This is not legal advice. Any information found here is a result of research and experience.
American Taxes: to File, or Not to File
American taxes for people living abroad can be complicated. Do I have to file? If I don’t, what are the benefits of filing my American taxes when it’s so much extra work? The United States requires that your report worldwide income for tax purposes. But the auxiliar income is a scholarship! Yes, in Spain your stipend is classified as a scholarship. The US, however, classifies it as income. According the the IRS, the penalties of not declaring foreign income can be steep:
Consequences for Evading Taxes on Foreign Source Income
You will face serious consequences if the IRS finds you have unreported income or undisclosed foreign financial accounts. These consequences can include not only the additional taxes, but also substantial penalties, interest, fines and even imprisonment.
There are exceptions, however. Just like citizens living in the US, US citizens and resident aliens living abroad have a minimum filing threshold. For the tax year of 2017, that minimum is $10,400. Below, we’re going to look closer at American taxes in different possible situations, and also where to put the income on your tax return (with photos).
American Taxes for First Year Auxiliars
If you’re a first year auxiliar, whether or not you owe money to the IRS will depend on how much money you earned in 2017 before starting the Auxiliares de Conversacion program. As a graduating student who worked part time from April-August before moving to Spain in September of 2015, my first year income was under the minimum filing threshold. I filed anyway, and I recommend you do too, for two reasons:
- You may get a Refund. I got $718 back for filing my 2015 American taxes! That’s a month’s wages for many auxiliars.
- If you have federal student loans, you can use your tax return to renew Income Based Repayment plans. Without filing your American taxes, proving your income while abroad will be more difficult.
If your earned income in 2017 is at or above the threshold of $10,400, you will not have a choice. You must file your American taxes. If you know in advance that you’re going to be an auxiliar in 2018, and that you’ll have higher income for your first year filing american taxes abroad, you can adjust your witholdings before you go. You can do this by changing the personal allowances on your W-4 to zero, so that you’ll be less likely to owe when your auxiliar income is eventually added on (and not taxed as you’re paid).
American Taxes for Second Year+ Auxiliars
Your American taxes won’t start to get complicated until your second year in the auxiliar program. There are many variables that could affect what you may owe. Did you work for an academy? Or how about working for an online company? Did you go home for the summer, or Spend 330+ days outside of the US?
Once you spend 183 days in Spain, you are considered a tax resident. What does this mean? You may have to file taxes in Spain and the US. Spain has its own minimum filing thresholds, and you aren’t likely to reach it as an auxiliar, unless you work for more than one employer in a calendar year. You can’t start your Spanish tax process until April 8th this year, but Americans living abroad get an automatic two month extension on filing taxes, meaning that you won’t have to file until June 15th. I will talk more about Spanish taxes in a later post, when I have to file my own 2017 taxes. In the meantime, you can read more about Spanish taxes here.
My second year in the program, not only was I a Spanish tax resident, but I was considered a resident of Spain for American tax purposes due to the Physical Presence test (Being outside of the US for 330+ days). This only happens if you do not go home over the summer.
This year, I am a Bona Fide resident, with a residency card through Pareja de Hecho.
Programs like TurboTax will not let you file for free using their income based Freedom edition if you are a resident of Spain. For my 2016 taxes, I used FileYourTaxes, because they let me file for free without an American address. I will look at them again when I do my 2017 taxes.
If you earn above the threshold for American taxes while being a tax resident in Spain, you can file the Foreign Earned Income Exclusion, which will make your first $100,000 untaxable in the US. This is a great option for people living in Spain long term and earning more than the auxiliar stipend. I am still currently below the filing threshold, but will post about my experience with the FEIE when it becomes relevant.
Am I Still a Tax Resident in my Home State?
The answer to this question depends on your state. There are lucky few that are in No Income Tax states:
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Washington State
- Wyoming
Your taxes will be a lot easier than everybody else’s. You can file your Federal taxes and be done with it. If you pass the Physical Presence Test or the Bona Fide Resident test mentioned above you’re also OK in most cases. There are a few states, however, that are difficult. The following states will put up a fight before letting you go:
- California
- South Carolina
- New Mexico
- Virginia
According to Greenback Expat Tax Services, these states will consider you a resident if they feel like you still have ties to the state, such as property ownership, a state driver’s license, or even a mailing address at a relative’s house. If you come from one of these states, you may be liable for state income tax on auxiliar income even if you live the entire calendar year in Spain. In that case, you will need to weigh the pros and cons of filing vs not filing if you are below the threshold of $10,400. If the extra state tax is worth the benefit of transferring your tax info to your student loan IBR plan, then do it. For those who haven’t got federal loans at all, and if you are below the filing threshold, there is no requirement. However, filing may still be a good idea in case of future audits.
