Tax Software for Expatriates
Alternatives and Concerns
The Internal Revenue Service (IRS) generally treats expatriates the same as citizens who remain in the U.S. For citizens and resident aliens, their worldwide income is subject to U.S. income tax, regardless of where they earned it or where they reside.
Keep reading to learn more about how expats can handle their taxes.
Tax Prep Software for Expats
While expats aren't exempt from paying U.S. income tax, there are some special rules that apply to them. For example, they can exclude the first $108,700 they earn abroad in the 2021 tax year (this is an increase from $107,600 in tax year 2020). These exclusions—technically known as Foreign Earned Income Exclusion—are reported on Form 2555.
With quirks like Form 2555 that don't apply to most taxpayers, many expats wonder what kind of tax preparation software they can use to prepare their 1040 and file their tax returns.
Not all tax prep programs support Form 2555 and Form 2555-EZ. However, two popular tax software programs, TaxAct and TurboTax, do support Form 2555 (foreign income exclusion) and Form 1116 (to claim the Foreign Tax Credit).
These forms may not be compatible with the free versions of these products. Double-check which level of product you need to complete these forms before buying a product. Additionally, tax preparation services that include live assistance from an accountant are more likely to help you with more advanced tax situations—such as filing from abroad.
Free Tax Prep Software for Expats
If your adjusted gross income is $72,000 or less (in 2021—this figure increases with inflation), the IRS has a list of free software options that are only available through Free File at IRS.gov. These options are available based on income level, not residence—they can be used by filers in the U.S. or abroad.
Addresses for Mailed Returns
Not every expat is going to be able to use software to prepare their taxes. Should you need to submit a hard copy return, your return must be postmarked by the due date, and it must bear sufficient postage so that it is delivered and not returned. Otherwise, you risk facing late filing penalties. If you are a U.S. citizen or resident alien (Green Card holder) and you live in a foreign country, you mail your tax returns and tax payments to different addresses. It's important not to confuse the two so that you don't complicate your filing process.
You must also consider what delivery service you're using. If you use a private delivery service, you must send the returns to a different address.
For Filers Using USPS
Citizens and residents abroad mail their U.S. tax return to:
Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301-0215
If you owe taxes, you will mail those payments—along with the corresponding Form 1040-ES—to:
Internal Revenue Service
P.O. Box 1300
Charlotte, NC 28201-1300
For Filers Using Private Delivery Service
If you are going to mail your tax return by an IRS-approved private delivery service (FedEx, DHL, or UPS), use one of the following IRS street address:
Austin - Internal Revenue Submission Processing Center
3651 South Interregional Highway 35
Austin, TX 78741
Fresno - Internal Revenue Submission Processing Center
5045 East Butler Avenue
Fresno, CA 93727
Kansas City - Internal Revenue Submission Processing Center
333 W. Pershing
Kansas City, MO 6418
Ogden - Internal Revenue Submission Processing Center
1973 Rulon White Blvd.
Ogden, UT 84201
Check Where to File Tax Returns to check for the specific address that applies to the form you need to file.
There are several tax pitfalls that you should be aware of. One is ensuring that you actually qualify for the Foreign Earned Income Exclusion using the bona fide or physical presence tests. This can be a tricky area, particularly for expats who just moved overseas. Generally, you must have lived abroad for at least 330 days in the past 12 months to qualify for this exclusion, though there are some slightly different rules for those who are established resident aliens in a foreign country.
Second, some expats are better off taking the Foreign Tax Credit (Form 1116) instead of the exclusion on Form 2555. However, once you start using one method, you cannot switch to the other method without first asking the IRS for permission to change your accounting methods. You may want to consult with a tax professional who has plenty of experience in preparing expat and international tax returns.
Of course, each taxpayer who files or is claimed as a dependent on a U.S. tax return will need a social security number (SSN) or individual taxpayer identification number (ITIN). You could owe taxes in two countries—your country of residence and the United States. Your U.S. taxes are based on worldwide income.
The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.
Internal Revenue Service. "U.S. Citizens and Resident Aliens Abroad." Accessed Nov. 27, 2020.
Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2021." Accessed Nov. 27, 2020.
TaxAct. "TaxAct Forms Availability." Accessed Nov. 27, 2020.
TurboTax. "Tax Forms Included in TurboTax CD/Download Products." Accessed Nov. 27, 2020.
Internal Revenue Service. "Submission Processing Center Street Addresses for Private Delivery Service (PDS)." Accessed Nov. 27, 2020.
Internal Revenue Service. "Foreign Earned Income Exclusion." Accessed Nov. 27, 2020.