Teaching English abroad is an opportunity to achieve both the prolonged cultural immersion and professional advancement. It is an attractive option for many recent grads as well as seasoned professionals looking for a “responsible” way to travel while making a difference to students. But just as all other American professionals abroad, English teachers aren’t free from the U.S. tax obligations. Yes, even if you earned your income outside the U.S., you still have to at least file for U.S. taxes. Take a look at this list of considerations expat American teachers should become aware of.
Keep Track of Time
1. The Foreign Earned Income Exclusion is what will save expats from paying taxes twice on the same income. And in order to receive this exclusion, one must pass one of the following two tests.
A. Physical Presence Test– You must spend at least 330 days out of 365 days outside the U.S.
B.Bona Fide Residence Test– You must live in a foreign country for an entire calendar year with the intention to permanently stay outside the U.S.
2. Generally, most teachers on a year contract will meet the Physical Presence Test. Additionally, you don’t have to reside in one country for 330 days. You can freely travel to other countries as long as you don’t spend more than 30 days in the U.S. in a year.
Keep track of Expenses
- It is important to keep track of wages and salaries earned through an employment. A U.S. based employer would likely to provide a W-2 form, and you may receive an equivalent form from your current educational institution. If your employer does not provide a salary report, you must collect your monthly wage statement such as a pay stub.
- Some schools and private tutoring institutions provide their teachers with free housing, moving stipend, and flight tickets. When filing a tax return, you may be required to include those employment benefits to calculate gross income, so it may be wise to keep track of those expenses as well.
Avoid dual Social Security Taxes
- Without proper coordination, American teachers abroad would be covered under two Social Security systems simultaneously for the same work. When this happens, one would be required to pay Social Security taxes in both countries. Totalization agreements eliminate dual Social Security taxation and help fill gaps in benefit protection for workers who have worked in the U.S. and another country.
- As of now, if you work in these following places, you may avoid dual Social Security taxation: Italy, Germany, Switzerland, Belgium, Norway, Canada, United Kingdom, Sweden, Spain, France, Portugal, Netherlands, Austria, Finland, Ireland, Luxembourg, Greece, South Korea, Chile, Australia, Japan, Denmark, Czech Republic, Poland, and Slovak Republic
No matter the situation, the rules surrounding the U.S. expat taxes are complicated. During the preparation, it is important to be aware of different filing requirements and deduction opportunities. And it is perfectly normal to feel overwhelmed- that’s why tax professionals exist. Having a personal CPA to file taxes can expedite the process while guaranteeing accuracy.
Are you currently teaching English abroad?
Locus Tax can help! Get in touch with one of our CPAs today for your tax consultation.