Overview of US Expat Tax Requirements for Americans Living Abroad
The USA is one of a few countries in the world that taxes its citizens and green card holders on their worldwide income. As a result of it, American expatriates are required to file a US expatriate tax return as well as foreign income tax return in their country of residence.
US Tax Return Due Dates
Many US taxpayers file a tax return by April 15. Americans living abroad get an automatic extension until June 15 to file a US expatriate tax return. It is important to remember that this is an extension to file. Any tax due must be paid by April 15 to avoid any interest as well as penalties.
Form 4868 must be filed by June 15 to request an additional extension until October 15. Another form 2350 must be submitted by June 15 if US taxpayers need additional time to meet a physical presence test or bona fide residence test.
FBAR Filing Requirements
FBAR is the Report of Foreign Bank and Financial Accounts or form TD F90-22.1. American expatriates with a financial interest in or signature authority over one or more foreign financial accounts must file the FBAR if the aggregate value of foreign financial accounts exceeds $10,000 at any time during the year. The failure to file this form can result not only in civil penalties but also in criminal prosecution.
Tax Saving Tips
American expatriates can minimize US expatriate tax liability by utilizing 3 provisions of IRC 911.
- First, US taxpayers can claim the foreign earned income exclusion in the amount of $95,100 in YR 2012 and $97,600 in YR 2013 if they meet the physical presence test or bona fide residence test.
- Second, American expatriates can take the foreign housing exclusion for certain housing expenses if they qualify for the foreign income exclusion. Both the foreign earned income exclusion and foreign housing exclusion can be claimed on form 2555 that must be filed with a US expatriate tax return.
- Third, US taxpayers can claim the foreign tax credit for foreign income taxes on a dollar-for-dollar basis.
Tax Treaties and Totalization Agreements
The USA has tax treaties with 66 countries as well as social security agreements with 24 countries. Currently there is no a tax treaty or a totalization agreement between the USA and Taiwan. Americans living in Taiwan are advised to visit the website of Social Security Administration for further information.
State Tax Filing Requirements
Most American expatriates are not required to file a state income tax return when they live overseas. However, all states have different domicile requirements. For example, Americans from Virginia might be required to file a state income tax return even if they live overseas until they fully cut ties to the state of VA. The proper tax planning is recommended before moving overseas.
Past Due Tax Returns
Americans who failed to timely file a US expatriate tax return have several options to become compliant. On September 1, 2012 the IRS introduced the new IRS streamlined program for Americans living abroad. The taxpayers who have a simple tax return and owe less than $1,500 in taxes are encouraged to consider this program. Another option is the Offshore Voluntary Disclosure Program.
American expats are advised to visit the IRS website or to contact an expat tax CPA if they need additional help.
Author: ZM Ishmurzina, MBA, CPA. She is the principal at Artio Partners.
Thanks to Ms. Ishmurzina and Artio Partners for this information. Chris