to a foreign country may be in your plans. But if you remain a U.S. citizen, the long arm of Uncle Sam extends to all parts of the globe, and unless your income is below certain thresholds, you’ll need to file an income tax return and pay taxes, just as if you lived in the United States.

Who Must File

If you’re single and 65 or older, you must file a return if you have gross taxable income of $10,500 or more. Social Security benefits are not included in these gross income figures, but interest and dividends, pensions and earnings count. A widow or widower who is 65 or older with income of $16,400 or more must file. A married couple in which one person is 65 older must file with a combined income of $20,150 or more, while a couple in which both are older than 65 must file when their combined income reaches $21,300.

Foreign Income Exclusion

If you’ve started a new business or a new career in your foreign home, you may exclude up to $92,900 of your foreign earned income from U.S. taxation. You’ll still owe taxes on any unearned income and income from the United States, however. You may also be able to deduct certain housing expenses, including rent, mortgage payments, utilities and insurance. The exact amount you may deduct depends on the country where you’re living, the number of days you are in the country and the amount of your foreign income exclusion. The rules are complex, and you may want to consult a tax professional for more information about your possible deduction.

Dealing With Foreign Currency

If you earn money that is paid to you in foreign currency, you must report that income on your tax return, and you must convert the amounts to U.S. dollars. You may use the exchange rates published by the U.S. Treasury Department, the U.S. Department of Agriculture, or the Federal Reserve Bank or another published exchange rate of your choice. If you itemize expenses, your deductions must also be expressed in U.S. dollars, even if you paid the expenses in a foreign currency. Use the exchange rate that was in effect when you received the money or paid the expense.

Filing Instructions

You can mail your return or file electronically. If you adjusted gross income is $57,000 or less, you can file online for free with the IRS Free File program. If your AGI is more than $57,000 and you want to file online, look for a company that will accept a foreign address as your home address. Not every company is set up to accept foreign returns. As an expatriate, you get an automatic two-month extension to file your taxes and pay any money you owe. If you need more time, you must request an additional extension. If you owe money, you must pay in U.S. dollars,