It is estimated that over five and a half million Americans live abroad, and according to ARRO, well over 100,000 of those US expats live in Spain. However, Americans living in Spain still have US tax obligations. The IRS requires US citizens and Green Card holders to report their worldwide income to and file a federal tax return annually, regardless of where they reside. Fortunately, the IRS offers provisions that help prevent double taxation. If you’re an American in Spain, understanding the rules around expat taxes is essential. This guide explains how to stay compliant, avoid penalties, and maximize your expat tax benefits.
Avoiding Double Taxation in Spain
To avoid paying taxes twice on the same income, let’s look at the key tools you can use to reduce your US expat taxes after moving to Spain:
1. The Foreign Earned Income Exclusion
Use Form 2555 to exclude up to $126,500 for 2024 (this amount is adjusted annually) of foreign earned income if you meet either the Physical Presence Test or the Bona Fide Residence Test:
2. Foreign Tax Credit (FTC):
Use Form 1116 to claim a dollar-for-dollar credit for income taxes paid to Spain.
3. US-Spain Tax Treaty
While the US-Spain treaty doesn’t exempt most income from US tax, it helps resolve dual residency issues, assigning taxing rights between the two countries
FBAR, FATCA: Reporting Spanish Accounts
To stay compliant with US expat taxes, you must report your Spanish foreign financial assets:
- FBAR (FinCEN Form 114): Required if your aggregate foreign account balances exceed $10,000 at any time during the year. Due April 15 with an automatic extension to October 15.
- FATCA (Form 8938): Required if your specified foreign assets exceed $200,000 on the last day of the year or $300,000 at any time during the year (for individuals abroad, the thresholds are lower for Americans living in the US). This is filed with your tax return.
Failure to file these forms can result in hefty penalties, even if the oversight is unintentional.
Filing Requirements for US Expats in Spain
As a US citizen or Green Card holder, you must file a US federal income tax return if your income exceeds certain thresholds, even if you live in Spain. For the 2024 tax year (amounts increase annually), the thresholds (Under 65) are:
- Single: $14,600
- Married filing jointly: $29,200
- Married filing separately: $5
- Widow(er): $29,200
- Head of house hold: $21,900
- Self-employed: $400
Claiming Child Tax Credit From Spain
Americans in Spain with qualifying children with a valid SSN under 17 years of age may claim the
Child Tax Credit(up to $2,000 per child).
**The Additional Child Tax Credit (ACTC) is -**a refundable portion of the credit you can claim on your tax return (up to $1,700 per child in 2024, even if you don’t owe any taxes).
If you claim the FEIE, you generally can’t claim the refundable ACTC because the excluded income doesn’t count toward the earned income requirement.
Paying Self-Employment Tax from Spain
Self-employed expats earning $400 or more must pay US self-employment tax (15.3%). However, the U.S.-Spain Totalization Agreement may exempt you from this if you pay into Spain’s Social Security system.
If you work for a Spanish employer, you contribute to Spain’s system. If self-employed, you can often avoid US self-employment tax by obtaining a certificate of coverage from Spanish authorities. If you end up paying US self-employment tax, then these contributions may also count toward future US Social Security benefits.
Do You Need to File State Taxes While Living in Spain?
Certain states still require US expats to file state tax returns based on their ties to the state, such as voter registration, property ownership, and even maintaining a state driver’s license.
To sever ties, you can:
- Close your bank accounts
- Sell property
- Obtain foreign residency in Spain
Each state has different domicile rules. It’s essential to review the specific requirements of your home state. Contact MyExpatTaxes to ensure compliance and avoid penalties on your state tax obligations.
Retirement and Social Security Benefits In Spain
Americans living in Spain can collect US Social Security benefits. Under the US-Spain tax treaty, the United States retains the exclusive right to tax US Social Security payments. Spain generally will not tax these benefits, though you may need to report them on your Spanish tax return. The US also has a right to tax foreign retirement income, so you’ll need to claim foreign taxes from Spain if paid.
Choosing the Right Filing Status
Your filing status affects your tax rate, standard deduction, and credit eligibility. Below are your options when filing your US tax return from Spain with standard deduction rates:
- Single: For unmarried individuals
- Married filing jointly: Available whether your spouse is a US citizen or a nonresident alien (e.g., a foreign spouse).
- Married filing separately: Used when each spouse files their own return. Commonly, when one spouse is a nonresident alien and you choose not to file jointly. It avoids reporting their income but limits credits and often results in higher taxes.
- Head of household: For unmarried individuals who support a qualifying child or dependent. You may also qualify if married to a nonresident alien and not filing jointly, provided you meet the household support requirements.
Choosing the correct status is key to minimizing your tax bill and claiming credits such as the Child Tax Credit and the Additional Child Tax Credit. If you’re unsure which status is best, especially when married to a foreign spouse, MyExpatTaxes can help you make the right choice.
Key IRS Filing Deadlines
As you likely already know, the US standard filing deadline is April 15th. However, US expats in Spain get an automatic two-month filing extension, making the US expat deadline June 15th. If you still need additional time to file, the IRS grants a further extension by filing Form 4868, pushing the deadline to October 15th. It’s important to note that you must still pay any taxes owed by April 15 to avoid interest charges.
How to File From Spain
There are two ways to file your US tax return from Spain.
- Electronic Filing (e-file): Use IRS-approved software like MyExpatTaxes to submit your return online securely. Filing electronically is the most efficient way to file your US taxes from abroad.
- **Mailing Paper Returns to the IRS:** Austin, TX 73301‑0215 – If no payment is enclosed (or you’re requesting a refund), Charlotte, NC 28201‑1303 – If you are enclosing a check or money order
Catching Up On Missed Filings From Spain
If you weren’t aware of your US tax obligations, you’re not alone. The IRS has one last Hail Mary for US expats in your situation. A provision called Streamlined Filing Compliance Procedures, which aims to help Americans abroad who had no willful intent to avoid their filing obligations, catch up without penalties.
For Americans living in Spain, staying compliant with US expat taxes while navigating Spanish requirements can feel overwhelming. MyExpatTaxes simplifies the process with one-on-one support from our trusted tax professionals and easy-to-use software built specifically for expats. Get started today and file with confidence.
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