The new changes to US federal tax laws impacts expats filing their 2021 tax returns in 2022. The standard deduction for married couples filing jointly for tax year 2021 has been increased to $25,100. For single taxpayers and married individuals filing separately, the standard deduction increased to $12,550 for 2021, and for heads of households, the standard deduction has been increased to $18,800. US expats who earned less than these updated standard deduction amounts during 2021 are not required to file a federal tax return, unless they have self-employment income of $400 or more
For tax year 2021, the top tax rate remains 37% for individual single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly), with the lowest rate of 10% for income of single individuals with income of $9,950 or less ($19,900 for married filing jointly).
Most US expats living abroad are able to reduce their federal income tax liability, and in some cases completely eliminate it, by claiming the foreign earned income exclusion (FEIE) on Form 2555 or the foreign tax credit (FTC) on Form 1116, both forms can be used in some cases. US expats with foreign earned income may claim the FEIE to exclude all or a portion of that income from US federal taxation up to a certain income threshold, which is adjusted annually. The IRS has increased the FEIE threshold for 2021 to $108,700, up from $107,600 in 2020.
The most important US tax law change impacting individual taxpayers was the increase in the child tax credit (CTC) for 2021, to $3,600 for children below the age of 7, and $3,000 for children under the age of 17. US expats should note, however, in most cases they will not be able to claim these higher CTC amounts, as taxpayers who spent more than half of 2021 abroad are limited to the lower CTC amounts for the prior tax year 2020, which was $2,000.