American Taxes for Side Hustles
If you work at an academy or as an online English teacher while living abroad, this could also affect your American taxes (and maybe your Spanish taxes). If the extra income puts you above the threshold, you will likely owe taxes unless you qualify for the Foreign Earned Income Exclusion or the Foreign Tax Credit.
The first one, as mentioned above will let you exclude approximately $100,000 of income per year, which is more than most of us will make while living in Spain. However, it’s got one downfall. If you are planning to contribute to an Individual Retirement Account (IRA) at any point, you cannot use income that falls under this exclusion. The other option is to take the Foreign Tax Credit. You might end up owing some income tax, but it lets you take a deduction to account for foreign taxes. You can contribute to your IRA in this way. If you aren’t planning to contribute to retirement while abroad, the FEIE is the best option.
There can be some interesting tax implications if you work for an online English teaching company. Many of these companies were in their infancy over the past couple of years, and whether or not you were working as an employee or a contractor may have been unclear. Now that they’re “legitimizing” themselves, many companies are giving out IRS 1099 forms, or classifying you as an independent contractor.
If you work under these conditions, you will be considered self-employed by the IRS, and the minimum threshold for filing self-employment income is just $400! Independent Contractors must pay much more in taxes, because their employer is listed as themselves, rather than the company they work for. You will pay approximately 30%.
In my opinion, these companies are misclassifying employees as contractors. They do this to avoid paying their share of the taxes. According to the US Department of Labor, you are not a contractor just because you receive a 1099 or have signed a contract that says you are a contractor. Employers cannot missclassify you, even with your consent!
You can try to fight misclassification with the IRS, but it’s better to avoid the problem from the beginning. Talk to your potential employer from the beginning to make sure they follow the correct classification.
Where to List your Auxiliar Income
Now that you understand a bit more about American taxes for auxiliars, where do you put the income when you file? If you are using TurboTax Freedom edition and are still a resident of the US, you can follow these steps:
*EDIT: TurboTax Freedom edition is different than TurboTax Federal Free edition. Freedom eddition is for low income ($33,000 Adjusted Gross Income or less).
Please remember that this way is only free if you are still a US resident. Refer to the IRS website if you need recommendations for free filing for non residents. As I said above, I’ve used fileyourtaxes.com
If you’ve got any questions or advice about filing american taxes for auxiliars, please feel free to comment below!
Thank you so much for sharing this. I’m going crazy trying to figure out how to file my taxes as an auxiliar. I use TurboTax and pay to import my information from last year, so I already use Premium. I think I have to go with the second option for filing because, even though I am a first year auxiliar, I made about $17,000 working at my old job before I came to Spain in September (had to put in those hours to save $ for Spain!). I’m glad I saw this though, because I was almost going to list as ‘foreign income’ despite other auxiliares saying not to do this. TurboTax wasn’t exactly making it easy to file this program.
It’s true, it can be very confusing. If you had enough taxes withheld before coming, maybe you’ll get a refund at the end after all 🙂 Good luck!
Lots of great information Melissa. I need to sit down and figure out what’s the best filing method for me. Thanks for sharing your knowledge!
Any time, Lauren 🙂
Thanks for the resource! I’ve used this for the past two years as a starting off point for getting my taxes done.
Glad to help!
Hi Melissa, Thanks for this post. It’s so informative and helpful.
I have been in Spain for a while, 6 years, and am in the same position you were when writing this –pareja de hecho.
If I’m over the threshold will it make a big difference in filing, would this have any kickback for me or would this just mean I would likely owe more money? I’m not far from the threshold but definitely over it. I haven’t filed since I moved here, and the first for years I was an auxiliar. I’m just looking for the best and most efficient way for me to catch up without getting burnt.
Thanks in advance!
Hey, Stephanie. You have two options when you’re over the threshold. You can file the Foreign Earned Income Exclusion (FEIE) or take the Foreign Tax Credit. You won’t be able to file free on TurboTax with that, but a friend of mine just filed on Tax Slayer and said it was free with the FEIE. I haven’t done mine yet this year, as I’m waiting on tax info from my Academy, but when I do, I think it’s time to update the tax post with some more advanced options.
Hey Melissa! Your post has definitely helped me out while trying to figure out something as tricky as filing. I do have a question, though.
In the part where you mentioned that we wouldn’t have $10,000 in a bank account for it to matter. What about if someone were in that position?
Say, for instance, that second-year or more auxiliar had two separate bank accounts at different banks or the same (one checking for auxiliar money and one savings for private class/academy money/rainy day money) that at one point the total value was over $10,000 before the end of the year. The amount fluctuated under and over $10,000, but the fact still stands that it was over 10k during that taxable year. Would they have to file an FBAR? What does filing it mean and would that affect the amount of a refund they’d get back?
