Being an expat is a pleasure and a privilege. For Americans living abroad however there’s a catch, as Americans abroad are required to file U.S. taxes, reporting their worldwide income, as well as filing foreign taxes in the country where they live.
The requirement for Americans abroad to file dates back to the Civil War. It was never repealed as it wasn’t enforceable - until the age of digital international banking.
Filing for Americans abroad is more complex than filing from the States, too. This is because expats have to file extra forms. For example, to reduce their U.S. tax bill (in the majority of cases to zero), expats can either claim the Foreign Tax Credit or the Foreign Earned Income Exclusion when they file. Otherwise, the IRS assumes that they owe U.S. income tax on their global income.
Expats also often have additional filing requirements, such as reporting their foreign registered bank and investment accounts, and foreign businesses and assets.
For most Americans abroad who are behind with their U.S. tax filing, it is because they were unaware of the requirement for them to file, and these expats can catch up without facing penalties under an IRS amnesty program called the Streamlined Procedure.
The Streamlined Procedure is a voluntary program that was launched in its current form in 2014.
It requires expats to file their last three federal tax returns, their last six FBARs (just for years in which they qualified to), and to self-certify that their previous non-compliance was non-willful.
Non-willful means due to negligence, inadvertence, a mistake, or conduct that is the result of a good faith misunderstanding of the requirements of the law.
When filing their last three tax returns, expats can claim either the Foreign Earned Income Exclusion or the Foreign Tax Credit, meaning that most won’t owe any U.S. taxes. Some even find that they receive unexpected refunds, such as expat parents who claim the Child Tax Credit.
In 2020, due to the Coronavirus outbreak, expats are entitled to receive a stimulus payment from the U.S. government along with Americans in the U.S.
To qualify, expats have to have a U.S. social security number, and an adjusted gross income under $99,000 ($198,000 for married couples who file jointly) as reported on their 2019 tax return (or 2018 if they haven’t filed 2019 yet).
Stimulus checks are worth up to $1,200 per adult (so $2,400 for a married couple who file jointly, providing both have a U.S. social security number), plus $500 per dependent child under age 17 (again children must have U.S. social security numbers to qualify).
While the majority of stimulus payments have already been paid, expats who haven’t been filing U.S. taxes can still receive one so long as they catch up before October 15th.
It’s important that they file with the appropriate amnesty program though, rather than just file for 2019 if they’ve missed previous years, to avoid penalties and back taxes relating to missed years.
Every expat’s personal situation is different, and we recommend expats seek advice from a reputable expat tax specialist. There are other amnesty programs besides the Streamlined Procedure which may be more appropriate, depending on each expat’s circumstances. Furthermore, expats may qualify to receive a stimulus check despite having higher income than the nominal limits, as claiming the Foreign Earned Income Exclusion reduces reported adjusted gross income.
Katelynn Minott is a managing CPA and Partner at Bright!Tax, a leading, award winning U.S. expat tax specialist firm. Get in touch for further information or if you’d like to discuss your situation.
This article is sponsored by Bright!Tax