Are American expats required to file a U.S. tax return?
Updated: May 16
Generally, American citizens who live and/or work outside of U.S. may not know that they are required to file an U.S. individual income tax return or not.
Here is a list of six reasons that indicate whether or not you are required to file an individual income tax return. The list below is only a few items from the many reasons why someone should file a U.S. tax return.
1. Are you a US citizen or a permanent resident? If your answer is yes, then you are subject to US income tax filing, no matter where you live, if your worldwide gross income is at least equal to the threshold amount for your filing status and age. The income threshold depends on your filing status, age, and/or if you are dependent of a taxpayer or not. Do I need to file a tax return?
Believe it or not, but many Americans expats think that they are not required to file a tax return because their foreign earned income is less than the maximum exclusion under the FEIE or the foreign tax rate is higher than the US one. No - you must file to benefit for the exclusion and/or the FTC.
2. If you expatriated (Renounced your US citizenship or Long Term Permanent Residency), you must file the year of the repatriation and all tax returns are due immediately prior to the expatriation to take effect.
Under the IR-2019-151, the IRS announces new procedures relief for expatriated Americans. Provided that the taxpayer's tax liability does not exceed a total of $25,000 for the six years in question, the taxpayer is relieved from paying U.S. taxes. Penalties and interest will not be assessed for eligible individuals who meet all 6 prong tests and use this relief procedure.
3. If your net self-employment income is at least $400, then generally yes must file a tax return and you are subject to FICA/Medicare.
But if you a resident in a country where the US has a Totalization agreement (social security agreement) then you may be exempted from US SE tax if you are required to and you contribute to the foreign country system. Here is the list of countries the United States has social security agreements with.
4. If you are not a US citizen or green card holder, if you are married to a US citizen and previously elected (6013(g)) to be a US resident while living overseas, you must a file a joint tax return with your united states citizen or permanent resident spouse unless the election 6013(g) is revoked. Both spouses worldwide income must be reported the joint U.S. income tax return.
Yes, once the election to file a joint return is made with a nonresident spouse, a joint return must be filed unless revoked. Of course, this is assuming you are required to file a return with you.
5. A US tax non-resident must file a US income tax return if s/he has US source income. An existing tax treaty can be utilized to exempt certain income from taxation if applicable, and certain conditions met.
6. If income tax is withheld from your U.S. compensation and you received an official annual IRS statement/form, then there is a sign that the IRS is expecting a tax return to be filed. If you have not submitted a tax return, the IRS may compute a substitute return based on your wages and income reported to the internal revenue service. For most missed reporting of 1099-B, the IRS will not take into consideration your basis if they are assess tax. So, it is important that you check what the IRS says and your records prior to paying any tax liabilities.
The Internal Revenue Services may send you a tax notice that generally requires a response within 30 days.
Is there any penalty for noncompliance?
The penalties for not filing a US income tax return may be substantial if you owe taxes and have not filed your tax returns on time. Generally, there is no statute of limitations if you didn't file a tax return with the IRS for that year. See our FAQs page for the failure to file penalties for various late or non-filed tax and disclosure forms such as FBAR, forms 8938, 5471, 352, etc.
Non-U.S. citizens and permanent residents are generally required to file a US income tax return if they have US source income that triggers any US tax liability, regardless of the amount, unless specifically exempted.
Generally, American citizens and green card holders living overseas have foreign earned or passive income and pay foreign income tax. Therefore, their U.S. tax liabilities may be reduced to zero due to the benefits of electing a foreign earned income exclusion, a foreign housing deduction, taking a foreign tax credit, or electing an article of the tax treaty if one exists for that particular income with that particular foreign country.
As a US citizen or a green card holder, you are subject to taxation on your worldwide income. Therefore, to benefit from the FEIE under IRC section 911 or FTC under IRC section 901, you must prepare and submit an income tax return to the IRS by the deadline (including extension) if you meet the filing requirements.
Additionally, you must disclose your specified foreign financial assets on form 8938 and foreign bank accounts on form Fincen114 if you exceed a certain threshold amount for each of these two disclosures requirements. For more information, please review our tax blog on FATCA and FBAR.
Want to prepare your return yourself?
Here is the link to the IRS free file website on how, when and where to file your US tax returns.
Need Professional Help?
Your certified public accountant at Whin Global can provide expat tax advice to you. Contact us today to learn more about your filing requirements, our filing processes and options as well as the affordable and fair tax return preparation fee we offer. Here is the link to learn more about Whin Global