What Americans Living Abroad Need to Know About Filing Taxes for Expats?

U.S. taxpayers are required to file their tax returns by April 15, the initial deadline for filing 1040 returns. However, U.S. citizens living overseas receive an automatic extension of this deadline until June 15.

U.S. income tax filing requirements for Americans living abroad

In general, if any of the filing requirement conditions apply to you, you are required to submit IRS Form 1040 by the original or extended deadline. This requirement is separate from having a tax liability or making a payment to the IRS. Filing may allow you to claim a tax refund, even if you reside abroad or have earned income below the filing threshold.

Your income, filing status, and age typically determine if you need to file an income tax return. You generally must file a US tax return for a tax year if your gross income from worldwide sources meets or exceeds the threshold amount for your filing status for that year.

Visit this IRS official website for individual filing requirements to determine if you need to file.

Dependents of another taxpayer should refer to the IRS Pub 501,Dependents, Standard Deduction, and Filing Information for more information on whether they must file a US tax return.

Self-employed individuals are generally required to file a U.S. tax return if their net earnings from self-employment are $400 or more. This is true even if their gross income is below their filing threshold amount for their filing status and age.

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An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, which substantially reduce or eliminate their U.S. tax liability. These tax benefits are only available if an eligible taxpayer files a U.S. income tax return..

A taxpayer qualifies for the special 2-month automatic extension if both their tax home and abode are outside the United States and Puerto Rico.

Those serving in the military outside the U.S. and Puerto Rico on the regular due date of their tax return also qualify for the extension to June 15.

Payments for taxes owed are due April 15:

Interest on late payment of taxes is compounded daily and applies to any tax payment IRS receives after the original April 15 deadline. For details, see the IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Automatic extension available for filing taxes for expats

Taxpayers residing and working overseas who are unable to meet the June 15 deadline, which includes a two-month automatic extension, can request additional time to file. This request must be submitted by June 15. The extension allows American expatriates to file their return by October 15, but it does not extend the deadline for tax payment.

How to file an extension:

One of the simplest methods to obtain a filing extension is by e-filing with Form 4868. Alternatively, requests can be submitted using a paper form. Taxpayers must estimate their tax liability and pay any owed amount by the original due date of their U.S. tax return when using Form 4868 to avoid late payment interest which starts accruing the day after the original deadline for all individual taxpayers.

Alternatively, taxpayers can pay electronically, and the IRS will automatically process an extension when they choose Form 4868 and make a full or partial federal tax payment using Direct Pay by April 15 (or alternate due date), the Electronic Federal Tax Payment System (EFTPS for business return), or a debit or credit card. Filing a separate Form 4868 is unnecessary when making an electronic payment and specifying it is for an extension.

International taxpayers without a U.S. bank account for direct debit should visit the Foreign Electronic Payments section on the IRS website for additional payment options and details. Bank transfers for IRS tax payments from abroad to the U.S. can be quite costly. It is advisable to explore other, more cost-effective payment methods.

Can I file my taxes for Free? Is there a Free File option for filing taxes for expats?

Yes. U.S. citizens and resident aliens living abroad can use IRS Free File to prepare and electronically submit their tax returns for free.

IRS Free file

A second option, Free File Fillable Forms, the electronic version of IRS paper forms, has no income limit and is best suited to people who are comfortable preparing their own tax returns. Free File is not available to non-resident aliens required to file Form 1040NR.

Both the e-file and Free File electronic filing options are available until October 15.

One alternative to a free file, the do-it-yourself option, is to engage a qualified tax preparer: If your taxes are complicated or if you need an assistance from expat tax CPA, fill out this contact from.

Another alternative is to use privately available commercial software for a DIY tax return preparation.

Reporting required for foreign accounts and assets for Americans living abroad:

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

In addition, certain expat taxpayers may also have to complete and attach to their US tax return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens, and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds.

Foreign accounts reporting deadline:

Separate from reporting specified foreign financial assets on their tax return, taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during the year, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Because of this threshold, Whin Global encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is available through the BSA E-filing System website.

The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is now the same as for a federal income tax return, April 15, but FinCEN is granting filers missing the original deadline an automatic extension until October 15, to file. Specific extension requests are not required.

Combat zone taxpayers get more time without having to ask for it:

Members of the military and eligible support personnel serving in a combat zone have at least 180 days after they leave the combat zone to file their tax returns and pay any taxes due. This includes those serving in Iraq, Afghanistan and other combat zones. A list of designated combat zones can be found in Publication 3, Armed Forces’ Tax Guide.

Various circumstances affect the exact length of the extension available to any given taxpayer. Details, including examples illustrating how these extensions are calculated, can be found in the Extensions of Deadlines section in Publication 3.

Expatriate reporting for those relinquished their citizenship or LTR (Green card holders)

Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the United States must file a dual-status alien tax return, attaching Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service by the due date of the tax return (including extensions). IRS website has some information on Expatriation Tax to learn more.

