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2022 Tax Season Standard Deduction for Expats

February 28, 2022

2022 Tax Season Standard Deduction for Expats

With the IRS Standard Deduction, Americans are able to deduct a fixed amount of their income from US tax when they file for their Federal Return.

Here is the breakdown of the 2022 tax season standard deduction for expats. The Standard Deduction lets you avoid the hassle of itemizing deductions when you file your taxes. Before the Tax Cuts and Jobs Act, the amount of the Standard Deduction was very low, so most Americans itemized instead. They are now using the Standard Deduction at much higher rates thanks to its increase in the 2017 Tax Cuts and Jobs Act

The Internal Revenue Service sets the Standard Deduction amount to increase with inflation.

2022 Standard Deduction Rates

For the 2021 tax year, the standard deduction for single Americans is $12,550, while that for married Americans filing separately is $12,550. For married Americans filing jointly it is $25,100; for those filing as Head of Household it’s $18,800.

The standard deduction amount will increase for the 2023 tax season; single Americans can claim $12,950 as a deduction, married Americans filing jointly can claim $25,900, and heads of households can claim $19,400.

Standard Deductions for Expats

American expatriates must file US federal tax returns because the US taxes are based on citizenship, not residence. Unlike what other countries do.

American expats can reduce their US tax bill by claiming either the Foreign Income Tax Credit or the Foreign Earned Income Exclusion.

Claiming the Foreign Tax Credit by filing IRS Form 1116 lets expats save money on their US tax bills. If they live in a country with higher foreign tax rates than the US, claiming the Foreign Tax Credit can reduce their US tax bill.

Alternatively, expats can claim the Foreign Earned Income Exclusion, on IRS Form 2555, which lets them exclude the first $108,700 of their earned income from US tax. This means that most expats who don’t pay foreign income taxes can eliminate their US tax bill too; however, they must meet IRS definitions of living abroad.

Claiming one of the two deductions can help eliminate your tax liability. If, for some reason, you still owe tax, you can also claim the Standard Deduction in 2022.

Expats benefit of having an Enrolled Agent

Filing taxes from abroad is often more complex than filing in the US. Expats may have to file additional forms along with their standard US tax return to reduce their tax bill, and they also often have to deal with currency conversions when they have foreign income. Additionally, expats sometimes need to file forms such as FBAR (Report of Foreign Bank and Financial Accounts) for offshore accounts.

FBAR filing is required if an expat has over $10,000 in total at any time in the year in his or her combined foreign-registered accounts. This might include bank, investment, individual pension accounts, and even business accounts not registered in the name of the expat.

For the vast majority of American expats, having an Enrolled Agent to advise them with their taxes is beneficial for their tax situation. They can be sure that their Enrolled Agent is updated with the latest guidelines and updates from the IRS. This ensures that the tax return of American expats is done properly.

Need the help of an experienced Enrolled Agent? Get in touch with us today!