Time Is Running Out For Expats Behind on Taxes
Contributed by Greenback Expat Tax Services
19 October, 2018
Many Americans who move abroad are caught off guard by the fact that as long as they maintain their citizenship, they also maintain the annual requirement of filing a Federal Tax Return. The requirement is surprising - and all the more so because it's rare. Only two countries in the world have a citizenship-based taxation system: the US and Eritrea. So it's natural to assume that as long as you pay taxes to your resident country, tax-wise, you're in the clear. However, that's not the case, and expats can amass penalties for failure to file and failure to pay at a frantic rate. This fate need not worry expats who are behind on taxes if they did not know about the tax-filing requirements. Expats can get caught up, penalty-free, by using IRS amnesty programs.Taxation Deadlines for Expats
The following deadlines are important for Americans living abroad to keep in mind:
April 15th (April 17th in 2018): This is the US filing deadline and the date that tax payments are due if owed - regardless of any filing extensions.
June 15th: US expats receive an automatic extension until June 15th to file their US taxes; note that taxes are due on April 17th, and interest (but not penalties) will be applied if taxes are not paid by April 17th. Penalties will apply if taxes are not paid by June 15th. The 15th is also the FBAR deadline for US expats; however, there is an automatic extension until the October 15th deadline.
October 15th: Final deadline for expat tax returns for those who have filed for an extension by June 15th. This is also the final deadline for filing an FBAR. Note: if you do not request an extension and do not file, a late payment penalty of 5% may be assessed each month until the tax is paid.
In addition to the deadlines for US taxes, expats should keep in mind that their country of residence will have different tax deadlines that must also be followed in order to avoid potential penalties.Taxation Requirements for Expats
US expats must file a Federal Tax Return each year if their income is over the minimum threshold, regardless of where the income was earned or if they have paid taxes on this income to the host country.
Below are the thresholds for 2018:
- Single with income over $10,300
- Married filing jointly with income over $20,600
- Married filing separately with income over $4,000
- Self-employed individuals need to file if their income is over $400
Expats may need to file state taxes as well depending on which state they previously resided in.
Other common reporting requirements include FBAR (foreign bank account reporting) and FATCA Form 8938. These requirements are triggered depending on how much money is housed in foreign bank accounts. For FBAR, anyone with $10,000 or more in a foreign bank or financial account at any point during the calendar year will be required to file the FBAR. That total is an aggregate of all bank accounts, so if an expat has two $5,500 accounts, or three $3,500 accounts, the threshold is met, prompting a filing requirement. For FATCA Form 8938, the thresholds are reached for those filing singly when the total value of assets exceeds $200,000 on the last day of the tax year or more than $300,000 at any time during the year. For those filing jointly, the threshold is crossed when the total value of assets is more than $400,000 on the last day of the tax year, or
more than $600,000 at any time during the year. Shareholders in foreign corporations (usually anyone with more than 10% stock ownership in a foreign corporation), US persons with controlling interest (owns 50% or more) in a foreign partnership, expats who own assets held in a foreign trust or receive a distribution from a foreign trust, or own 10% of a foreign partnership with another US person holding controlling interest, and shareholders of a Passive Foreign Investment Company (PFIC) like foreign mutual funds and investment accounts will have additional reporting requirements that they will need to follow in order to avoid penalties. An important note for expats: if you owe more than $51,000 in taxes, your passport is at risk of being revoked or you may be denied one if you plan to apply. Due to the passport risk, expats face severe consequences for delinquent taxes, so becoming compliant is doubly important!Options for Becoming Compliant
Managing all of these requirements on top of the tax requirements of the expat's host country can feel overwhelming. However, for expats who are behind: there's great news! You can get caught up penalty-free. The IRS provides amnesty programs for taxpayers who are behind on their taxes. If you were unaware of your filing requirements, the best option for getting caught up is the Streamlined Filing Procedures.
To use these procedures, simply file the most recent three years of tax returns and six years of FBARs, even for expats who are many, many years behind on their taxation requirements. In addition, you also need to sign Form 14653 certifying your lack of filing was non-willful. When you utilize this procedure, the failure-to-file penalties, failure-to-pay penalties, and FBAR penalties are waived.
However, the IRS amnesty programs are a limited time offer; on September 28, 2018, the IRS sunset the OVDP (Offshore Voluntary Disclosure Program), an amnesty program that protected taxpayers from prosecution who deliberately housed money in foreign accounts to evade their tax responsibility. The closure of the OVDP could signal that the IRS is considering termination for more amnesty programs - including the Streamlined Filing Procedures. If these procedures are terminated, expats who are behind on taxes will be subject to all applicable penalties for failure-to-file and failure-to-pay. So, expats who want to take advantage of this program should act quickly! Hiring a professional that specializes in the complexities of expat taxation is often the most cost-effective and easiest way to become compliant while ensuring all appropriate deductions and credits are used to avoid overpayment on expat taxes.
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