FAQs about US Taxes for American Expats
The author of this article, David McKeegan, is Director and Co-Founder of Greenback Expat Tax Services, Greenback Expat Tax Services provides best-in-class, expert expatriate tax services at an honest price for Americans living overseas.
All information was correct at the time this article was written (February 2013)
The following is a list of the most commonly asked questions about US expat taxes according to the team at Greenback Tax Services:
I am an American living and working abroad. Do I need to file US expat taxes?
If you are a US Citizen or Green Card holder and have a world-wide income of over $9,750.00, as a rule, you will need to file US expat taxes. This does not mean that you will owe money to the US Government; in fact the US Government is reasonably generous to US Citizens abroad – allowing you to exclude $95,100 of your foreign earned income for 2012 and $97,600 in 2013. There are also a number of Tax Treaties with foreign Governments designed to help you avoid being "double taxed," meaning that the money you pay to the foreign government for income tax will offset what you would need to pay to the US Government.
Do I need to file a State Tax Return?
It depends on the State where you last resided. In many cases, you will not need to file a State Income Tax Return; however, each State has its own rules and some states require you file a Tax Return even if you have moved abroad. Your tax preparer will check the rules for your state when preparing your US expat taxes and let you know if you need to file a State Return. However, as a quick guideline, if you last lived in California, New Mexico, South Carolina or Virginia you will probably need to file a State return. If you last lived in Alaska, Florida, Nevada, South Dakota, Wyoming, Washington or Texas, you will not likely need to file a State Tax Return. For the other states it will really depend on when you moved and what ties you have to the state.
What forms do expats need to complete for their US expat taxes?
For your US expat taxes, you will need to complete a 1040 (which is the same form you would need to fill out if you were living in the US). In addition, you will want to complete Form 2555 (Foreign Earned Income) and Form 1116 (Foreign Tax Credit). The Schedules you will need to file depend on your personal circumstances, but the most common ones are:
• Schedule A for Itemized Deductions
• Schedule B for Interest and Dividend Income
• Schedule C for Income and Expenses from Self-Employment
• Schedule D for Capital Gains or Losses and
• Schedule E if you own a rental property
You may also need to file Form 8938 to report your foreign financial assets if you have significant assets held overseas (over $200,000). Additionally, you may need to file the FBAR form (TD F 90-22.1), which is a US Treasury Department form and is independent from your tax return but important to note nonetheless. More detailed information on these two forms is included later in this article.
How do I know if I qualify for the Foreign Earned Income Exclusion on my US expat taxes?
Two tests are used to determine whether or not a US citizen qualifies as an expat: the bona fide residence test and physical presence test. To qualify for the Foreign Earned Income Exclusion, you must pass one of these two tests.
The basic requirements of the bona fide resident test are that an expat must be living, working, and paying taxes (if applicable) in a foreign country. To qualify under the bona fide residence test, an expat must also:
• Be a US citizen or resident alien
• Have an established residence in a foreign country
• Reside in the foreign residence for the entire calendar year
• Have the intention of staying abroad indefinitely
The physical presence test is an alternative to the bona fide residence test, and is more relevant for short-term expats/contractors who are only abroad temporarily or who travel frequently and do not have an established foreign residence. To qualify the individual must be a US citizen or resident alien and must be inside a foreign country for 330 days in a 365 day period. The individual must also be in a foreign country legally—so Cuba, North Korea, Iran, etc. won’t count.
Can housing expenses be excluded or deducted on US expat taxes?
You may be able to deduct or exclude some or all of your housing expenses such as rent, maintenance and repairs, utility costs, and insurance costs on your US expat taxes. Not all expenses will be considered deductible, such as mortgage interest payments and telephone charges. The best thing to do is compile a list of your expenses and give them to your accountant so they can ensure you are able to get the greatest number of deductions.
Can I deduct foreign taxes paid on my US expat taxes?
You generally can choose to claim income taxes paid to a foreign country as a credit against your US expat taxes (this is known as the Foreign Tax Credit and is claimed by filing form 1116), or you can deduct them as an itemized deduction, if you don’t qualify for the Foreign Tax Credit. How this will work will partly depend on whether the country you live in has a tax agreement with the US and what that agreement consists of and how long you have been abroad. Please note that if you are self-employed this becomes even more complex, and you may need to pay or opt out of US Social Security (visit www.ssa.gov). Self-employed individuals run a much higher likelihood of being double taxed so we highly recommend speaking to an expat tax expert.
When are my US expat taxes due?
