# Taxes for Americans Living in France



## kroder (Apr 11, 2013)

Dear all:

I'm trying to get some clarity on tax obligations of Americans living in France. Do you get taxed twice by both France and the US, or how does it work exactly? Are there some minimum income thresholds you have to meet before you start owing taxes back in the US? 

To put this question into perspective, I'm thinking of setting up my own business in France and working from home with no employees. So if there's some kind of "maximum" income I'm allowed to make before having to pay the US government, I'd like to know what that is. 

Does anybody have advice from personal experience? Thank you.


----------



## Bevdeforges (Nov 16, 2007)

No, basically, as an American living anywhere you have to file US income taxes like you never left "home." The one big difference is that you have the possibility to "exclude" what is called foreign earned income from US taxation. (However, you have to declare the income and then exclude it formally from taxation using form 2555 or one of the variations.) You also have the option of taking any income taxes you pay in France on that income as a credit against the US tax on the income (i.e. instead of taking the exclusion).

But filing is based on the same threshold levels as if you were in the US. https://www.irs.gov/publications/p501/ar02.html and look at the first chart on the page for the filing thresholds by filing status. Now, having to file and having to pay any taxes are two entirely separate issues. Lots of folks (like me) have been obliged to file US taxes, but there are no taxes due. (So I refer to my filing as my "annual love letter to Uncle Sam.)

The one "gotcha" is that you may wind up having to pay US social security tax (actually, "self-employment" tax) on a personal business if you aren't enrolled in the local "social security" system (actually, social insurances). But the US and France have a treaty on social security, so you're covered as long as your personal business is properly registered (even something simple like an AE) and paying your cotisations.

Definitely take a look at IRS Publication 54 for an explanation of how all this works when you're living overseas. 
Cheers,
Bev


----------



## kroder (Apr 11, 2013)

Bevdeforges said:


> having to file and having to pay any taxes are two entirely separate issues. Lots of folks (like me) have been obliged to file US taxes, but there are no taxes due. (So I refer to my filing as my "annual love letter to Uncle Sam.)


Bev, thank you for your response, and could you elaborate on this please? Why and in what circumstances do people have to file even if no taxes due? And then what is exactly your "annual love letter", what does it look like? 

Thank you.


----------



## Bevdeforges (Nov 16, 2007)

OK, the simplest example: up until a couple years ago, I was working here in France (for a company that consists of my husband and myself). So my "worldwide income" consisted of my salary plus a couple hundred dollars of interest from the various tax-free French bank accounts and a little interest from a savings account I maintain in the US. 

Let's say for argument sake that the numbers looked like this:

Salary: $20,000
French bank interest: $400
US bank interest: $50

In total, that's $20,450 in gross income. All of which needs to be reported on my US returns. I file as married, filing separately so because I have more than $4000 in gross income, I have to file a return, declaring all three sources of income.

Now, I took the FEIE (Foreign Earned Income Exclusion) for the salary income, which allows me to exclude the $20,000 in salary, leaving only the $450 in interest income on the last line of form 1040 for my AGI (adjusted gross income).

Turn over the 1040 form and follow the instructions for deducting the personal exemption and then the standard deduction for someone filing as married, filing separately and ultimately you have a negative number. One of the lines there says that if you get a negative number, enter 0, which is what I did. The tax on $0 is $0 so I'm done. I sign and date the form and mail it in along with the form 2555, and a Schedule B (solely so that I can check the little boxes on the bottom of the form indicating that I do, indeed, have foreign bank accounts).

All done. I had to file, but I paid no tax.

This year, I won't file anything, because all the income I have is the bank interest, and that is less than the $4000 threshold for the married, filing separately category. (Though I will - actually already have - filed an FBAR to report my foreign bank accounts.)

And that was my "annual love letter" when I had to file one. Once I figured it out, it took me about 20 minutes to fill out the forms each year (using the pdf forms available from the IRS website - or one of the free-file e-file sites). 
Cheers,
Bev


----------



## kroder (Apr 11, 2013)

Thank you for the detailed explanation, I understand now how needing to file can be different from owing any taxes in the end.


----------

