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Tax Breaks for Overseas Citizens

Summary

Tax breaks for overseas citizens have been discussed in recent years. While there have been proposals to grant tax breaks to US citizens living abroad, there are no specific provisions in place at this time. However, individuals living abroad may still be eligible for certain tax deductions and credits. It’s essential to consult with a free RapidTax dedicated tax professional to understand the specific tax implications and requirements for your situation.

Overseas Citizens

Donald Trump has proposed tax breaks for overseas citizens but has yet to offer specific details on how these tax breaks would work or their impact on the federal budget. Trump also proposed tax breaks for auto buyers at this time. 

The IRS website has information about filing requirements for international taxpayers, as well as other relevant information, like: 

How to file

When to file

Where to file

You can also find information about Tax Form 1040-NR, US Non-resident Alien Income Tax Return, on the RapidTax website. This form is for non-residents from outside the US.

The IRS offers a standard tax deduction for both businesses and individuals. You can find more information about the standard deduction on the IRS website. In 2025, taxpayers will get a higher standard deduction, although the increase will be smaller than in previous years. The IRS adjusts standard deduction amounts each year for inflation. You can use the Tax Withholding Estimator to ensure you’re withholding the correct taxes from your paycheck. 

The IRS has also adjusted federal income tax bracket ranges for the 2025 tax year to account for inflation. 

US citizens living abroad may be eligible for several tax breaks to reduce their tax liability. Here are key options to consider:

Foreign Earned Income Exclusion (FEIE)

The FEIE allows qualified overseas taxpayers to exclude up to a certain amount of their foreign-earned income from US taxation. For 2025, this amount will be adjusted for inflation (the 2024 limit is $120,000 per individual).

To qualify, you must meet the bona fide residence test (living in a foreign country for an uninterrupted period, including a full tax year) or the physical presence test (spending at least 330 days in a foreign country within 12 months).

Foreign Tax Credit (FTC)

If you pay taxes to a foreign government on your income, you can claim the FTC to avoid double taxation. It provides a dollar-for-dollar credit against US taxes owed on foreign income. Alternatively, you can deduct foreign taxes as an itemized deduction on Schedule A.

Housing Exclusion or Tax Deduction

Overseas taxpayers can exclude or tax deduct certain foreign housing expenses, such as rent or utilities if their costs exceed a base housing amount. This deduction is available in addition to the FEIE.

Consult a tax professional with expertise in expatriate taxation for guidance tailored to your situation. Tax breaks can vary depending on where your country of residence and the nature of your income.

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How to Pay Your Tax Bill?

If you’re in the situation of owing money after filing your taxes but lacking the funds to pay your tax bill, various alternatives are available. Exploring these options is important to determine the best course of action for your specific circumstances.

Attempt Short Term Tax Bill Payment

Exploring Payment Solutions for Your Tax Bill: If circumstances have made it difficult for you to settle your tax dues promptly, there are alternative approaches available. One option is to submit your tax paperwork as usual and subsequently apply for an extension to meet the payment deadline. This extension can grant you a grace period of up to 180 days to fulfill the financial obligation.

Should you find yourself in need of a short-term payment plan, rest assured that there are no fees associated with setting one up. However, it’s important to note that interest and penalties will be added to the total taxes owed until they are fully settled.

Should you find yourself facing financial strains, you might be eligible for an extension by submitting Tax Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship. Remember, to secure either extension, it is crucial to submit your income tax return promptly before the tax deadline.

tax bill

Attempt a Tax Bill Long-term Installment

When faced with a tax bill that cannot be paid at once, a popular solution is to establish an installment plan, spreading the tax debt payments over a period of six years.

Should your total tax, penalties, and interest amount to $50,000 or less, and you have fulfilled all necessary tax filings, you are eligible to apply for a tax bill installment agreement through the IRS Online Payment Agreement Application available on the website.

When setting up a long-term installment agreement with the IRS, a one-time setup fee is required, along with ongoing interest and penalties on the outstanding tax debt until fully repaid. Throughout the duration of the installment plan, the interest and late payment penalties are reduced from .5% to .25% per month, providing some relief for taxpayers managing their tax liabilities.

When establishing a long-term installment agreement with the IRS, there is a setup fee involved, along with the application of interest and penalties on the outstanding taxes until they are fully settled. Throughout the duration of the tax bill installment agreement, the monthly failure-to-pay rate decreases from 0.5% to 0.25%, reducing the financial burden on taxpayers as they work towards paying off their tax debt.

Upon submitting your application, it is customary for the IRS to provide a response regarding your installment agreement request within a 30-day timeframe. The IRS has multiple convenient options available for facilitating payments through an installment agreement.

– Online Payment Agreement (OPA)

– Electronic Federal Tax Payment System (EFTPS)

– Payroll Deduction from Employer

– Check or Money Order Payment

– Credit Card Payment

– Direct Debit from Bank Account

When seeking an installment agreement through the IRS Online Payment Agreement Application and opting for automatic monthly payments from your bank account, a setup fee of $31 applies for online applications, while a fee of $107 is charged for applications made via phone, mail, or in-person.

