Final answer:
U.S. citizens living abroad must file an annual income tax return with the IRS. They are taxed on their worldwide income according to U.S. tax brackets. Failure to comply can lead to serious penalties.
Step-by-step explanation:
U.S. citizens that live abroad are still required to file income tax returns with the Internal Revenue Service (IRS) every year. This involves the use of tax forms like the Form 1040EZ for simpler tax situations. Despite being overseas, the income U.S. citizens earn abroad is subject to U.S. taxation, as the U.S. tax system operates on a worldwide income basis for its citizens and residents. Based on their earnings, individuals may fall into different tax brackets, and the amount of tax is determined accordingly using a sliding scale.
The government uses tax revenues to finance various programs, services, and transfers to households and firms. It is essential for U.S. citizens abroad to understand that failure to comply with tax obligations can result in penalties, such as fines or even jail time. Additionally, paying taxes provides the funds for government purchases and services that benefit the public.