What is the story about?
What's Happening?
Millions of Americans living abroad are required to file federal income tax returns in the U.S., even if they qualify for the Foreign Earned Income Exclusion. This exclusion allows individuals to exclude a certain amount of income earned abroad from federal income tax, but does not cover self-employment taxes, meaning freelancers and self-employed individuals may still owe Social Security and Medicare taxes. The exclusion is applicable only if the individual has been in a foreign country for at least 330 days or a full calendar year. Experts recommend consulting accountants experienced in both U.S. and foreign tax systems to navigate these complexities.
Why It's Important?
The requirement for American expats to pay U.S. taxes, including Social Security and Medicare taxes, despite living abroad, highlights the unique tax obligations faced by U.S. citizens. This can impact financial planning for freelancers and self-employed individuals who may not anticipate these additional tax liabilities. Understanding these obligations is crucial for avoiding unexpected financial burdens and ensuring compliance with U.S. tax laws. The situation underscores the importance of seeking professional tax advice to manage potential double taxation and optimize tax benefits available to expats.
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