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US Tax Guide 2020

Who must file Tax Returns?

All US Citizens & GC holders must file tax returns annually if above minimum filing thresholds.

You must report your worldwide income. If spouse is not a GC holder/US citizen - you do not need to report their income.

Minimum Filing Thresholds
Filing Status Age Minimum Income Requirement
Single
Under 65
65 or older
$12,200
$13,850
Married Filing Separately Any age $5
Head of Household
Under 65
65 or older
$18,350
$20,000
Married Filing Jointly
Under 65 (both spouses)
65 or older (one spouse)
65 or older (both spouses)
$24,400
$25,700
$27,000
Qualifying Widow(er) with Dependent Children
Under 65
65 or older
$24,400
$25,700
Self-Employment
Any
$400

FBAR

  • 'Foreign Bank Account Report' (FBAR) – aka FinCEN 114
  • Not a declaration of tax, but an informational return
  • Required if your aggregate non-US financial accounts total over $10K USD at any point during the year:
    • Examples:
      Checking account, savings account, non-US brokerage account, non-US mutual fund, non-US life insurance with cash value
    • If you have 3k each in 4 bank accounts, the aggregate value is $12k – you must file.
  • Very high penalties if not filed
    • Maximum penalty for failure to file FBAR is either $100K or 50% of taxpayer assets – whichever is larger
Take all of your non-US checking, savings, investment, and pension accounts* & find the highest one day value for each & add them up. If the total is above $10k - you must file FBAR.

FATCA

  • FATCA - Foreign Account Tax Compliance Act
  • Informational report, but part of tax return - Form 8938
  • Required to file:
    • Single - $200k at the end of the year, or $300k at any point during the year
    • Married Filing Jointly - $400k at the end of the year, or $600k at any point during the year
  • Very high penalties if not filed
    • $10k fine, and up to $50k if continued failure to file
Similar to FBAR, but higher thresholds, and submitted to the IRS as part of the tax return. For more info - see FBAR-8938 Comparison Table

W-9 - Bank Asks about US Tax Compliance Status

W-9 - Bank Asks about US Tax Compliance Status
  • 'FATCA Letter' - Bank asks you to certify tax compliance status by completing w-9 or w-8
    • Part of FATCA compliance - if your bank believes you are 'US person', they must share your information with US tax authorities to remain compliant with regulators.
    • Failure to respond in a timely manner may result in the bank closing your account.
  • If compliant, simply complete the form and send it back.
  • If delinquent - be aware that the bank will transmit your information to the IRS - it is recommended to get tax complaint ASAP.

Will I owe Tax?

  • Now the good news. If you are abroad, the first $100k of wages is tax free in the US
    • Foreign Earned Income Exclusion (FEIE)
      • Physical presence test - spend at least 330 full calendar days during a period of 12 consecutive months outside the US
      • Bona-Fide Residency - Establish 'residency' in a foreign country. Requires full calendar year abroad to start.
      • Self-Employment qualifies for FEIE, but self employment tax requires additional exclusion. If filed properly - for Ireland - you are only liable for self-employment taxes to Ireland, not the US.
  • Foreign Tax Credit - income tax paid to another country will reduce or offset your US tax obligations
  • Foreign Housing Exclusion - exclude cost of rent and utilities from taxable earnings on top of the first $100K
    • Each city has a different limit (i.e - Dublin is more expensive than Bucharest)

How Far Back Do I Need to File?

  • In 2014, the IRS introduced 'Streamlined Foreign Offshore Procedure' - Amnesty from Penalties
    • 3 years tax returns, 6 years FBAR. Currently 2017-2019. All years in question must be 'delinquent'.
    • No 'failure to file' penalties. No 'failure to pay tax' penalties.
    • Most importantly - amnesty from FBAR penalties
    • No 'deadline'“ but risk is that the IRS may change or discontinue this program
Will I owe Tax?

