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Catch Up on Expat Tax FAQs

Ted Nashland, a managing CPA at award-winning US expat tax firm Bright!Tax, explains the best ways for Americans living abroad who aren’t compliant with their US tax filing requirements to get caught up.
By Ted Nashland
Published on September 29, 2021

IRS Patch IRS Criminal Investigation Tech Agent Patch PHOTO: INVENTORCHRIS

Do all Americans living abroad have to file US taxes every year?

The US tax system stipulates that every American citizen has to file a US tax return if their total global income exceeds minimum filing limits set out by the IRS. This is true regardless of whether they live in the States or overseas, the currency their income is received in, or whether the US has signed a tax treaty with a US expat’s country of residence.

The IRS minimum income thresholds for filing start at just $5 of any income for Americans filing separate from a foreign spouse, or $400 of self-employment income, or $12,400 of any income in 2020 ($12,550 in 2021).

What about double taxation?

For Americans overseas to avoid paying income tax to both the US and to their country of residence, they must claim IRS provisions such as the Foreign Tax Credit or the Foreign Earned Income Exclusion by attaching the relevant forms when they file their annual US federal tax return. As long as they do this, most expats don’t end up owing any US tax.

What should expats who have missed one or more years filing while abroad do?

Many Americans living abroad don’t know that they have to keep filing US taxes from overseas, and by the time they find out, they may have missed one or more years’ filings. If they have only missed one or two filings, they can normally simply back file them. If they have missed three or more, they should instead catch up using an IRS amnesty program called the Streamlined Offshore Procedures.

What is the Streamlined Procedure program?

The Streamlined Procedure is a way for expats to catch up and become compliant without facing IRS penalties. When you file under the program, you can also claim the Foreign Tax Credit or Foreign Earned Income Exclusion for the missed years, so most expats don’t end up with any US back taxes to pay, and some even find they can claim an unexpected refund.

What do you have to do?

To file under the Streamlined Procedure, you have to file your last three missed US federal tax returns, and up to six years of Foreign Bank Account Reports (a requirement for Americans with over $10,000 in total in foreign accounts), and self-certify that you weren’t previously intentionally dodging your responsibilities.

What then?

After catching up using the Streamlined Procedure program, you are then considered compliant. It can only be used once, so after that you have to keep up your filing.

What if I do nothing?

Unfortunately, the IRS has long tentacles, and it’s receiving expats’ bank balances and tax details from foreign banks and governments around the world, so it’s no longer possible to stay under the radar.

If in doubt, seek advice

If you’re not sure whether you should be filing or not, or the best way for you to catch up if you’re behind, it’s always safer to seek professional advice.

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