Will US Citizens Living Abroad Need to File State Taxes? Many of our expat clients ask us this question. Here’s what you would need to know about taxes while living in France as U.S Expat:
Provisions Preventing Double Taxation
The rules say that US citizens/permanent residents must file US taxes with the IRS annually. This remains true even if they live in a foreign country. Besides that, they will also need to file a Foreign Bank Account Report (FBAR). It discloses their foreign bank-held assets.
However, the US also prevents double taxation through:
- Foreign Earned Income Exclusion, according to which you may deduct $105,900* from your earnings.
- Foreign Tax Credit, according to which you can offset the taxes you paid in the country of your residence.
- Foreign Housing Exclusion, according to which you may deduct the household expenses incurred while living abroad.
*This amount is specifically for 2019.
Tax Due Date in France
The tax year in France also matches the calendar year. However, your location, status of residency, and filing type determine your due date.
For instance, residents filing a paper return must pay before May 18th of the year after the tax year. But for e-filing, you may submit on May 24th, 31st, or June 7th. Non-resident expats must file by June 7th.
Frances taxes families as units, so married couples must file jointly.
The US-France Social Security Agreement
According to this agreement, it is pre-decided which country an expat would pay specific taxes to. Mostly, the employment arrangements determine where the taxes of a US Citizen Working in France Taxes will go. For instance, working for a US/French employer for 5 years or less means the expat will pay into US/French Social Security. Any longer and they must switch to the French social security program. The taxes of any individual on a US government assignment will go into US Social Security. This is true, regardless of their residency status in France.
Residency in France
Defining this term for an American in France would mean that they must be:
- Connected to their family’s primary home/primary residence in French territory. Spending 183 days or more in France makes the expat’s home their primary residence.
- Primarily employed in France or have professional activities there.
- Using France as the center of their economic activity.
Income Tax Rates in France
French taxation applies to all income, which is capped at 45%. A surtax of 3% applies to any income above EUR 250,000. It is 4% if earnings are higher than EUR 500,000 for individuals. Couples pay that 3% if their joint income is above EUR 500,000 and 4% if they earn more than EUR 1 million.
Non-residents do not get the standard exclusion. They must also pay income tax withholding rates. That rate increases with the amount of total taxable compensation. Crossing the 20% bracket means the non-resident must also pay income tax returns.
A US Citizen Living Abroad Tax Exemption may apply if they fit the requirements for the special tax regime.
Other Taxes in France
US citizens will also be Paying Taxes in France on US Income if they are also French residents. Even excluded income counts in determining what tax rate the country will apply to your personal income. Non-residents may pay taxes only on income sourced from France.
There are also other taxes, such as the TVA (value added tax at a 20% rate). There’s also one on capital gains.
Americans who are also residents of France must pay taxes on capital gains at progressive rates. Of course, there are exemptions for certain items. Those include assets that are gifts or transfer after death. Moreover, furniture and motor vehicles don’t come under capital gains either.
Any securities that an expat sells within the year will give them capital gains too. Thus, they must pay the PIT (30% rate). The PIT includes 12.8% in income tax and 17.2% rate for social levies. Finally, there’s a maximum marginal tax rate for high earners (4%).
When selling shares, the residents must pay tax at a rate of 34.5%. The rate remains the same for real estate, except for principal residences since they are tax exempt. It is best that they contact a tax expert on this matter.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Akif CPA will not be held liable for any problems that arise from the usage of the information provided on this page.