SITUATIONAL ANALYSIS

Jane, from Dublin
Jane, from Dublin
Kate, from France
Kate, from France
Kate, from France
Kate, from France
Sandra, from Germany
Sandra, from Germany
Michaela, from Spain
Michaela, from Spain
  • Jane (US Citizen) earns €50k (55k USD) as a teacher in Dublin. Jane also earns €10k as a private tutor.
  • Jane`s husband, Mike, an Irishman, also earns €50k (55k USD) as a paramedic.
  • They have a joint bank account at AIB which has €12k (13k USD)
  • Jane does not need to declare Mike`s income on her return.
  • Jane will not owe tax to the US, but she must file a return annually, and file FBAR annually.
  • Jane does not need to file FATCA (form 8938)
  • Katie, a US citizen, moved to France for graduate school
  • Katie does not work while studying
  • Katie has a French checking account with a €3k balance, and savings account with a €6.5k balance.
  • Katie does not need to file a tax return, but she must file form FBAR annually as she has non-US bank accounts that in aggregate exceed $10k USD €9.5k is $10.5k)

Katie is considering an internship at a local newspaper and wants to know what impact it would have on her taxes.

She is choosing between the following options:

  • €200 a month - equivalent of $2700 a year. No filing requirement.
  • €500 a month - equivalent of $6700 a year. No filing requirement if Single, Married Filing Jointly, or Head of Household. If Married filing separately, required to file tax return. Will owe no tax.
  • €800 a month - equivalent of $10800 a year. Filing requirement under any filing status. Will owe no tax.

Katie is also considering a graduate fellowship.

  • If scholarship payments are made for tuition/books - it is not taxable income.
  • If scholarship payments are 'stipends' for living expenses - this is taxable income.
  • Filing thresholds remain the same (both scholarship payments need to be added together). Will likely owe no tax in either situation due to foreign earned income exclusion.
  • Sandra was born in the US and her family moved to Germany when she was 5
  • Sandra has not been back to the US and never filed taxes
  • For the last 6 years, Sandra has earned €120k per year as a lawyer in Hamburg, and has investment accounts totaling €450k
  • Sandra needs to file annual tax returns, FBAR, and FATCA.
  • Between the Foreign Earned Income Exclusion, Foreign Tax Credit, and Foreign Housing Exclusion, Sandra will likely owe no tax.
  • Sandra should file through the Streamlined Procedure with tax returns (including form 8938) for 2013-2015 and 2010-2015 FBAR
  • Sandra must continue these forms annually (if she meets the thresholds)
  • Michaela is a green card holder who lives in Spain but does not pay tax to Spain and does not pay into the local Social Security System.
    • As a GC holder, Michaela has the same tax filing obligations as a US citizen and must file form 1040 reporting her worldwide income.
  • Michaela is a web designer who works remotely
  • Michaela is wondering how much she will be taxed on her earnings
    • If Michaela earns €500, Michaela must file a US tax return (over $400 threshold for selfemployment income). She will owe no income tax
    • If Michaela earns €5,000, must file, but would owe no tax to the US.
    • If Michaela earns €50,000, Michaela must file, but would owe no tax to the US.
    • If Michaela earns €500,000 and has €200,000 in business expenses. She can exclude from the net business income(€300k):
      • $100k for FEIE and up to $14K of housing expenses.
      • If she does not pay tax in Ireland the remaining income will be taxable in the U.S.
      • Regardless of the income exclusion, net self-employment income in each case will be subject to U.S. Social Security and Medicare tax - unless Michaela pays Social Security tax to Spain
        • There is no double taxation - if filed properly, Michaela will only need to pay Social Security Tax to Spain

Situational Analysis

Jane, from Dublin
  • Jane (US Citizen) earns €50k (55k USD) as a teacher in Dublin. Jane also earns €10k as a private tutor.
  • Jane`s husband, Mike, an Irishman, also earns €50k (55k USD) as a paramedic.
  • They have a joint bank account at AIB which has €12k (13k USD)
  • Jane does not need to declare Mike`s income on her return.
  • Jane will not owe tax to the US, but she must file a return annually, and file FBAR annually.
  • Jane does not need to file FATCA (form 8938)
Kate, from France
  • Katie, a US citizen, moved to France for graduate school
  • Katie does not work while studying
  • Katie has a French checking account with a €3k balance, and savings account with a €6.5k balance.
  • Katie does not need to file a tax return, but she must file form FBAR annually as she has non-US bank accounts that in aggregate exceed $10k USD €9.5k is $10.5k)
Kate, from France

Katie is considering an internship at a local newspaper and wants to know what impact it would have on her taxes.

