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Coronavirus and US Taxes - Your Questions Answered

By Katelynn Minott, a senior CPA and partner at Bright!Tax (brighttax.com)

Published on March 30, 2020

The Coronavirus outbreak has been a true black swan event, catching the world by surprise this year and wreaking global havoc.

The US government has made several announcements recently regarding measures to help Americans suffering financially in a time of depressed economic activity as governments around the world seek to limit the virus from spreading.

These announcements affect Americans living overseas as well as those living in the states, however they have also raised perhaps more questions than they have answered, especially with measures changing seemingly from day to day. Here we’ll clarify the situation based on the current information provided by the IRS.

Do expats still have to file?

Yes, expats still have to file this year, reporting their global income. Expats in the UK who who earn in British pounds have to convert their UK income into US dollars when they report it on Form 1040. They can use any reputable currency conversion source, so long as they’re consistent in the source they use.

Expats also have to report their foreign business interests, and foreign registered financial (i.e. bank and investment) accounts and financial assets, based on minimum value thresholds.

What is the 2020 filing deadline for Expats?

Expats normally get an automatic two month filing extension until June 15th, however this year due to the Coronavirus outbreak all Americans have been given a three month automatic filing extension until July 15th.

Expats in the UK who need additional time because they have to file a UK tax return first can request a further extension until October 15th by filing IRS Form 4868 online.

The extension applied to businesses as well as individuals.

What about tax payments?

Most expats in the UK don’t end up owing any US tax, as when they file they claim US tax credits by filing IRS Form 1116 to offset the UK income taxes that they’ve paid (which are typically more than the US tax that they would owe).

Expats also have the option of claiming the Foreign Earned Income Exclusion, by filing Form 2555, to exclude up to $105,900 of their earned income from US taxation. Expats who pay UK taxes are normally better off claiming the Foreign Tax Credit though.

Expats who do still owe any US tax this year have until July 15th to pay it before any interest or late filing penalties will be applied.

Are expats eligible to receive the CARES Act Recovery Rebate assistance?

On Friday 17th March, Congress passed the CARES (Coronavirus Aid, Recovery and Economic Security) Act, which among other measures provides a Recovery Rebate for Americans struggling due to the current economic climate.

The Recovery Rebate consists of a payment of $1,200 per taxpayer (so $2,400 for a married couple filing jointly) and $500 per dependent child under age 17.

The Recovery Rebate is available for expats who meet the following criteria:

- They must have a US social security number (and their spouse and dependent children need one too for them to receive the additional amounts).

- They must have filed US taxes for 2018 or 2019 tax years.

- Their adjusted gross income (i.e. income income after deductions) must be less than $75,000 (or $150,000 for a married couple filing jointly) to receive the full amount. Above $75,000 the amount of the rebate is slowly reduced until it phases out completely at $99,000 ($198,0000 for married couples filing jointly).

It doesn’t matter whether expats pay or owe any US tax (most don’t once they claim the Foreign Tax Credit or Foreign Earned Income Exclusion).

For more information visit https://brighttax.com/cares-corona-rebate-expats.

Seek advice

While the filing and tax payment extension will only benefit a minority of expats, the Recovery Rebate will provide welcome respite to many.

For expats who haven’t been filing US taxes from abroad because they weren’t aware that they had too, it’s a good time to catch up under the voluntary Streamline Procedure amnesty program and take advantage of the Rebate.

An expat with a family who all have US social security numbers stands to benefit by some thousands of dollars, and if they are paying foreign taxes and claim the US Foreign Tax Credit they can also back claim the US Child Tax Credit, which could mean several thousand more dollars are owed to them on top.

These measures could make a significant difference to expats struggling financially due to the Coronavirus outbreak.

Expats often get a rough deal from the US tax man, and the Recovery Rebate is a rare piece of good news for qualifying US expats in what is a difficult time for everyone.

Katelynn Minott is a senior CPA and partner at Bright!Tax (brighttax.com). Bright!Tax is a leading provider of expat tax services for Americans living abroad. Every year Bright!Tax helps thousands of Americans living in the UK to file their US taxes accurately, in their best interests, and with the minimum of hassle. If you have any questions about filing taxes as an expat in the UK or the CARES Act Recovery Rebate, get in touch, and we'll be happy to help.

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