THE TRANSATLANTIC MAGAZINE
THE TRANSATLANTIC MAGAZINE
US law states that all American citizens (and Green Card holders) have to file a US federal tax return each year, reporting their global income (converted into dollars for reporting), wherever in the world they may be or reside.
For Americans living abroad, this can often mean having to file income taxes both in their country or residence as well as to Uncle Sam.
Avoiding double taxation often means filing additional forms to claim credits. Your expat tax advisor will provide guidance on how to do this, depending on your situation.
Americans abroad often also have to report their foreign registered financial accounts (e.g. bank, investment, pension), as well as foreign registered businesses they own or have a significant interest in.
Americans filing from abroad in 2022 receive an automatic two month filing extension to Wednesday, June 15, 2022. However, if they do owe any US tax, they must still pay an estimated amount by April 15 to avoid interest.
Expats can still request an extension until October 17, 2022 if they need more time, perhaps to file their foreign taxes first, by filing Form 4868.
Foreign Bank Account Reports (FBARs) should be filed by October 17, 2022, as well.
Tax brackets and rates for 2021 are as follows:
However, as mentioned, most Americans abroad file additional forms when they file to claim credits or exclusions that reduce their US income tax bill, often to zero.
Furthermore, Americans abroad whose income was under the 2021 Standard Deduction limit ($12,550) don’t have to file at all, unless they are married but file separately to a foreign spouse, or if they have self-employment income.
The Foreign Earned Income Exclusion is another IRS provision that expats can claim to reduce their US tax bill.
It allows Americans to simply exclude their earned income (so not passive income such as rent, pension income, or dividends) from US taxation, up to an income threshold that changes each year.
For tax year 2021, the Foreign Earned Income Exclusion limit is $107,800.
Changes for Americans with offshore corporations
President Biden’s Build Back Better Act looks set to increase GILTI tax on profits of offshore corporations, which would affect millions of Americans who have a business registered abroad just because they live abroad.
The new, increased Child Tax Credit is good news for expat parents, providing a $3,000 credit per dependent child in 2021 and 2022, which, if you’ve claimed the Foreign Tax Credit to eliminate your US tax bill, you can receive as a refund.
The Build Back Better Act also seeks to significantly increase investment in the IRS, both to update its IT systems, and to recruit a lot more agents. One of the stated aims of the investment is to better enforce international taxpayers, so we should assume that they will be better able to collate the data they are receiving about Americans citizens from foreign banks and governments.
If you’re an American living abroad and you weren’t aware that you have to file US taxes, don’t panic! There’s an IRS amnesty program called the Streamlined Procedure that lets you catch up without facing penalties.
Jeff Chaney is a Managing CPA at Bright!Tax, and a leading expert in US tax matters for overseas Americans. Bright!Tax is an award-winning US tax services provider for expats. brighttax.com
