Taxes for US expats living abroad

Tax help for US expats

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As the annual deadline looms for filing your US tax return, here are a few facts to help ensure your taxes are filed correctly before the IRS catches up.

There are many misconceptions about filing & paying taxes in the US when living and working abroad. US taxation expert Ines Zemelman, president and founder of Taxes For Expats, gives us a rundown of your rights and obligations.

Your US tax obligations as an expat

Despite the fact that every US citizen and green card holder is required to file a tax return with the IRS, Zemelman says many expatriates still fail to do so.

There are two main reasons for this. First, many expatriates are unaware of these obligations, thinking that as an expat they do not need to pay or file tax returns in the US.

Second, expatriates who have not filed a tax return for several years may be reluctant to do so now for fear of being fined for the years they missed!

Amnesty for late tax returns

Though expats might be apprehensive that filing a US tax return after a lapse of several years might result in fines, Zemelman says this fear is at times unfounded.

"Since 2014, the IRS has had very lenient programs in place to help non-compliant taxpayers get on the right side of the IRS," Zemelman says. If you have not filed in many years, you may be eligible for full amnesty from draconian failure to file penalties as well as FBAR (financial bank account reporting) disclosure penalties.

However, time is of the essence. On 13 March 2018, the IRS announced they will be closing the OVDP Program on 28 September 2018. For now the lenient and popular Streamlined Procedure Program will remain intact, but it will not be indefinite.

Expatica readers get a $25 discount on Taxes for Expats services. Take advantage of this great offer to get some invaluable assistance with your US expat tax return!

Compulsory declarations with the IRS

Although many taxpayers will not owe any tax, it is nevertheless compulsory to declare your worldwide income to the IRS. 

An expat can be granted the exemption from having to file each year, but only if specific circumstances are met such as filing status, age and other particular circumstances.

For example, a single, self-supporting US citizen living in Belgium and earning a gross income of $8,200 may not need to file if he or she does not have additional self-employment income of $400 or more, and does not have one or more foreign financial accounts of more than $10,000.  

The foreign-earned income exclusion

The foreign-earned income exclusion is also a tricky area. "Many US filers overseas are under the mistaken impression that because their income is being taxed by a foreign country, or their wage is below the $100,000 foreign earned income exclusion, there is no need to file their returns – this is incorrect," advises Zemelman.

"To exclude foreign income, one must first file, and meet the requirements for the exclusion.”

Looming US tax return deadline

US citizens and green card holders must lodge their tax returns by 15 April (the deadline is 17 April in 2018).

However, US expats living abroad automatically gain a two-month extension until 15 June.

Two more extensions can also be obtained:

  • a six-month extension until 15 October, which can be filed electronically;
  • a final extension, until 15 December, which must be requested by snail-mail.

These are the rules for filing federal return with the IRS. Extension rules for state filing are subject to variations from state to state.

Late payment & late filing penalties

In the event that the taxpayer owes any tax, interest will be calculated starting from 15 April and until the payment is received. Penalties are calculated in the following manner:

"If the payment is not made by 15 April, there will be a 0.33% penalty for each month the balance remains unpaid. Separately, if a tax return is not filed by the due date (inclusive of extensions), a far more onerous 5% ‘failure to file’ penalty will also apply per month or portion thereof," Zemelman says.

Ines (IJ) Zemelman, president and founder of Taxes for Expats, has over 25 years experience in international tax preparation, helping clients manage their unique tax situations that arise for US citizens living abroad. Her specialty is resolving complex international tax issues for individuals and small business owners, such as FBAR and foreign information reporting, IRS voluntary disclosure program participation, and US taxation of foreign trusts and retirement arrangements. Ines is an Enrolled Agent and has also received an MBA in International Taxation from the Zicklin School of Business . She has lived in various European countries and is fluent in five European languages. In her spare time away from the office, she enjoys gardening and interior design.


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2 Comments To This Article

  • Louis Hanna posted:

    on 20th June 2014, 12:05:33 - Reply

    This is mostly what US expats or American citizen living on foreign countries have trouble with - taxes. The article is very informative and definitely a great resource to keep. Thanks!

    - Louis H. -
    Do foreign expatriates do a tax return yearly?
  • Alice Shen posted:

    on 8th May 2012, 12:03:32 - Reply

    Thanks for the article. Quite informative, and I was even more pleased to have received quick reply to my personal question. :)