When establishing an installment agreement with payments processed through methods other than direct debit and completing the application online, there is a possibility of incurring a $130 set-up fee.

Considering an online amendment for an existing installment agreement will incur a $10 fee while opting for phone, mail, or in-person revisions will cost $89.

Currently, the most efficient choice is to submit an online amendment to avoid potential delays when requesting installment plan revisions through mail or phone.

When setting up your installment plan, it’s crucial to ensure that the tax bill monthly payment aligns with your financial capacity to avoid any potential defaults. You must clearly indicate both the fixed amount and the specific date within the month for each payment to be processed, allowing flexibility between the 1st and the 28th of the month.

Offer In Compromise

To initiate an Offer in Compromise, a nominal application fee of $205 is required. Through an OIC, individuals can negotiate a settlement with the IRS to pay a reduced sum of their tax liabilities, which the IRS acknowledges as a complete fulfillment of the debt.

Before being eligible for an Offer in Compromise (OIC), it is necessary to ensure that all necessary filings and payments are up to date. Furthermore, individuals in the midst of bankruptcy proceedings are not qualified for an OIC.

In the event that you qualify for Low-Income Certification as an individual, there is no need to include any payment with your offer. Should your financial constraints be attributed to enduring circumstances like unemployment or business closure, you have the option to request an offer in compromise (OIC) from the IRS.

Temporary Delay Tax Bill

In situations where you anticipate being unable to settle your entire tax debt for an extended period, rather than just a temporary setback, this particular agreement could be essential.

In situations where individuals are unable to settle their tax debts, their account may be labeled as “currently not collectible,” signifying that the IRS could grant permission to postpone collection activities temporarily, giving time for financial circumstances to improve.

In the event that a debt is classified as presently uncollectible, it signifies that the IRS has ascertained your current inability to settle the debt. To proceed with postponing collection, you should submit a Collection Information Statement Tax Form 433-F, Tax Form 433-A, or Tax Form 433-B and substantiate your financial circumstances.

Rest assured, understanding intricate tax regulations is not a concern. Regardless of the financial decisions you made in the previous year, RapidTax promises to maximize their impact on your tax return. Whether you prefer to tackle your taxes independently or opt for the expert assistance of a dedicated RapidTax Tax Professional, our priority remains securing every entitlement you are owed, ensuring you receive the most substantial refund possible.

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Marriage Penalties and Marriage Bonuses

Marriage Tax Bonus?

In cases where a married couple’s total tax obligation is lower than the combined amount they would owe if filing separately as individuals, they can receive a marriage bonus. This scenario often occurs when one partner has a significantly higher income than the other in marriage.

Pooling their incomes, the couple can benefit from lower tax brackets, tax credits, and previously unavailable deductions to them when filing as individuals. Consider this scenario, suppose a couple who is not married collectively earns $120,000 in total income for the year 2023, with one individual bringing in $0 and the other earning $120,000.

In this scenario where the couple decided to tie the knot and file their taxes together, their total tax responsibility would amount to only $10,921. This reduction in tax burden is attributed to their eligibility for a higher standard deduction and a more favorable marginal tax rate due to their joint filing status.

marriage tax

Marriage Tax Penalty?

On the flip side, a marriage penalty emerges when the total amount of taxes owed by a married couple is greater than the sum of what they would owe if they were still filing separately as single individuals. The act of pooling incomes through joint filing can push both partners into higher tax brackets, resulting in couples with comparable earnings facing more marriage penalties compared to couples where one partner earns the bulk of the income.

In assessing the marriage penalty for individuals with higher incomes, it is crucial to consider the 3.8% investment income tax. This tax applies to single filers earning above $200,000 and married filers earning over $250,000 in adjusted gross income.

Moreover, individuals who fall under these tax brackets will also face an extra Medicare levy of 0.9% on income exceeding $200,000 for single taxpayers and $250,000 for those married couples filing jointly.

Avoiding Marriage Penalty

It is crucial for married couples to have a clear understanding of their tax situation to plan for taxes effectively. One helpful approach is to explore various scenarios to predict your tax obligations prior to filing. In most cases, choosing to file taxes separately does not typically lead to significant benefits for couples, although there could be exceptions in unique circumstances that arise.

Consider examining all available deductions and credits in order to lower your total tax obligation. Married partners who choose to file jointly are eligible for various tax credits, such as the Earned Income Tax Credit, education credits, and the Child and Dependent Care Tax Credit.

Take into consideration the phase-out thresholds that could impact your qualifications. To handle marriage penalties and bonuses effectively, it is advisable to seek guidance from a tax specialist. Their expertise can offer personalized advice based on your circumstances. The team of dedicated Tax Professionals at RapidTax are renowned experts in the field, boasting more than ten years of experience assisting clients with their tax returns.