2018-2019 tax season is in full force since January 29th, 2019. Are you ready to learn how to file your 2018 US taxes for expats? We will cover an array of important deadlines, forms, and schedules. We will also share with you penalty-free ways to file late taxes if you haven’t been compliant.
One of the most important updates of 2019, which gives hopes for Americans abroad, is a new bill in Congress. Congressman Holding from North Carolina introduced “The Tax Fairness for Americans Abroad Act. It might end the 114-year-old US citizenship-based taxation.
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U.S. taxes on foreign income: who should file a US expat tax return?
While many Americans abroad wonder if they have to pay US taxes on foreign income, the real question is about filing tax return itself. Many of US citizens living overseas do not owe any taxes to the IRS. However, it doesn’t mean they don’t have to report their income on Form 1040. Majority of US expats confuse the filing threshold with Foreign Earned Income Exclusion. The latter one doesn’t determine your filing liabilities. It is there to exclude all or part of your foreign-source wages and self-employment income from U.S. federal income tax. Yet you need to file a federal tax return and form 2555 to use Foreign Earned Income Exclusion.
There are a few things to remember about US tax filing obligations. First of all, determine if you are a U.S. person for tax purposes, as you do not necessarily need to have a US passport to possibly have US tax filing obligations. You may even need to file even if you don’t earn any money yet you are married to someone who has income. Yes, we know that US taxes can be quite complicated!
Tax Tip 1: Even though we have already mentioned FEIE above, don’t rush to select Foreign Earned Income Exclusion on your US expat tax return. In many cases, choosing Foreign Tax Credit is more beneficial. Tax professionals prefer the latter for a number of reasons.
The filing thresholds for 2018 tax year are:
| Filing status | Under 65 | 65 or older |
|---|---|---|
| You are single (unmarried) | $12,000 | $13,600 |
| You are married filing jointly | $24,000 | $26,600 (both over 65) |
| You are married filing separately | $5 | $5 |
| You are filing as Head of household | $18,000 | $19,600 |
| You are a widow or widower | $24,000 | $25,300 |
| Self-employed | $400 | |
Basically, you will need to file US expat tax return for 2018 tax year if you earn above filing threshold mentioned in a table above. While we are only a month away from April 15th deadline, don’t panic because all U.S. citizens abroad receive an automatic deadline extension to June 15th. But keep in mind, that if you owe any taxes to IRS, you will need to file and pay your taxes by April 15th deadline. Yes, it applies to everyone, regardless of your residence.
What if I am a US citizen abroad and I never filed a tax return?
If you happen to be in this situation, don’t panic. A lot of American overseas are in the same boat as you. They all fear hefty penalties thus hesitate to get caught up on delinquent returns. If you are a US citizen abroad and you never filed a tax return, then we recommend you to take a look at the IRS amnesty program.
IRS introduced the Streamlined Procedures program, which helps US persons abroad to become compliant with not late filing penalties. Moreover, there will be no FBAR penalties if you were obligated to report your foreign bank accounts on FinCEN Form 114 as well. There are a few requirements to participate in this program:
- One must have spent 330 days in at least one of the last three tax years outside of the United States
- Be currently non-compliant, meaning that you failed to file one or more tax returns
- Failed to comply with U.S. tax returns because of non-willful violation
Tax Tip 2: All the returns must have a valid Taxpayer Identification Number (TIN). The proper TIN for U.S. citizens, residents abroad and some other individuals will be a valid Social Security Number (SSN). We recommend filing US taxes for expats before IRS finds you.
Catching up with late U.S. tax returns
We have been using the IRS tax amnesty program for our late filers, given they qualified to participate in it, and none of our clients has ever had to pay any penalties or fines. It’s the easiest way to catch up with your U.S. tax obligations: you will need to file the last 3 years of federal tax returns and 6 years of FBARs. A straight-forward process which will give you peace of mind.
Tax Tip 3: We encourage you to seek professional tax advice before proceeding with Streamlined Procedures. We offer free consultation calls as well as email support.
Tax Tip 4: It’s better to file and pay the tax due before the IRS finds you. If the IRS has initiated a civil examination of a taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the Streamlined Procedures.