Do you have any experience with someone that has had to file an FBAR as an auxiliar?
Thanks in advance!
Hello, Sam! Yes, in that case you would have to file the FBAR. I don’t personally know anyone who has filed it, but I found this site with a bit of information. The way I’m understanding is is they just want to know about the money to keep tabs on it, but I don’t believe it will be taxed, as it isn’t income.
Sorry, posted too soon. This is the link I meant: https://www.greenbacktaxservices.com/blog/fbar-overview-penalties-options/
Thank you so much for this post! A couple questions – even if I lived in Spain for around 9 months, should I select Yes under “Did you live in a foreign country?” Also – when I get ready to submit, TurboTax is telling me I need to mail in my federal taxes.. any idea why submitting online wouldn’t work? Thank you!!
Hello! I just saw this comment, so I hope you were able to get everything sorted. You SHOULD say you lived abroad. If this is your first year, only the September/October-December months will count for 2019 – the rest of your school year falls in 2020. If it is not your first year, Turbotax won’t let you e-file for free with a foreign address. You could try FileYourTaxes.com if you aren’t filing a Foreign Earned Income Exclusion and your AGI is at least $9000. If you are filing the exclusion or your AGI is too low for fileyourtaxes, you can try H&R Block. It sounds like I should update this post with these additional options for next year.
Hi Melissa,
Thanks for the information! I have a few concerns. I was planning on going home to Pennsylvania this past summer, but because of COVID, I decided to just stay in Spain and wait to start my second year in the Aux program. But, I’m also signing up for VIPKid in order to have a little bit more financial support because, unfortunately, the Aux program isn’t enough in order to save money, which is my goal. Anyway, the VIPKid website wants me to fill out a W9 for them and I’m not exactly sure what to put in relation to having a foreign account; even if we are technically considered as ‘students’.
Hi, Jerod. I’m not quite sure I understand the question. If you take the VIPkid job, the W-9 will be used to report your earnings to the US. When you file taxes, you will be a contractor, rather than an employee, and should save about 30% of your income to cover those taxes. As to the foreign account, I don’ t know if you mean for accepting payments if it will be a problem, or something else. Your student status doesn’t really affect whether or not you have a foreign account. Could you clarify what you are asking about the foreign account?
I have been an Auxiliar for 2 years. I am now moving to Korea to do the EPIK program. I am currently filling out form Form 8802 (residency certificate) to be tax exempt for my income in Korea. I filed taxes in 2021 to claim my income from the first half of 2020 when I was still working in the US, however, it was my understanding that we didn’t earn enough as Auxes to claim that income. I made 7,500 here in Spain with the Aux program in 2021 (much under the 10,000 threshold) so therefore I didn’t file in 2022. I was not claimed as a dependent either. Now filing the form 8802 I am not sure what reason to give for why I didn’t file in 2022. Any help or insight into this would be so appreciated!
Hello! Were you able to figure this out? I’m in a similar situation now (former aux, didn’t file in 2022, now would like to fill out the 8802) and I’m not quite sure what to do. Would love to hear if you were able to get it sorted out!
Hi, Does anyone have experience filing for the local earned income tax?? I know they review federal and state taxes. Since I filed both (federal and state), I guess that I have to file local taxes as well but I’m not positive since our stipend is money we earn abroad.? Thank you
Hi, this guide is super helpful thank you! Question though: TurboTax Freedom edition no longer exists and I’m having trouble figuring out where to write my auxiliar income on the new version. For context, I am a first-year (and renewing) aux. Before becoming an aux, I think I technically made just below the requirement to file, but I would like to file because I believe I would still be getting back a refund based on my withholdings and other student loan things.
I have tried both TurboTax and H&R Block free editions, both of which tell me I need to upgrade to pay $60 in order to report other/miscellaneous income (neither $30 option includes it either). I would like to avoid paying this much unless it’s really my only option. Has anyone else had success using any online free/cheaper software for their 2022 auxiliar taxes?
Any advice/suggestions would be greatly appreciated.
Thanks 🙂
I’m using TaxAct but the IRS has other free options depending on if you fall under a certain income threshold. https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free
My daughter is in the NALCAP program. She arrived in October 2022 so for tax purposes, she was working there for 3 months. I spoke to my accountant and she said I should list her income on a schedule C and then deduct a portion of her rent, flight, visa and other expenses related to her employment there. Anyone have thoughts on this?
Hello! I’m a second year aux in Madrid and my income was just barely less than the 10,000 threshold so I didn’t file after chatting with multiple sources about this (and before coming across this article). Do you think I should bother file retroactively just in case? 2023 tax year I will be over that so I understand I definitely should…