If you're a U.S. citizen who spent the majority of the past year working in another country (i.e., an expat), then naturally you'll want to avoid having to pay taxes twice on the same income - once to the country you worked in and again to the U.S. To prevent this, the IRS has two systems in place for workers with foreign earned income: the Foreign Earned Income Exclusion and the Foreign Tax Credit.
Foreign Earned Income Exclusion
The Foreign Earned Income Exclusion (FEIE) allows qualified applicants to exclude some or all of their foreign-earned income from their taxable income. For the tax year 2022, you may adjust your income by $112,000. Foreign housing may also be eligible for exclusion. To file an FEIE, use IRS Form 2555.
Foreign Tax Credit
Eligible candidates could also apply for the Foreign Tax Credit (FTC). This allows you to subtract the taxes paid to another country from what you owe to the U.S. Those who are interested can use IRS Form 1116 to see if they qualify.
The main difference between the FEIE and FTC is that one is a tax deduction while the other is a tax credit. There are a variety of factors that could make one a better fit than the other. However, expats must choose only one option.
What If I Have Foreign Accounts or Treasuries?
According to the Bank Secrecy Act of 1970, all U.S. citizens with banking activity outside of the U.S. must file a Report of Foreign Bank and Financial Accounts (FBAR). This applies if the aggregate value of your foreign financial accounts exceeded $10,000 at any time during the calendar year. FBARs may be filed electronically using the BSA E-Filing System.
For more information about the taxation of Foreign Accounts, please see this resource from the IRS.