FBAR and FATCA for Americans living abroad
If you think what FBAR reporting is, read further. Any U.S. citizen, U.S. resident, Greencard holder and other US persons for tax purposes have to declare any financial accounts outside the US. If you have an aggregate value of at least 10,000 USD at any time during the year, then you need to file FBAR.
This year’s FBAR deadline is April 15, 2019. However, there is an automatic extension to October 15th, 2019. In case if you decide not to file FBAR even though you knew you had to do that, your willful failure to file will cost you 50% of the account balance at the time of the violation or 100,000 USD civic penalties. As well as there are other penalties for not filing FinCEN Form 114 on time. Those can reach up to 10,000 USD per violation.
There is also a FATCA – Foreign Account Tax Compliance Act. It’s an informational report, which is a part of Form 8938. The requirements for FATCA are different from FBAR. US person has to file it if they are filing single and have 200,00 USD at the end of the year, or 300,000 USD at any point during the year. Married Filing jointly has another threshold for Form 8938 – 400,000 USD at the end of the year, or 600,000 USD at any point during the year. There are hefty penalties for failing to file this form.
Now let’s talk about tax deductions, credits, and exclusions for US expats. While many Americans living abroad prefer Foreign Earned Income Exclusion, we highly recommend seeking professional advice on using Foreign Tax Credit. To use FEIE you will need to pass either Physical Presence Test or establish Bona Fide Residency for a full calendar year in a foreign country. FTC will offset or reduce your US tax obligations on the income tax you paid to another country. Foreign Housing Exclusion will help you to exclude costs of rent and utilities on top of the first 100,000 USD. Note that each city has a different limit.
What about “The Tax Fairness for Americans Abroad Act”? Congressman Holding introduced this tax bill. It raises a question of transitioning from the current citizenship-based taxation system to residence-based taxation. Basically, it will be separating foreign-source and US-source income and exclude the former one from US taxation. A US citizen will need to be a qualified resident abroad.
Summary of US taxes for expats for 2018 tax year (filing in 2019)
With Trump’s tax reform, there were quite big changes for Americans abroad. Especially those who have foreign corporations. So the new tax bill eliminated all personal and dependent exemptions. However, the standard deduction has doubled.
The standard deduction is a cut of income that is not applied to tax. You can use it to decrease a tax bill instead of itemizing deductions. So if you happen to have a lot of expenses that are tax-deductible, like giving money to charity, you will benefit from itemizing deductions.
Tax reform largely impacted Americans abroad who have US-sourced income. So if it’s not your case, then you can stay calm. But if you have controlled the foreign corporation, then you might be hit by GILTI and Transition tax. We offer free consultations and we would love to help you with your US tax situation!
While U.S. taxes for expats are complicated and can cause anxiety, don’t worry. At 1040 Abroad we are committed to making your life easier by taking care of your US taxes.
Contact us if you want our help and receive a free 20-phone consultation.
Hi
I am a US citizen with a SSN but have been living in the UK under a Tier 2 working Visa for nearly 5 years. I do not earn money from US or collect income from there. What do I need to do about filing and making sure I’m on top with the IRS?
Thanks
Amy
Hi Amy,
Replied to you via email. Please, check your inbox.
Thanks!
Query: I am a small fish. Is the filing threshold figure for adjusted gross income (i.e. does it exclude 8833 exemptions for pensions and US social security)?
And if so, if my only income is from savings interest well below the threshold, do I need to file at all?
With thanks.
Hi Kate,
Typically, most portions of a tax treaty don’t apply to US citizens due to the existence of the savings clause.
Thanks for your reply, Olivier. However, if I’ve been claiming the same 8833s for eight years, with never a quibble from the IRS, is it safe to assume they’re legit?
Kind regards.
Hi Kate! I confirm my answer. Obviously, if your income was low enough for social security benefits not to be taxed, it wouldn’t have an impact on tax owing.
HI,
With the new 1040 for 2018 being much different from the 1040 from previous years I’m not sure which line (or schedule) I should use to declare my foreign (already taxed) income? Can you please advise?
Hi Izzy,
You would report the income where it belongs (for instance Schedule B for interest/dividends) and then claim the foreign tax credit on Form 1116.
