If you live or work outside the United States, you generally must file and pay your tax in the same way as people living in the U.S. This includes people with dual citizenship. Due to the coronavirus pandemic, people who live and work abroad have until Wednesday, July 15, 2020, to file their 2019 federal income tax return and pay any tax due. The deadline is normally June 15.
This extension was included in a wide range of Coronavirus-related relief announced in early April. The extension generally applies to all taxpayers who have an income tax filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. Anyone, including Americans who live and work abroad, nonresident aliens and foreign entities with a U.S. filing and payment requirement, have until July 15 to file their 2019 federal income tax return and pay any tax due.
Also, U.S. taxpayers with foreign accounts exceeding certain thresholds may be required to file Form FinCen114, known as the “FBAR” as well as Form 8938, also referred to as “FATCA.”
FBAR is not a tax form. Normally, it is due to the Treasury Department by April 15; however, due to the coronavirus pandemic, there is an automatic extension to October 15, 2020. Form FinCen114 must be filed electronically through the BSA E-Filing System website. The BSA E-Filing System supports electronic filing of Bank Secrecy Act (BSA) forms (either individually or in batches) through a FinCEN secure network.FATCA (Form 8938) is submitted on the tax due date (including extensions, if any) of your income tax return, which in 2020, is due on July 15th (October 15th with an extension).
Here’s what else you need to know about reporting foreign income:
1. Report Worldwide Income. By law, Americans living abroad, as well as many non-U.S. citizens, must file a U.S. income tax return and report any worldwide income. Some key tax benefits, such as the foreign earned income exclusion, are only available to those who file U.S. returns. Any income received, or deductible expenses paid in foreign currency must be reported on a U.S. tax return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars. Both FinCen Form 114 and IRS Form 8938, require the use of a December 31 exchange rate for all transactions, regardless of the actual exchange rate on the date of the transaction. Generally, the IRS accepts any posted exchange rate that is used consistently.
2. Report Foreign Accounts and Assets. Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.
3. File Required Tax Forms. In most cases, affected taxpayers need to file Schedule B, Interest and Ordinary Dividends, with their tax returns. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.
Some taxpayers may need to file additional forms with the Treasury Department such as Form 8938, Statement of Specified Foreign Financial Assets or FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”).
FBAR. Taxpayers do not file the FBAR with individual, business, trust or estate tax returns. Instead, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2019 (or in 2020 for next year’s filing returns) must file a Treasury Department FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”).
The deadline for filing the FBAR is the same as for a federal income tax return and must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 15, 2020; however, as mentioned above, due to COVID-19, there is an automatic extension to October 15, 2020. FinCEN grants filers who missed the April 15 deadline are also granted an automatic extension until October 15, 2020, to file the FBAR.
Taxpayers who want to paper-file their FBAR must call the Financial Crimes Enforcement Network’s Regulatory Helpline to request an exemption from e-filing.
Form 8938. Generally, U.S. citizens, resident aliens, and certain nonresident aliens must report specified foreign financial assets on Form 8938, Statement of Specified Foreign Financial Assets if the aggregate value of those assets exceeds certain thresholds:
- If the total value is at or below $50,000 at the end of the tax year, there is no reporting requirement for the year, unless the total value was more than $75,000 at any time during the tax year
- Taxpayers who do not have to file an income tax return for the tax year do not have to file Form 8938, regardless of the value of their specified foreign financial assets.
The threshold is higher for individuals who live outside the United States and thresholds are different for married and single taxpayers. In addition, penalties apply for failure to file accurately.
Please contact the office if you need additional information about thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempt, and what information to provide.
An individual may have to file both forms, and separate penalties may apply for failure to file each form.
4. Review the Foreign Earned Income Exclusion. Many Americans who live and work abroad qualify for the foreign earned income exclusion when they file their tax return. This means taxpayers who qualify will not pay taxes on up to $105,900 of their wages and other foreign earned income they received in 2019 ($107,600 in 2020). Please contact the office if you have any questions about foreign earned income exclusion.
5. Don’t Overlook Credits and Deductions. Taxpayers may be able to take either a credit or a deduction for income taxes paid to a foreign country. This benefit reduces the taxes these taxpayers pay in situations where both the U.S. and another country tax the same income. However, you cannot claim the additional child tax credit if you file Form 2555, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion.
6. Requesting an Extension. Individual taxpayers who need additional time to file beyond the July 15 deadline can request a filing extension to October 15 by filling out Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. Businesses that need additional time to file income tax returns must file Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.
7. Combat Zone Extension. Members of the military qualify for an additional extension of at least 180 days to file and pay taxes in certain situations. Deadlines are also extended for individuals serving in a combat zone or a contingency operation in support of the Armed Forces. This applies to Red Cross personnel, accredited correspondents, and civilian personnel acting under the direction of the Armed Forces in support of those forces. Spouses of individuals who served in a combat zone or contingency operation are generally entitled to the same deadline extensions with some exceptions.
Help is just a phone call away.
If you’re a taxpayer or resident alien living abroad that needs help with tax filing issues, IRS notices, and tax bills, or have questions about foreign earned income and offshore financial assets in a bank or brokerage account, don’t hesitate to call.