Living in France is an incredible experience. The culture, cuisine, wines, history, and architecture are all world-class, while the French are stylish and friendly. Americans living in France though, contrary to what many expect, are still required to file US taxes, declaring their worldwide income, even if they are filing or paying French taxes, too.
Many Americans living in France assume that a tax treaty prevents them having to pay US taxes, however the US-French tax treaty protects French expats living in the US rather than US expats in France (with the exceptions of American teachers, students, and researchers living in France).
The good news is that there are a number of IRS exemptions that prevent double taxation, although they must be actively claimed when expats file their annual federal return.
The most important of these exemptions are the Foreign Earned Income Exclusion, and the Foreign Tax Credit.
Foreign Earned Income Exclusion
The Foreign Earned Income Exclusion allows expats to exclude the first around $100,000 (the figure rises each year in line with inflation) of their earned income from US tax liability. To claim the Foreign Earned Income Exclusion, expats should file form 2555 with their federal return. Form 2555 also requires expats to prove that they live abroad, either by providing evidence of permanent residence in France or evidence that they spent at least 330 days outside the US in the relevant tax year. Expats who earn over around $100,000 and who rent their home in France can also claim the Foreign Housing Exclusion on form 2555, to exclude a proportion of their housing expenses.
The Foreign Earned Income Exclusion can be used to exclude any sort of earned income, but not passive income such as from investments or rents.
Foreign Tax Credit
The Foreign Tax Credit meanwhile allows expats to claim a $1 US tax credit for every dollar of tax that they’ve already paid in France. This can be a better option for expats paying more income tax in France than they’d owe to the US, or those who receive passive (rather than earned) income. The Foreign Tax Credit can be claimed using form 1116, which should be filed along with form 1040.
US expats in France may also have to report their foreign bank accounts and assets.
Expats who have over $10,000 in total in foreign bank or investment accounts at any time during a year are required to report all their foreign accounts by filing a Foreign Bank Account Report, or FBAR. FBARs should be filed online to FinCEN by October 15th.
Expats who have over $200,000 of foreign financial assets meanwhile at any time during the tax year also have to report them on form 8938, which should be filed along with their annual federal return.
As filing US taxes from abroad can be more complicated than filing from the US, expats have an automatic filing extension until June 15th, with a further extension available until October 15th on request.
Some expats may have to continue to file State taxes too. It depends on each State’s rules, so the best course of action is to contact the State concerned for clarification.
Catching up
Expats who have been living abroad for a while but didn’t know that they had to file US taxes can catch up using an IRS amnesty program called the Streamlined Procedure. This requires that they file their last 3 tax returns, their last 6 FBARs (if required), and self-certify that their previous non-compliance was non-wilful (i.e. unintentional).
French Income Taxes
The French tax year is the same as the US, January 1st to December 31st. Americans living in France whose only income is from employment in France aren’t required to file a French tax return, as income tax is deducted at source. For those who do file though, French income tax returns are due by mid-May – the exact date is announced early each year. Married couples must file French taxes jointly.
Foreigners are considered resident for tax purposes in France if they have their permanent home in France, if they spend over 183 days in a year in France, or if their professional activities or economic interests are primarily based in France.
French tax returns are filed to the French equivalent of the IRS, the Direction Générale des Finances Publiques.
French federal income tax rates range from 0% to 45%, however higher earners may also have to pay a further 3% or 4% surcharge on part of their income. There is also a provincial income tax that varies from province to province.