She is choosing between the following options:

  • €200 a month - equivalent of $2700 a year. No filing requirement.
  • €500 a month - equivalent of $6700 a year. No filing requirement if Single, Married Filing Jointly, or Head of Household. If Married filing separately, required to file tax return. Will owe no tax.
  • €800 a month - equivalent of $10800 a year. Filing requirement under any filing status. Will owe no tax.

Katie is also considering a graduate fellowship.

  • If scholarship payments are made for tuition/books - it is not taxable income.
  • If scholarship payments are 'stipends' for living expenses - this is taxable income.
  • Filing thresholds remain the same (both scholarship payments need to be added together). Will likely owe no tax in either situation due to foreign earned income exclusion.
Sandra, from Germany
  • Sandra was born in the US and her family moved to Germany when she was 5
  • Sandra has not been back to the US and never filed taxes
  • For the last 6 years, Sandra has earned €120k per year as a lawyer in Hamburg, and has investment accounts totaling €450k
  • Sandra needs to file annual tax returns, FBAR, and FATCA.
  • Between the Foreign Earned Income Exclusion, Foreign Tax Credit, and Foreign Housing Exclusion, Sandra will likely owe no tax.
  • Sandra should file through the Streamlined Procedure with tax returns (including form 8938) for 2013-2015 and 2010-2015 FBAR
  • Sandra must continue these forms annually (if she meets the thresholds)
Michaela, from Spain
  • Michaela is a green card holder who lives in Spain but does not pay tax to Spain and does not pay into the local Social Security System.
    • As a GC holder, Michaela has the same tax filing obligations as a US citizen and must file form 1040 reporting her worldwide income.
  • Michaela is a web designer who works remotely
  • Michaela is wondering how much she will be taxed on her earnings
    • If Michaela earns €500, Michaela must file a US tax return (over $400 threshold for selfemployment income). She will owe no income tax
    • If Michaela earns €5,000, must file, but would owe no tax to the US.
    • If Michaela earns €50,000, Michaela must file, but would owe no tax to the US.
    • If Michaela earns €500,000 and has €200,000 in business expenses. She can exclude from the net business income(€300k):
      • $100k for FEIE and up to $14K of housing expenses.
      • If she does not pay tax in Ireland the remaining income will be taxable in the U.S.
      • Regardless of the income exclusion, net self-employment income in each case will be subject to U.S. Social Security and Medicare tax - unless Michaela pays Social Security tax to Spain
        • There is no double taxation - if filed properly, Michaela will only need to pay Social Security Tax to Spain
Other Tidbits
INHERITANCE/GIFTS
INHERITANCE/GIFTS

Not taxable.

However – if received from a Non-US person and over $100k USD , recipient must file form 3520. If US person, no filing requirement for the recipient

CAPITAL GAINS
CAPITAL GAINS

Taxable in the year when they are realized. Tax rate depends on type and length of investment.

Use of proceeds does not impact the taxability of the sale.

INCLUSION OF FOREIGN SPOUSE?
INCLUSION OF FOREIGN SPOUSE?

You do not have to report your non-US spouse’s income on your tax return. There are situations where it may be more beneficial – but it is not required.

IRS DOCUMENT REQUIREMENT?
IRS DOCUMENT REQUIREMENT?

Non-US forms do not need to be sent to the IRS.

However, you should retain records in case of audit.

APRIL 15

Due date to file calendar year 2018 tax returns (if you live in the US)

Interest on tax due (if any) begins to accrue, even if you have an extension until June or October.

FBAR due Apr 15. Automatic extension granted until Oct 15.

JUNE 15

US expats receive an automatic extension to file their US taxes to June 15. As noted above – tax due, if any, must be paid by April 15. Last day to file an extension to delay filing until Oct 15.

OCT 15

Filing date for those who have processed an extension