I “caught up” on my declaration in 2015 by filing 6 years, from 2019 until 2015 and I’ve done so by registered mail every year since. I spoke with an IRS representative in 2015 who walked me through the process. I don’t earn more than the deductible so never owed any money. However, I haven’t filed FBAR (and certainly not FACTA as I have little money and certainly not the hundreds of thousands you refer to) as I’ve never had more than 10 000 USD in my account on any given day. I think I’m “good”. Am I?
I mean 2010-2015 for the 6 years I caught up on.
Hi JFD,
There is no penalty for late filing of an FBAR if all of the income was reported on a tax return.
Hi
Have worked in USA so have filled USA taxes in the past.
I have Dual citizenship,
I am self employed £20,000 income gross tax year 2019 previous years under £12,000.
I have no savings, also no private pensions, I rent privately.
My son started working October 2018 after finishing university, he also has no savings.
I am aware I need to Streamline
I don’t need FBar.
What is your fee to help me with this.
Thanks
Sandra
Hi Sandra,
We replied to you via email.
Thanks.
Thanks for the great blog post. For all of 2018 I lived in Europe and married my EU husband. For the tax return, I would like to file under status Married Filing Separately (since I want to keep my finances separate from my husband’s). Do I need to list his SSN (he was issued one when he worked in the US in 2013, but now he no longer lives in the US, nor makes US income, nor has any US assets). Alternatively, can I write NRA in the SSN field, as some online forums suggest? If I have to report his SSN, does that then obligate him to start filing US tax returns again?
Hi Mare,
We sent you an email.
Thanks!
Hello there! Thank you for the blog post, it is great to be able to get clear information. I am an expat who has been filing with the US each year as required however this year with the new 1040 I was unsure where I put the foreign tax credit. Before I put it under line 48 which led to my total owed being zero however this no longer exists.
Which number should I be putting in line 22 “amount you owe” as I don’t owe anything but the 1040 doesn’t show the credit. I always do the form 1116 as well. Thank you again for your help. I was so used to the old form and don’t want to get anything incorrect.
Hi Ashley,
If you completed the Form 1116 and the FTC is higher than the US tax owing, the “amount you owe” should be zero. It sounds like you are using a software. Please, contact the software provider for guidance.
I am American and lived abroad since 1998. I am a housewife and I earn zero income. I own zero assets in the US and don’t have a bank account there either? My husband is a German citizen. Do I need to file US income tax? Put all zeros in the form?
Hi Lil,
You don’t have U.S. tax return filing obligation.
I am thinking of taking the citizenship and move to a different country soon. would like to consult with you whether I should do that or stay in GC? Would like to know your fees for consultation
hi Joseph,
You can book 1h consultation with me for $200 USD. Email me at info@1040abroad.com if you want to book an appointment. Thanks!
Hi, I’ve been confused for a few years about how to calculate my foreign-earned AGI. I live in Germany, which has rather high taxes, plus my health and retirement insurance is subtracted from my gross income each month. Thus, while my gross salary is pushing the 66,000 EUR limit, the actual money that goes into my bank account is significantly lower. Do I have to report my income before German taxes and insurance?
Hi Griff,
Yes, you report the income before taxes and then claim the FTC.
Hi, I am a US citizen who has been working overseas since last Jan 2018, my wife and kids are living in the US and my wife works in US. we have always filed join returns but I am not sure what to do for 2018. I applied for an extension to file our 2018 returns but need help figuring out what to do next? do I need to file a return in the country where I am currently working and also in the US?
Hi David,
You have to file the return where you currently reside and either use the Foreign Tax Credit or Foreign Earned Income Exclusion for your foreign earned income. We can help you with your tax return, if you’d like.
You can email us at info@1040abroad.com.
Thanks.