Check tax withholding and estimated taxes to avoid an underpayment penalty

Taxpayers who owe tax can avoid having the same problem for the following year by increasing the amount of tax withheld from their paychecks. If self-employed, you may need to increase your quarterly estimated payments. The internal revenue service has an income tax withholding estimator for lesser complicated tax situations. Additionally, if you have w-2 income, you may want to update your IRS Form W-4 and submit it to your employer.

Investments in Foreign Companies

U.S. citizens with foreign investments might need to disclose these ownership interests and report any taxable income. If you hold at least 10% of a foreign partnership or corporation, you may have an obligation to report information in addition to reporting income from these investments. Additionally, the GILTI (Global Intangible Low-Taxed Income) reporting requirement, introduced by the TCJA in December 2017, mandates that U.S. individuals owning Controlled Foreign Corporations (CFC) report their undistributed net CFC tested income as if it were distributed and repatriated. This anti-deferral rule could impact many Americans living abroad who own at least a 10% stake in foreign companies that are CFCs.

Under the TCJA, affected expats with the anti-deferral rule may be required to determine their CFC tested income and file Form 8992, Global Intangible Low-Taxed Income.

In addition, you may need to file Form 8858 if you have constructive interests, either directly or indirectly, in foreign disregarded entities, Form 5471 if you have interests in a foreign corporation, and Form 8865 if you have interest in a foreign partnership.

Also, a transfer of assets may trigger other disclosure requirements such as Form 8938, Form 926, or Form 8865. Investing in foreign mutual funds may trigger filing Form 8621, information return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. There are many other international forms that are not listed here. For example, a gift or bequest received from a foreign person in the amount of $100,000 or more requires Form 3520. Additionally, a foreign trust with a U.S. owner must file Form 3520-A in order for the U.S. owner to satisfy its annual information reporting requirements under section 6048(b).

Report your tax and financial information in U.S. dollars

Income received or deductible expenses paid in foreign currency must be reported on a U.S. tax return in U.S. dollars. Similarly, any tax payments must be made in U.S. dollars.

Both FinCEN Form 114 and IRS Form 8938 require using the U.S. Treasury exchange rate as of December 31 for all transactions, regardless of the actual exchange rate on the transaction date. Generally, the IRS accepts any consistently used posted exchange rate. For more details on exchange rates, refer to the IRS website about Foreign Currency and Currency Exchange Rates.

Streamlined Filing Compliance Procedures

The IRS persistently employs various methods beyond voluntary disclosure to address offshore tax evasion, such as taxpayer education, whistleblower tips, civil audits, and criminal prosecution. The Streamlined Filing Compliance Procedures remain in use by the IRS and are accessible to qualified taxpayers. However, similar to the OVDP, the IRS has indicated that the Streamlined Filing Compliance Procedures might be discontinued in the future. Comprehensive information can be found on the Streamlined Procedures IRS website.

According to the IRS, taxpayers concerned that their non-compliance may rise to the level of tax and tax-related crimes may consider coming into compliance with the tax law and avoid potential criminal prosecution. If you are considering coming into compliance, we recommend you consult with a tax professional and a legal adviser in determining which option is the most appropriate for you.

Because the circumstances of taxpayers with non-U.S. investments vary widely, the Internal Revenue Service offers the options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those investments:

1- The Offshore Voluntary Disclosure Program (OVDP) is closed.

2- Streamlined Filing Compliance Procedures;

3- Delinquent FBAR submission procedures; and

4- Delinquent international information return submission procedures.

Relief Procedures for Certain Former Citizens

According to the IRS, if you meet the requirements, you will be relieved from paying the taxes and penalties for the current and five previous years. Here is an excerpt from the IRS official website related to this IRS relief procedures:

"Under the Relief Procedures for Certain Former Citizens (“these procedures”), the IRS is providing an alternative means for satisfying the tax compliance certification process for citizens who expatriate after March 18, 2010. These procedures are only available to U.S. citizens with a net worth of less than $2 million (at the time of expatriation and at the time of making their submission under these procedures), and an aggregate tax liability of $25,000 or less for the taxable year of expatriation and the five prior years. If these individuals submit the information set forth below and meet the requirements of these procedures, they will not be “covered expatriates” under IRC 877A, nor will they be liable for any unpaid taxes and penalties for these years or any previous years" (From IRS Website)

Summary of key points what that American living abroad need to know about filing taxes for expats.

American expats, including digital nomads and short-term business travelers, should use this official IRS website as a key resource for understanding U.S. taxation of international individuals. It provides essential information on taxing income earned abroad, the Foreign Earned Income Exclusion, and the Foreign Tax Credit, which can reduce double taxation. The site also offers guidance on filing requirements, deadlines, and forms for U.S. expats, ensuring compliance with tax responsibilities. This is crucial for those working in various countries, helping them navigate complex international tax rules, avoid penalties, and understand their tax status while abroad. We have summarized key points what that American living abroad need to know about filing taxes for expats.

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For more information on U.S. expat tax issues or if you just need help preparing your US tax filing, please get in touch with us by fill out this Whin Global Contact Form.