Teaching English abroad is an opportunity to achieve both prolonged cultural immersion and professional advancement.
It is an attractive option for many recent graduates as well as seasoned professionals looking for a responsible and cost-efficient way to travel. But like other American professionals abroad, English teachers aren’t free from their U.S. tax obligations.
The American government imposes worldwide taxation on its citizens. That means you still have to at least file for U.S. taxes.
Be Aware: Things Expat American Teachers Should Consider
A. Keep Track of Time
1. The Foreign Earned Income Exclusion is what will save expats from paying taxes twice on the same income.
And 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 of the U.S.
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.
B. Keep track of Expenses
It is important to keep track of wages and salaries earned through an employer.
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.
C. 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 obligated to subsidize for Social Security taxes in both countries. Totalization agreements eliminate dual Social Security taxation and help provide workers benefit protection, especially those who have been employed in other countries and in the United States.
As of now, if you work in these following places, you may avoid dual Social Security taxation:
Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Finland, France, Germany, Greece, Italy, Ireland, Japan, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovak Republic, South Korea, Sweden, Spain, Switzerland, and United Kingdom.
No matter the situation, the rules surrounding the U.S. expat taxes are complicated. During the preparation, it is important to be aware of the different filing requirements and deduction opportunities. And it is perfectly normal to feel overwhelmed- that’s why tax professionals exist. Having a personal CPA or a tax preparation software and services to file taxes can expedite the process while guaranteeing accuracy.