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(1) I am trying to find out whether one has to file any income tax if they are an American citizen permanently living abroad but having literally no income?

(2) While trying to search about this on the internet, I wondered why is there no tax bracket with 0% or nil income tax (the UK doesn't tax income upto £12,500 for example). This means that people earning below that threshold are exempt from paying tax. Is there no such Nil or 0% tax thing in the US? So many countries have this minimum threshold income where no filing of income tax is required. Even countries like India have such policy. But I can only see that in the US you have to pay 10% tax minimum no matter how less you earn.

I would really appreciate if you could help me regarding those 2 questions.

Thank you:)

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Q2: US tax brackets are based on your taxable income, which is computed by applying various adjustments and deductions to your "actual" gross income. In particular, most taxpayers are entitled to apply a standard deduction which is currently about $12,000 for a single taxpayer.

So if you are a single taxpayer with a gross income of, say, $10,000, then after taking the standard deduction you have a taxable income of $0 (it cannot go negative) and therefore you owe $0 in taxes. The overall effect is somewhat similar to having a 0% tax bracket.

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  • Does this mean that an American expat who earns less than $12,200 does not need to file income tax for that year, am I right? I just don't want to do anything unlawful so I want to be clear whether I should bother filing or not if I earn negligible income (which is below $12,200)? – Joseph Johnson Jul 24 at 18:38
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    I can't tell you what you should do as I am not your accountant or tax attorney. But the IRS has many resources to help people answer this question, e.g. irs.gov/help/ita/do-i-need-to-file-a-tax-return. – Nate Eldredge Jul 24 at 18:42
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    @JosephJohnson: One other thing to be aware of is FBAR which is a mandatory report of foreign bank accounts and other assets that expats often have. It does apply to individuals despite being in the "business" section of the IRS website, and it is required even if you are not required to file an income tax return. The penalties for noncompliance are potentially very severe (e.g. forfeiture of half the assets). – Nate Eldredge Jul 24 at 18:47
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    "every taxpayer is entitled to apply a standard deduction" There are cases when one cannot use the standard deduction, e.g. if you are a nonresident alien, or if you are filing Married Filing Separately, and your spouse is itemizing deductions. – user102008 Jul 29 at 8:56
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    @user102008: Thanks; amended to "most". – Nate Eldredge Jul 29 at 12:03
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  1. Under US law, you do not need to file a tax return if your income was under a threshold. For tax year 2019, this threshold is $12,200 for an individual under 65 years of age, which non-coincidentally was the standard deduction for that year.

  2. There is effectively a 0% tax bracket, due to the standard deduction. A deduction is "deducted" from your income to form your effective income, which is taxed. If you make less than 12,200, the standard deduction (which is available to everyone) makes your effective (i.e. taxable) income $0.

The reason it is set up this way, is that there are a whole host of "deductions" that can be applied to a tax bill, designed to encourage various behaviors, instead of the standard deduction. The is called "itemizing", can can lead to a total deduction that is greater than the standard deduction. So if you your actual income is $20,000 and you have $15000 in itemized deductions, you have an effective income of $5000, which is taxed at 10%. If you have an income of $45000, and $15000 in deductions, you have an effective income of $30000, of which the first $19750 is taxed at 10%, and the remain $10250 is taxed at 12%.

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  • Does this mean that an American expat who earns less than $12,200 does not need to file income tax for that year, am I right? I just don't want to do anything unlawful so I want to be clear whether I should bother filing or not if I earn negligible income (which is below $12,200)? – Joseph Johnson Jul 24 at 18:38
  • Both of you (Nate and Sharur) have answered my question apparently at the very same time. I wish I could mark both as correct but I see I can't, so I am marking neither as "accepted". Thank you for answering my question! – Joseph Johnson Jul 24 at 18:39
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    @JosephJohnson: H&R Block (a major consumer tax preparation firm) says no(hrblock.com/tax-center/filing/filing-requirements), but I would still check the IRS guideline that Nate has provided. I would also note an American living abroad may be covered under tax treaties that may reduce their (US-based) taxation further (although if you are making no income, your US-taxation cannot generally be reduced further, with some exceptions). But international taxes are not a subject I am deeply familiar with. – sharur Jul 24 at 18:49
  • No problem. Thank you so much for helping! – Joseph Johnson Jul 24 at 18:51
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    It is also worth noting that while U.S. citizens are subject to income taxation on their worldwide income, that earned income earned abroad up to a certain threshold ($105,900 in 2019) is excluded from taxation. So, a natural person who is a U.S. citizen abroad can earn up to $105,900 of earned income abroad and in addition up to $12,200 of unearned income (slightly more if over age 65) is still not be required to file a tax return or to pay U.S. income taxes. – ohwilleke Jul 25 at 0:37

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