In early 2021, H&R Block Expat Tax Services ran an online survey aimed at U.S. expats living around the world about their finances, lifestyle, and tax situations. The survey was completed by 503 United States expatriates. Together, they represent a snapshot of the benefits and challenges as an American abroad, and how that life can affect a U.S. tax return and financial well-being.
Expat lifestyle perks and challenges
Living in another country certainly has its perks, but it also can have its complications. While expats say they experience a high quality of life, managing U.S. finances and tax responsibilities can hinder the carefree, adventurous lifestyle they left the States to pursue.
- 38% of surveyed U.S expats said their quality of life has improved while living in a foreign country.
- 35% said their finances improved while living in a foreign country.
- More than a quarter (27%) of U.S. expats say making enough money to keep up a desired lifestyle is an unexpected complication when living in another country.
- More than 1 in 5 (21%) said an unexpected complication living in another country is understanding how to pay taxes.
Many expats had their travel plans disrupted over the last year due to Coronavirus. US residents abroad who ended up being mostly resident in the US again, can in some cases get an exemption for this and file as if they had been normally resident abroad.
- 62% of respondents considered shortening their time abroad because of the COVID-19 pandemic.
- 26% said staying in their host country is the safest option during the COVID-19 pandemic.
- Nearly 1 in 5 (19%) had a reduction in pay due to the economic changes in 2020 related to the pandemic, while 38% said the economic changes in 2020 led to them finding a new job.
- 17% of respondents said they had to take money directly out of retirement savings due to economic changes in 2020.
Expat taxes and finance
One of the biggest challenges for U.S. expats is staying compliant with the IRS and the U.S. government.
- 63% of respondents feel it is difficult to file their taxes as an expat, and 21% said a financial barrier they’ve encountered are employers not offering tax help.
- 40% wish they had more information on which financial documents (foreign bank account statements, W2s, etc.) they needed to include when reporting taxes.
- 1 in 3 (33%) wish they had more information on income tax rules to qualify for the Foreign Earned Income Exclusion (FEIE).
- 3 out of 4 (75%) say they’ve been audited by the IRS for incorrectly filing their taxes while working abroad, and 32% of those had to pay fines of more than $500.
- More than 1 in 5 (22%) say tax breaks have allowed them to save money while living and working outside of the U.S.
Filing U.S. taxes while living in Germany.
Navigating the alphabet soup of tax forms can be difficult enough for Americans living stateside and throwing in international tax forms makes it a bit more convoluted. Despite what many think, Americans and U.S. Green Card holders living in Germany should continue to file a U.S. tax return each year.
The good news is U.S. citizens abroad can benefit from expat-specific tax breaks, for example, German pensions can get special treatment. Thanks to the U.S./Germany tax treaty, expats may be able to deduct their contributions to a qualified German pension scheme or retirement plan.
For more information, H&R Block has an Expat Tax Resource Hub dedicated to helping U.S. expats in Germany understand their filing options.