There are over 9 million Americans living overseas, and many - perhaps the majority - have questions about US tax filing rules and requirements for expats.
This year, with the Coronavirus pandemic affecting the entire world, there are even more questions than usual. Here we’ll address some of the most pertinent.
All American citizens and green card holders who earned over $12,200 globally, or just $400 of self-employment income, in 2019 are required to file US taxes in 2020.
This is because the US taxes based US citizenship, regardless of residence.
Expats who earn in foreign currencies have to convert these earnings into US dollars when they file. They can use any reputable currency conversion source, so long as they are consistent in the conversion source they choose.
Expats also have to report their foreign business interests, as well as their foreign registered bank and investment accounts and financial assets, if they exceed minimum reporting thresholds.
All Americans, including expats, still have to file US taxes in 2020 in spite of the Coronavirus outbreak.
Normally, expat receive an automatic two month filing extension until June 15th, giving them time to file foreign taxes first if they need to.
For filing in 2020 however, the US government has announced a blanket 90 day filing extension for all Americans, meaning tax day in 2020 is July 15th. This deadline applies to expats too.
Expats who require more time to file can request a further extension until October 15th by filing Form 4868 online.
Expats reporting their foreign bank and investment accounts on a Foreign Bank Account Report (FBAR) have until October 15th, similarly to last year.
The automatic 2020 extension to July 15th applies to tax payments, too. However, most expats don’t end up owing any US tax so long as they claim either the Foreign Tax Credit or the Foreign Earned Income Exclusion when they file.
The Foreign Tax Credit allows expats who pay foreign taxes abroad to claim US tax credits up to the same value as the foreign taxes that they’ve paid. For expats who pay foreign income tax at a higher rate, this normally reduces their US tax bill to zero.
The Foreign Earned Income Exclusion allows expats to exclude the first $105,900 (in 2019) of their earned income from US taxation. Expats must prove that they are either a permanent resident in another country, or that they spent at least 330 full days outside the US in the 365 day period they are claiming for (e.g. in 2019).
Both of these measures can be claimed by filing the relevant form, IRS Forms 1116 and 2555 respectively, though they can’t be applied to the same income.
On 27th March 2020, Congress passed the CARES Act to help people and businesses negatively impacted by the Coronavirus pandemic.
One of the provisions in the act is known as the Recovery Rebate. The Recovery Rebate is an automatic tax rebate for all Americans who earn up to $99,000 (or $198,000 for a married couple filing jointly).
The rebate is worth $1,200 per adult, and $500 for each dependent child below age 17. Each must have a US social security number.
The full amount is available for expats whose gross adjusted income on Form 1040 is $75,000 or less (double for married couples filing jointly). Above this figure it phases out until $99,000 ($198,000 for couples).
Expats are eligible to receive the Recovery Rebate too. To qualify, expats simply have to file US taxes for 2019 or 2018, as the government is using these years to calculate entitlement.
Expats who haven’t been filing US taxes because they weren’t aware that they had to can catch up without facing penalties (or back taxes, if they claim the measures outlined above when they file) under an IRS amnesty program called the Streamlined Procedure.
Filing from abroad is typically more complex than filing from the US, and expats who have questions about their US tax situation should seek assistance from a US expat tax specialist.