Hi,
Is it wise for an American Expat to move to a new tax home in 2020 with a higher income tax and claim FTC on all Foriegn Earned income? If my new tax home had a required Retirementfgovernment pension that I needed to pay into would I be in a better situation for retirement savings, if I am exempt from Social Security earnings. OR claiming FEIE on foreign income moving to a low/ no income tax home with no local pension , US Social Security earnings, or IRA ROTH option( salary less than 100K)? Saved money earned under FEIE would not be eligble income for Retirement plan/ pension. IF you are not self-employed overseas and all salary is filed under FEIE, what are the tax advantages of creating an alternative retirement pension ? 0’s filed for SS recorded earnings? Not sure which tax home abroad will bring in a good savings return for American expats, due to IRS tax laws on worldwide income, SS limitations FBAR, FACTA. Looking at work options in Europe, but need to figure the best tax advantage or I will end up paying taxes in new home, USA and NO SS earnings or retirement savings. Thank you
Hi Sol,
Yes, it would make sense to claim the FTC when in a higher tax jurisdiction. As you have a few different concerns, you are welcome to book a free 20-min phone consultation call. Book an appointment here Free 20 min call with U.S. expat tax experts
My US citizen husband may collect his Social Security in the Fall Am I understanding it right …..that the USA will not tax the SS because of the treaty exemption with Canada … that Canada will tax 85% of it. I seen that one has to file Form 8893 with the 1040 so … Will he be taxed and then file a 1040 with Form 8833 to recoup the taxes? Appreciate any help.
Hi Wendy,
That’s correct. The form 8833 is filed with the tax return, there nothing to amend or refund to claim.
So taxes will not be taken from his cheque.. but I just read this on the IRS site and am not sure again as this seems to suggest one does not need to file Form 8833 for the Social security?
Exceptions
You do not have to file Form 8833 for any of the following situations:
You claim a reduced rate of withholding tax under a treaty on interest, dividends, rent, royalties, or other fixed or determinable annual or periodic income ordinarily subject to the 30% rate.
You claim a treaty exemption that reduces or modifies the taxation of income from dependent personal services, pensions, annuities, social security and other public pensions, or income of artists, athletes, students, trainees, or teachers. This includes taxable scholarship and fellowship grants.
You claim a reduction or modification of taxation of income under an International Social Security Agreement or a Diplomatic or Consular Agreement.
Am I interpreting it wrong? thanks
Hi Wendy! An employee of a foreign employer is not subject to social security tax. It is right from the Internal Revenue Code, no need to use a tax treaty and consequently, no need to file form 8833.
Hi, I have started receiving retirement funding from California State Teachers fund. Live in Canada. I have not started Social Security yet. Does this get taxed by the US because it is generated in the US, how do I report this on my 1040 return for 2019.
Many thanks, Britt
Hi Britt, yes, it is reported in the US. You will get a foreign tax credit in Canada for that. Again, with more details provided, we can report it accurately.
Hi, thank you for the great blog post. I am a US citizen, I’ve been living in Germany since June 2017. I earn roughly 25,000 per year. It doesn’t sound like a lot but its enough to live quite comfortably here. I pay mandatory health insurance, retirement, and unemployment, not including several different kinds of insurances. I have not filed taxes since I have been in Germany. I have been combing the internet to find a guide for ex-pats on tax returns but everything I´ve found addresses people who earn way more than myself.
Can you help me? Perhaps you can steer me in the right direction. This whole process is quite confusing.
FYI: I have no intention of living in the USA again and I will apply for German citizenship as soon as I can if that helps. Also, since 2017 I’ve spent 10-14 days in the USA each year, just visiting family.
Thanks in advance for your help!
Hi Dwight! Of course, we will be more than happy to assist you with your compliance matters. If you earned more than $12,200 in 2019, you have an obligation to file a return. You have to be compliant for 5 years in order to renounce your US citizenship.
Hi,
I need to catch up filing my 2016-2018 taxes. I live in the UK on a spouse visa with my 2 children. I was employed as a civilian on a US base for the first two years. My husband and I also purchased a house in 2016. I started working and paying English taxes etc. in 2018 and have a small account with a British bank. I am not sure where to start, what information I need to include or what forms I need to complete. Thank you for for any help you can offer.
Hi Paige, as a US citizen you are taxed on your worldwide income regardless of where you live. You will report all your income on form 1040 and then complete other forms depending on your situation, credits you’re claiming etc. You can find more information on the IRS’ website: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf. We charge a flat fee of $400 for the Federal Tax Return so if you need help with your filing, contact Kasia at info@1040abroad.com and she will walk you through our process.
I am retired and living in Cyprus solely on social security since 2013. Am I required to file a tax return?
Thanks for your input.
Ric
Hi Ric! No, you are not.