British Expats living in the US & IRS Tax Filing

Simon Misiewicz

Expat & Property Tax Specialist

4th August 2021

What are the basics of Expat Tax for UK citizens living in the USA?

As UK/US Expat Tax experts, we help 100s of monthly-retained expats reduce the money paid to HMRC and the IRS upon submission of their U.S. and UK tax returns. 

We also help expats with property investment interests in the US to reduce their tax liability in the US. Many UK citizens like the idea of moving to a different country. High taxes and bad weather may be a good motive for you as a British citizen to move.

An expatriate is an individual living and/or working in a country other than their citizenship.

This can be temporary and is often for work purposes.

An expat can also be an individual who has given up citizenship in their home country to become a citizen of another.

Once classified as a UK citizen expat, you will be taxed only on US-based income.

This could include property investment income or stock revenue based in the US.

To meet the Physical Presence Test, UK citizens must be able to demonstrate to the IRS that they have been physically present in the US for 330 days or more during a 12-month period.

US citizens and resident aliens are subject to income tax on worldwide income. You may be looking to move to America as a British expat and need to decide on the right type of USA VISA, which we have written in a separate article.

If you are a US citizen or resident alien, the rules set down by the IRS for filing income are generally the same whether you are in the US or abroad.

Your worldwide income is subject to US income tax, regardless of where you reside as an American Citizen. The same worldwide income taxation applies to UK citizens living in the United States.

The Federal Earned Income Exclusion (FEIE) allows individuals to exclude up to $112,000 (2022 rates) of earned income. More is written about FEIE in this article below.

The IR has provided useful input on US citizens and resident aliens abroad, worth reviewing. Our UK/US expert service is here to help you file taxes with the IRS. Feel free to use our online US tax estimator calculator.


Do British Expats have to pay US taxes to the IRS? Let our US/UK experts answer that for you.

British citizen expats must pay US tax if they have income, received certain credits, or other specific situations apply.

If your worldwide income exceeds the filing threshold, which varies by filing status, you must file an annual return to the IRS. Filing two returns will feel alien to UK citizens who live abroad in the United States.

Income includes wages or salary, interest, dividends and rental income.

If you are self-employed and filing as a single person, the taxable threshold is $12,950 (single persons) / $25,900 (married filing jointly) in 2022, regardless of filing status. UK citizens may not be familiar with this concept as HMRC expects tax returns to be done individually.

Other situations, such as paying special taxes, may lead to a requirement to file accounts.

Most expats do not pay US Expat Tax because of the benefits of Foreign Earned Income Exclusion and Foreign Credit.

Expats with gross worldwide income over the filing threshold must still file taxes annually to the IRS.

In this situation, you may still need to file if you do not owe any money to the IRS.

Foreign income for expats normally includes their expat salary, meaning income earned as an employee abroad.

The income filing threshold is based on the standard deduction of each filing status as determined by the IRS.

The IRS has published a helpful guide to frequently asked questions about international individual tax matters, providing useful insight and information. Once you have absorbed this information, working with our US/UK experts is important to ensure compliance when filing taxes.

When am I considered a US resident as a British person living in America?

When meeting the Substantial Presence Test, a UK citizen expat will be considered a US resident for tax purposes.

To meet this, you must be physically present in the US on at least 31 days during the current year and 183 days during the three-year period, including the current year and the two years immediately before that. Our US/UK experts will help you with this calculation whilst filing your taxes.


What is the ITIN used for? When should UK citizens need one?

UK citizens moving to the United States may need to file a 1040 return to the IRS or get a mortgage. Someone moving from the UK to the US may require an Individual Tax Identification Number, often referred to as an ITIN. This allows British people to complete a 1040 return to the IRS in America. Our US/UK experts can help you secure an ITIN from the IRS to file your taxes.

Foreign Earned Income Exclusion Vs Foreign Tax Credits

Americans or UK citizens that submit a 1040 return to the IRS may have foreign income. The IRS will likely tax this foreign income as you are taxed on your worldwide income. However, income may have been charged foreign tax by the country it was earned. It is essential to know which option is best for you a) foreign income tax credit or b) foreign earned income exclusion.

What are the two types of Deduction strategies? 

Americans living in the UK or British people living in America will need to be aware of two deductions.

The first is a foreign credit on income earned in the UK or any other foreign country. There is an allowance for a tax credit to be applied against your US tax for the amount of already paid in the foreign country.

The second is the foreign-earned income exclusion, where a sum of money is deducted away from foreign earnings and will not give rise to a liability in the United States.

It is important to know which is best for you a) foreign credit or b) foreign earned income exclusion when filing taxes

1040 filing in the United States

Once you understand the concept of being a tax resident in the United States you may have identified that you now need to file a 1040 expat return to the IRS. There are several forms within the main 1040 return, which may be daunting for a British expat living in the United States or an American living in the United Kingdom. Coupled with paying tax on one country may result in two systems. One is in the UK under HMRC, and the other in America under the IRS.

Frequently Asked Questions (FAQ)

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Navigating the labyrinth of expat tax can be quite the odyssey for an American abroad; it's not just about filing taxes for expats in the US, but also understanding the implications of expatriation on their financial landscape. For those scratching their heads over expat meaning, it essentially refers to a person living outside their native country, which often brings a whole different set of tax rules, like the US taxes on expats, which include reporting global income and possibly being liable for taxes in two countries. Lastly, the expatriate definition extends beyond just tax implications; it encapsulates the cultural and social adaptation of Americans who've become expats, often juggling the tax for expat while immersing in a new way of life.



Do U.S. expats need to file a federal income tax return?

Yes, U.S. citizens and green card holders are generally required to file a federal income tax return, regardless of where they live. The U.S. follows a global income taxation model, which means income earned abroad is subject to U.S. taxation. However, there are certain exclusions and credits like the Foreign Earned Income Exclusion (FEIE) that can offset some or all of the foreign income.

What is the Foreign Earned Income Exclusion (FEIE), and how does it benefit expats?

The Foreign Earned Income Exclusion (FEIE) allows U.S. expats to exclude a certain amount of their foreign-earned income from U.S. taxation. For the 2021 tax year, the exclusion amount was up to $108,700. To qualify, you must pass either the Physical Presence Test or the Bona Fide Residence Test, showing that you've spent significant time abroad.

What is the Foreign Tax Credit, and can it be used alongside the FEIE?

The Foreign Tax Credit allows U.S. expats to offset taxes paid to a foreign country against their U.S. tax liability. You can use both the Foreign Tax Credit and the FEIE, but not on the same income. For instance, if you claim the FEIE on $108,700 of income, any additional income can be offset using the Foreign Tax Credit.

What happens if I don't file a U.S. tax return while living abroad?

Failure to file can result in penalties and interest accruing on any taxes owed. In severe cases, criminal charges could be filed. The IRS also has programs like the Streamlined Foreign Offshore Procedures to help expats get back into compliance without heavy penalties.

What forms do U.S. expats typically need to file?

In addition to the regular 1040 form, expats often need to file additional forms related to their foreign activities. Common ones include Form 2555 (for the FEIE), Form 1116 (Foreign Tax Credit), and FinCEN Form 114 (FBAR) for reporting foreign bank accounts if the aggregate value exceeds $10,000 at any point during the year.

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