Tax filing from abroad
Historically, overseas Americans have had two additional months to file their annual US income tax return. The following three proposals, consistent with this treatment, are made in recognition of the fact that foreign tax systems, like foreign banks and businesses, do not work on the same calendar as the IRS calendar so that gathering the pertinent information in time poses a serious problem for many overseas. They are made all the more necessary in light of the IRS closure of its overseas posts and the consequent difficulty for Americans abroad to receive advice and assistance when filing their income tax returns.
- Overseas Americans should be dispensed from making the first estimated tax payment on 15 April. No penalty should be assessed if the 15 June payment equals the amounts due for 15 April and 15 June. This was IRS policy many years ago.
- The failure-to-pay penalty, assessed when the prior year's tax is not fully paid by 15 April, should be deferred to 15 June for overseas Americans.
- The current extension for filing US tax returns by overseas Americans – from 15 October to 15 December – is requested in writing from the IRS Service Center, Austin, TX. This procedure should be simplified by permitting overseas Americans to check a box on the current IRS 4868 extension form indicating overseas residence and opting for a 15 December due date.
The Net Investment Income Tax (NIIT)
The NIIT is assessed on the worldwide investment income of Americans having an Adjusted Gross Income over $250,000.
According to the law, the NIIT cannot be offset by foreign taxes paid on the same investment income. Thus, if it is a tax, it violates of all the income tax treaties signed by the United States by creating double taxation on foreign-sourced investment income.
The NIIT was created to provide funds for the Affordable Care Act. We strongly support the position that the NIIT is a social assessment and, therefore, not due by Americans living in countries which have a social security (totalization) agreement with the US.