Are you getting close to retirement age and trying to figure out where you should go to make your money last as long as possible? Consider retiring to a foreign country. However, before settling on a retirement country, it’s vital to consider the tax ramifications, since not all countries provide the same advantages.

Income Taxes on All Earnings No Matter Where They Are Earned U.S. citizens still have tax responsibilities even after leaving the country. American retirees living overseas are required to submit an annual tax return with the Internal Revenue Service (IRS), even if they do not have any outstanding tax liabilities. All of their assets may be transported to another nation, and this would still be the case. In short, it doesn’t matter where your money comes from, you can still have to pay taxes on it.

In the United States, a person’s tax status is determined by their citizenship status, rather than their place of residence. Every U.S. citizen and a resident alien who has global income (including income from international trusts and foreign bank and securities accounts) in a taxable year must submit a tax return if their income is higher than the filing threshold.

Even if a taxpayer is eligible for tax incentives that significantly decrease or eliminate their U.S. tax liability—such as the overseas earned income exclusion or the foreign tax credit—they are still required to file a tax return.

These tax breaks aren’t automatic and require the taxpayer to submit a federal income tax return in the United States.

To file a tax return in the United States, you must convert any foreign money into U.S. dollars, including any income earned or deductions incurred. Taxes must also be paid in U.S. dollars.

In addition, retirees who live abroad may be required to submit tax returns in their home country. Income taxes paid to a foreign nation may, however, qualify you for a tax credit or deduction at home. If you and the country you’re visiting both taxes your income at the same rate, these perks might help you save money.

It is the responsibility of nonresident aliens who receive U.S.-source income to ascertain whether or not they are subject to U.S. taxation. In most cases, nonresident foreigners have until April 15 to submit their returns.

If you are a U.S. citizen or resident alien and you have any of the following: • Financial interest in, signature authority over, or other authority over one or more accounts in a foreign country; and • The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year, then you must file a Report of Foreign Bank and Financial Accounts (FBAR) by April 15.

U.S. colonies and territories including Puerto Rico, Guam, the Virgin Islands, American Samoa, and the Northern Mariana Islands are not considered foreign countries. money coming in from sources like Social Security and pensions If Social Security is your sole source of income, you may not have to submit a tax return and may not be required to do so. A Social Security Benefit Statement (Form SSA-1099) will be sent to anybody receiving Social Security payments. A Form 1099-R will be sent to you for each distribution plan from a pension or annuity.

Outside of the United States, retirement income is often exempt from taxation. For example, if you are a U.S. citizen retiring overseas and drawing Social Security benefits, you may be subject to taxation in the United States on that income, but not in the nation in which you are actually living out your retirement.

U.S. taxes may be due on a portion of your benefits, however, if you also earn income from other sources (either in the United States or your country of retirement), such as part-time work or self-employment. Income made after retirement may also need to be reported and taxed, depending on the nation in which you reside.

Exclusion of Earnings Earned Abroad

The Foreign Earned Income Exclusion permits eligible persons to exempt all or part of their earnings from U.S. income tax if they have retired abroad but are working full or part-time or are self-employed (FEIE). For the year 2022, this equates to $112,000 per person. To qualify for the overseas earned income exclusion, both spouses must fulfill either the bona fide residence test or the physical presence requirement, although they may do so if they are both employed abroad and meeting any of these tests. The couple may jointly exclude up to $224,000 in income in the year 2022.

Foreign-earned income is not subject to U.S. taxes provided certain conditions are satisfied, such as continuous foreign residence of 330 or more days throughout a calendar year.

International Tax Agreements

Numerous income tax treaties have been established between the United States and other nations, but inhabitants of other countries are still required to submit a tax return in the United States.

Certain forms of income earned in the United States by foreign residents (not necessarily citizens) are excluded or taxed at a lower rate under certain treaties. These exemptions and lower rates are not uniform between nations or types of income.

In most cases, the obligations of each party to a treaty are equally binding on each of them. As a result, a U.S. citizen or resident who earns money in a treaty nation and is required to pay tax to that country may be eligible for certain credits, deductions, exemptions, and reductions in the rate of tax imposed by that country.

Taxes on the State Level

Many states also impose income taxes on their residents, so retiring overseas may not save you from paying state taxes unless you first acquire a residence in a tax-free jurisdiction. The tax treaty terms of the United States are recognized by certain states while others do not. As a result, it’s smart to get some tax counsel from a specialist.

Foregoing American citizenship

In the event that a taxpayer loses U.S. citizenship or LPR status during the tax year, they are required to submit a dual-status alien return and attach a copy of Form 8854, Initial and Annual Expatriation Statement. By the tax return deadline, you must also submit a copy of Form 8854 to the IRS (including extensions).

Resigning from the United States does not affect your eligibility for Social Security, pensions, annuities, or any other kind of retirement income. However, the U.S. Internal Revenue Code (IRC) mandates that the Social Security Administration (SSA) withhold nonresident alien tax from selected monthly Social Security income. The Social Security Administration (SSA) will take 30% of your retirement payments as a flat rate tax if you are a nonresident alien receiving them unless you are eligible for a tax treaty benefit. Your monthly benefit amount will be reduced by 25.5% as a consequence.

You Should Seek Tax Advice Before Retiring

You should talk to a tax expert well before you plan to retire. Get in touch with the office as soon as possible to

discuss your retirement choices.


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Tetyana Ser-Manukyan | Glendale Location Manager

Tetyana is a 2nd generation accountant and the Founder of Integrity Accounting Solutions, Inc. She is a meticulously organized and detail-oriented professional with over 23 years of experience in accounting industry.

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Marilyn Motsenbocker | Long Beach Location Manager

With more than 35 years of experience in accounting and finance, her managerial expertise and knowledge add value to our firm and complement the well-being of our customers.

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