For most Americans, the deadline is April 15th, but for U.S. citizens living abroad or resident aliens (e.g. Green Card holders) an automatic extension is given to June 15th. If you need additional time, you can file for an extension until October 15th.
Please note: if you owe any taxes, then you will owe interest on this amount from April 15th to the date you pay the taxes. Therefore, it is in your best interest to file your US expat taxes as soon as you are able. Also there is no extension for the FBAR (Form 90-22-1) which must be received by the US treasury by June 30th each year you are required to file it.
How do I file for an extension on my US expat taxes?
If an individual is a little pressed for time, he or she can file an extension by completing form 4868 and sending that in to the IRS. There is usually no fee for filing form 4868 and you can even e-file it for convenience.
However, even though you can get an extension on when you file your returns, there is no extension for paying the IRS. If you owe money in taxes you are still required to pay by April 15th of a given tax year or face interest and penalties. It is up to you (or your tax professional) to estimate your total tax owed. Once you have estimated your tax owed, you can mail (or send electronically) your payment in along with your 4868.
If you are not including a payment send it to:
Department of the Treasury
Internal Revenue Service
If you are including a payment send it to:
Internal Revenue Service
P. O. Box 1302
If you would like additional details on how to file Form 4868 just visit this page.
What if I am behind with my US expat taxes?
If you are behind with your US expat taxes, don’t worry, you are not alone. This is a situation that is more common than most expect, and getting back on track is not as much of a hassle as you may initially think.
In most situations, the IRS will require you to file between three and eight years of overdue tax returns, however you would need to speak with a tax expert about your exact situation to be able to be able to determine how many years you will actually need to file. As a rule of thumb, if you owe less than $1,500 per year and do not have a complex tax situation then you will be able to file for fewer years.
Note that the IRS does have penalties in place for Failure to File and Failure to Pay, although they are not always applied to delinquent filers. You can almost always expect to pay interest on underpayment from previous years, no matter the situation.
You may also need to file the FBAR (Foreign Bank Account Report) to report your foreign bank accounts to the Treasury Department, if you had over $10,000 in total in foreign bank accounts. This would be filed via form TDF 90-22-1 and must be received by the US Treasury by June 30th each year.
If you are behind on your US expat taxes, it is best to get in touch with an expert as soon as possible to avoid additional interest and penalties.
What do I need to do to report my foreign bank accounts?
There are two requirements you need to be aware of: the FBAR (form TD F 90.22-1) and Form 8938.
• FBAR: Basically, anyone with $10,000 or more (USD equivalents included) in foreign banks or financial accounts at any point during the calendar year will be required to file the FBAR. So if your bank account has a balance of $9,950, but for one day has an extra $50, you will need to file an FBAR. Cumulative balances are also counted, so if you have $3,000 in four separate accounts, you will be required to file the FBAR and these include pensions, business accounts as well as personal accounts. The FBAR is filed separately from your tax return (it is actually submitted to the Treasury) and is due by June 30th, no extensions allowed.
• Form 8938 is a new reporting requirement that has come into effect this year as a result of the Foreign Account Tax Compliance Act (FATCA). This form requires individuals or businesses with foreign accounts meeting the reporting threshold of $50,000 to file Form 8938 with the IRS. This form is filed with your tax return and is due on the same day your taxes are due (for ex: if you have an extension to October 15th, your form 8938 is due then too). For US Expats the limits are higher than for US residents, starting at $200,000.
Where do I file my US expat taxes?
For individuals living overseas, oftentimes, the easiest way for you or your accountant to file your federal return is electronically. However if you have filed an extension and missed the original deadline you will often have to send a hard copy of your return by mail. You can send your federal forms (1040, 1040EZ, 1040A, 2555, or 2555EZ) to one of two places. If you are enclosing a check (to pay any tax owed) along with your return you would send it to:
Internal Revenue Service
P.O. Box 1303
If you are not enclosing a check you can send it to:
Department of the Treasury
Internal Revenue Service
If you would like additional details you can visit the IRS website here.
Now, this only applies to your federal taxes, if you have state taxes owed the mailing address varies depending on which state you’re from. To see where your states return needs to go just visit here.
About Greenback Expat Tax Services
The information above has been provided by Greenback Expat Tax Services. Greenback Expat Tax Services’ offers a full range of accounting services for US expats, including US expat tax return preparation, small business tax returns, Foreign Bank Account Reporting, and individual consultations. Our expat-expert accountants work directly with customers to provide exceptional service at a fair price.
To find out more about US expat taxes, or to get assistance in filing your expat tax return, visit www.greenbacktaxservices.com