Tax Tips For TESOL OR TEFL Teacher Overseas
Working as a TESOL or TEFL teacher overseas is an exciting adventure that most people will never experience. However, working outside the country can also create tax problems. Unlike most other countries, the United States requires its citizens to file tax returns even if they aren’t living or working in the country.
Here are seven tax tips as a teacher overseas to help you understand the rules and prepare your return properly:
- You may be able to exclude most of your income as a teacher overseas.
Most TESOL or TEFL teachers working abroad are able to exclude their income on their United States tax returns by claiming the foreign earned income exclusion. For 2016, this exclusion will allow you to reduce your taxable income by a maximum of $101,300. To qualify for this exclusion, you must typically spend at least 330 days in a foreign country over a 12-month period. You may also be able to qualify for this exclusion if you can show that you were a “bona fide resident” of another country during the entire tax year.
- You still have to file a return.
Even if you are able to exclude most or all of the income you earned overseas and reduce your tax liability in the U.S. to zero, you are still required to file a tax return each year for informational purposes. In 2016, this requirement applies if you are an individual who earns at least $10,350 during the year from any source. For married couples filing jointly, the filing requirements applies when earnings exceed $20,700.
- You may owe self-employment taxes.
If you are a TESOL or TEFL teacher working abroad and you earn self-employment income, you will be required to pay self-employment tax. This tax will be calculated as a percentage of your Schedule C net income.
- You may benefit from a U.S. tax treaty or totalization agreement.
To reduce or eliminate double taxation for citizens working in other countries, the U.S. has negotiated more than 60 different tax treaties with foreign countries. Depending on the specifics of the treaty, you may be able to deduct contributions you make to foreign retirement accounts, qualify for an exemption for or from Social Security payments (under a totalization agreement) to the U.S. and/or defer taxes owed on earnings in foreign retirement accounts. You may also be able to claim a credit for income taxes you paid to foreign governments on income you earned from the United States.
- You may be able to deduct moving expenses.
If you aren’t able to exclude all of the income you earned in a foreign country, or if you have income earned in the United States, you may be able to reduce your tax liability by deducting some of your moving expenses and storage expenses. In order to qualify for this deduction, you must be employed in your new location for at least 39 weeks. This deduction will include expenses you paid to move yourself and any other members of your household to the new country. However, keep in mind that you won’t be able to deduct any expenses that can be allocated to income you have already excluded under the foreign earned income exclusion.
- You can claim a foreign tax credit.
In most cases, you will be able to claim a tax credit for any income taxes you paid to another country on the income you earned there. However, you cannot claim this credit if you have already used the foreign earned income exclusion on the same income.
- You may still owe state income tax as a teacher overseas.
Even if you are living outside the country, you may still owe a state income tax. A total of 41 states currently impose income tax on their residents, even if the resident isn’t living in the state when he or she earns the money. Make sure to learn about your state’s laws so that you can comply with all of the relevant requirements. You can also avoid paying state taxes by relocating your legal domicile to a state without income taxes before you move out of the country.
Income tax requirements for TESOL or TEFL teachers can be complicated. For expert assistance, please contact Tax Samaritan.
Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our clients. We are not only tax preparation and representation experts, but strive to become valued business partners. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.
If you would like a quote, please click on the button below for a free, no obligation Tax Preparation quote and/or free 30-minute consultation to discuss your situation as a teacher overseas further:
Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.