Frequently Asked Questions (FAQ)

U.S. Federal and State Tax Return Filing Requirements

Yes, if you are a U.S. citizen or a resident alien working outside the U.S., you need to file U.S. tax return. You are taxed on world-wide income, regardless of where you live or work.

There may be some exclusions, deductions or credits which reduce your taxable income and your tax liability.

If you are a U.S. citizen, retired and living abroad and receive income from any source, including but not limited to Annuities, Social Security, Railroad Benefits, Pension or Retirement plan, you probably need to file.  Talk to your tax advisor to determine your filing obligation.

Each State has different requirements for filing taxes.  The following may trigger a State tax filing requirement:

  • If you are a resident of a U.S. State while living abroad
  • You enter or leave a U.S. State
  • You have an income source from within a U.S. State even if you aren’t a resident of the State
  • Travel to any U.S. State for work purposes while living abroad may create a filing requirement in that State.

You may receive an IRS notice.  Penalties and interest on any unpaid taxes could be assessed.

You can either file your overdue tax returns separately or under the Streamlined Filing Procedures. Use of the Streamlined Procedures is usually recommended as you can file 3 years of tax returns and 6 years of financial accounts disclosure all at once.  Generally, penalties are waived but interest is calculated on any tax liability.

The basic forms for expats are the same.  Depending on your situation, additional forms may be included with the form 1040:

  • 2555 – Foreign Earned Income Exclusion (FEIE)
  • 1116 – Foreign Tax Credit (FTC)
  • 8938 – Statement of Specified Foreign Assets

This is not an exhaustive list; be sure to talk to your tax advisor.

Foreign Earned Income Exclusion and Foreign Tax Credits

The Foreign Earned Income Exclusion allows you to exclude some or all of your foreign earned income.  You may be eligible to deduct some of your housing expenses, too.

Earned income includes salary or wages, self-employment income, allowances and benefits. The maximum exclusion for 2018 is $104,100.  The housing deduction is based on where you live.

If you are a U.S citizen or a resident alien and working abroad, you may be eligible to claim the Foreign Earned Income Exclusion. The IRS allows a U.S. person to claim the exclusion against their foreign earned income up to the threshold limit of $104,100 for 2018. In order to qualify for FEIE, an individual needs to meet either of the one following tests:

  • Bona Fide Residency Test
  • Physical Presence Test

If you meet either of these tests you may be eligible to claim the exclusion amount in full or up to the limit of your income.

Additionally, if you have housing expenses including rent, utilities, insurance or taxes, a portion may be deductible.

If you are a U.S. citizen or Green Card Holder working abroad, you may pay taxes directly or have taxes withheld on your income.  Depending on the tax treaties, the taxes paid on foreign sourced income could be credited against U.S. tax liability.   These Foreign Tax Credits need not be used entirely every year but can be carried over year for up to 10 years.

If you paid tax to another country on your foreign sourced income, you may be eligible to claim those taxes as a credit on your U.S. tax return.  This ensures you aren’t taxed twice on the same income.

Due Dates, Extensions, Interest and Penalties

The filing due date is April 15, 2019

Most expats receive an automatic extension to 15 June.   No extension form is required.

If an extension is filed, the filing due date is October 15, 2019.

If you paid foreign taxes on your foreign sourced income, you may be eligible to claim the taxes paid as a credit against your U.S. tax liability.

If you are living and working abroad, you may be eligible for an automatic 2 month filing extension until June 15, 2019.

An extension timely filed will allow you until 15 October to file your 2018 tax returns. Some states require their own extension forms. The extension is of time to file, not of time to pay.

The filing due date for 2018 Report of Foreign Bank and Financial Accounts is April 15, 2019, with an automatic extension to 15 October.  No extension is form is required.

The Failure to File Penalty is 5% of the unpaid tax for each month until the return is filed, up to a maximum of 25% of the total tax due.

Additionally, if tax returns are filed more than 60 days after the due date of filing, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Late Filing Penalties are calculated on the tax owed on the return beginning with due date of the return, including extensions.

Interest on unpaid taxes is calculated starting with the due date of tax return until payment is made in full. The Interest rate is determined every three months and is subject to change.

The Late Payment Penalty is calculated at the rate of 0.5 percent per month or part of the month from the due date of tax return until payment is made in full. The Late Payment Penalty is not to exceed 25 percent of the unpaid taxes.

The penalty for not filing the Report of Foreign Bank and Financial Accounts by the due date depends on whether it was a willful and non-willful violation.

If it is determined the violation was willful, the penalty may be the greater of $100,000 or 50 percent of the balance of all the accounts.

If the violation was non-willful, the maximum penalty may be assessed up to $10,000.