US taxes when you live in Spain

Moving to Spain doesn’t end your US tax obligations, and it usually adds Spanish ones. Americans who live in Spain most of the year end up filing in both countries, and the two returns have to be prepared with each other in mind.

What changes on the US side

• You still file a US return on your worldwide income.
• Foreign accounts must be reported. If your non-US accounts total more than $10,000 at any point in the year, you file a foreign account report (FBAR). Larger balances trigger a second form with your tax return.
• Credits and exclusions prevent most double taxation. Spanish tax paid can usually be credited against US tax. Earned income from work may qualify for the foreign earned income exclusion instead. Because Spanish rates are often higher than US rates, the credit is usually the more useful of the two.
• Your state may still want a return. Some states keep treating you as a resident until you clearly cut ties.
• Spanish investment products cause US problems. Non-US funds and some insurance-based savings products bring heavy US reporting and poor tax treatment. Ask before you buy anything a Spanish bank offers.

The Spanish side

If you spend more than 183 days a year in Spain, you are generally a Spanish tax resident and file a Spanish return on worldwide income. You may also owe wealth tax and have to file a report of assets held outside Spain. Taxes in Spain explains the rules.

The US-Spain tax treaty decides which country taxes what. Social Security, government pensions, private pensions and retirement account withdrawals each follow different rules, and Spain doesn’t necessarily give Roth accounts the treatment the US does. This is where a preparer who knows both systems makes the most difference.

When to bring one in

Before you move, and ideally in the tax year before. Decisions that can only be made in advance include:

• Which half of the year to arrive in, since that usually decides whether you are Spanish resident for that year.
• Whether to sell a US home or investments with large gains before becoming resident.
• Whether to convert or draw from retirement accounts first.
• Whether you qualify for the Beckham law, which has a short application deadline after you start work in Spain.

At the latest, speak to someone before your first Spanish filing season, which runs from April to June.

What to ask a preparer

• How many clients do you have who live in Spain?
• Do you prepare the Spanish return and foreign asset report, or work with a Spanish adviser who does? Do you coordinate directly?
• How will my Social Security, pension and retirement accounts be taxed in each country?
• Is the fee fixed, and does it include foreign account reporting and a state return?
• Are you an enrolled agent or CPA, and will you represent me if the IRS writes to me?

Common questions

Do I still pay US taxes if I live in Spain?

US citizens and green card holders must file a US federal return every year wherever they live. If you are a Spanish tax resident you pay Spanish tax first on most income, and credits for that tax often reduce the US bill to little or nothing. The filing requirement stays.

Do I have to report a Spanish bank account to the US?

Yes, if your non-US accounts together exceed $10,000 at any point in the year. That is the foreign account report known as the FBAR, and larger balances require a second form with your tax return.

Do I need a tax adviser in Spain as well as in the US?

Usually yes. Spanish residents file a Spanish return on worldwide income and often a foreign asset report, and the two countries' returns have to agree with each other. Look for a firm that handles both, or a US preparer and a Spanish adviser who work together.