We’ve been getting a lot of inquiries about tax refunds for U.S. citizens who live abroad. If you live in the U.S., your refund woud be directly deposited to your account. Once you move overseas, receving a refund becomes more complicated as many U.S. Expats no longer keep their U.S. bank account.
Since the refunds cannot be deposited to a foreign bank account, taxpayers living overseas receive a check instead. However, these can take month to arrive. There are few things you can do to ensure you receive your refund faster.
Receiving a Tax Refund for U.S. Citizens Abroad
Receiving a tax refund is surely the best thing about filing your U.S. Expat Tax Return. You cannot imagine how much joy it brings us to inform our clients they’re now not only compliant, but they are actually due a refund. Many taxpayers are simply not aware of the credits they are eligible for. The additional child tax credit is the most common example of a tax credit U.S. expats don’t know about.
Although many expats receive refunds every year, there are ways to speed up processing of your refund. Most U.S. citizens abroad receive their refund in a mail, often waiting even months for their checks. In this blog post we’ll discuss the ways to ensure your refund isn’t delayed.
Are you entitled for a tax refund when you live abroad?
Surprisingly, even if you didn’t file tax returns in years, or if you have a child (US citizen with SSN), the answer is most likely yes.
Recovery rebate credit (aka Covid 19 Stimulus checks)
The covid 19 stimulus checks were issued based on the 2019 (and later 2020) federal tax return, as such, if the IRS didn’t have such a return on file, they couldn’t issue a check.
Many taxpayers who were not in compliance (didn’t file their tax returns) can now request them as a refundable tax credit on their 2020 & 2021 tax returns. For single filers with no dependents who earn less than 75,000 USD, the refund would be 1,800 USD on the 2020 tax return and 1,400 USD on the 2021 tax return.
This applies to others who didn’t receive the original checks for various reasons.
If you haven’t file a tax return in year, there hasn’t been a better time to become compliant. You now can claim all the stimulus checks by filing your delinquent returns.
For those living outside the US, a taxpayer can still request the 2,000 USD child tax credit, 1,400 USD of which is refundable.
Starting in 2021, those who spent over 6 months in the year in the U.S. are entitled to a higher child tax credit.
The additional child tax credit is not compatible with the Foreign Earned Income Exclusion, so the Foreign Tax Credit would have to be used. Your US citizen child would also need to have a US Social Security Number for the tax year in question.
Important: The Foreign Tax Credit is not a refundable credit. Learn more about the Foreign Tax Credit here.
Ways to get your refund faster
E-file and file earlyThe fastest way to receive your refund is to file early. The sooner the IRS can process your return, the soonest you can enjoy your refund.
If you file your return electronically, the IRS can process the returns right away. As such, if you can, you should e-file your tax return or your tax preparer can e-file the return on your behalf.
If you file your return electronically, your refund should be issued in less than three weeks, even faster when you choose direct deposit.
However, in some circumstances, the return cannot be electronically filed for example, if your spouse is a non resident alien (NRA) and doesn’t have a SSN. The software would identify an error and the return couldn’t be electronically filed.
For returns filed on paper your refund should be issued in about six to eight weeks from the date IRS receives your return.
Monitor your Refund. Where is my refund?
You can now check the status of your refund on theIRS’ website as well as on your mobile device using the IRS2go app. You will need your SSN, your filing status and your exact refund amount to login to your account.
You can check the status of your refund 24h after e-filing your tax return or 4 weeks after mailing your paper return.
The IRS account will provide you with the data your return has been processed, when the refund was approved and how and when you’ll receive it.
Can the IRS deposit the check to a foreign bank account?
No, the IRS will only deposit refunds to U.S. bank accounts. If you live overseas and no longer have a US bank account, you will receive a check instead of a direct deposit.
Important: Ensure correct mailing address and be patient. It can take up to several months for the checks to arrive.
There is another workaround where you can open US bank details as a US citizen living abroad using smart fintech companies that give you access to international bank details no matter where you are in the world. Read on to find out more.
How to cash US checks overseas?
I already discussed it in my previous post on Stimulus Checks and you can read it here.
In a nutshell, if you do have a US bank account, but for some reason you did not provide your account details on your tax return and received a check, you can use the bank’s mobile app to take a picture of the check and deposit the amount to your account.
If you don’t have a U.S. bank account, it might still be worthwhile to request a direct deposit. Not only will it be faster, but you will save the bank fees associated with depositing a US check into a foreign bank account.
Using direct deposit is not only fast, but it doesn’t make you reliant on postal services. This would be an additional incentive for people who live in countries in which the postal system is less reliable.
Opening a U.S. bank account as a non-resident
Most US banks will require you to appear personally in their branch (in the US) in order to open a bank account.
- SDFCU (the Department of State credit union) is one of the rare options which allow you to open a bank account remotely. You would need to have an affiliated membership, which would normally mean that you would pay 70 USD for an ACA membership.
You would have to go through a bank opening process which can take a week or two. And you would have to wait to get that bank account open in order to be able to enter the ACH and bank account numbers on your tax return, delaying the process.
With that being said, SDFCU does provide full service banking. As such, you would have a checkbook and other traditional functionalities.
- Wise (formerly Transferwise) are a global technology platform that makes it cheaper, easier and more convenient to send, receive and spend money overseas. Wise offers multi-currency accounts. For these accounts (aside from less mainstream currencies), you get local account details eg. account number and routing number for that country. As such, a USD account will have a US based bank account number and ACH number, which can be used to request a direct deposit from the IRS.
A huge benefit of Wise is that you can open these international account details online in minutes from anywhere in the world. Just go to their website and after a few minutes of filling out their registration form you’ll get access to your account number and ACH immediately. Another advantage of Wise is they have one of the most competitive / lowest fees for international wire transfers on the market. This is because they always convert your money at the mid-market rate and add no mark ups. You can easily access your international funds, hold over 50 currencies and spend money abroad using their Wise debit account. You can manage your money via their app or desktop and keep on track of all your transfers and spending. For these reasons I would recommend using Wise over other options. Get your cha ching faster.