By Olga Kocybik, CPA, AIWC Dusseldorf
If you are a US citizen or resident alien living outside the United States, even though you may not owe any US tax, you generally are required to file US income tax returns, estate tax returns, and gift tax returns. Some may also be required to file a state or local tax return.
Regardless of whether you are required to file US tax and information returns, if you have an interest in or signature or other authority over foreign (non-US) financial accounts - and the aggregate value exceeded $10,000 at any time during the year - you generally must file a Report of Foreign Bank and Financial Accounts (FBAR).
If you are a US citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated taxes are generally the same whether you are in the United States or abroad. Your worldwide income is subject to US income tax, regardless of where you currently or generally reside.
Using the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC) means - for most international taxpayers (US Persons including US citizens, dual citizens and green card holders) - that no US tax will be payable.
In addition to earned income, other income may be required to be reported to the IRS whether from the US or a foreign country - such as investment income, government benefit payments including retirement and unemployment. Or, in some cases, you may not be required to file a US tax return but a Foreign Bank and Financial Accounts Report (FBAR), Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts (Form 3520), or other information reports.
Deadlines for Filing 2020 Tax Returns and Information Returns
March 15, 2021
- file foreign trust return (Form 3520), or apply for an extension until September 15, 2021
April 15, 2021
- file individual tax return (Form 1040) - for expats, this deadline is automatically extended until June 15, 2021
- file Report of Foreign Bank and Financial Accounts (FBAR) - or simply wait until October 15 - the automatic extension deadline
Note: Expat children with foreign financial accounts are also required to file FBARs
- to avoid late payment penalties, make a payment of any US tax you owe. Alternatively, if you have sustained a substantial financial loss, file Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship, to request a 6 months extension to pay taxes due (in some cases, the extension may be granted for a longer period)
June 15, 2021
- file Form 1040 or an extension of time to file until October 15, 2021 (extension filed with Form 4868)
September 15, 2021
- deadline to file the extended trust return (Form 3520)
October 15, 2021
- file the extended tax return (Form 1040); or
- apply for an additional two-month extension to file Form 1040 until December 15
- file the FBAR (October 15 is an automatic 6-month extension/no further extension is possible)
December 15, 2021
- the final deadline to file 2020 US tax returns.
2020 Minimum Income Filing Thresholds:
Whether someone must file a federal income tax return depends on their worldwide gross income, filing status, age, and whether they are a dependent.
- $5 if married filing separately (MFS)
- $12,400 if filing single ($14,050 for those 65 or older)
- $18,650 if filing as a head of household (HOH) ($20,300 for those 65 or older)
- $24,800 if married filing jointly (MFJ) ($26,100 if one spouse is 65 or older, $27,400 if both are over 65 years old)
It is important to note that self-employed individuals have a filing requirement if their net annual earnings from self-employment exceed $400.
Foreign currencies will need to be converted to US dollar equivalents as per the Euro exchange rates below:
- Yearly average January 1-December 31, 2020: €1=$1.1403; $1=€ 0.877 (when reporting income on tax returns)
- At the end of the calendar year (as of December 31, 2020): €1=$1.227; $1=€0.815 (when reporting balances of financials accounts on FBARs and on a Statement of Specified Foreign Financial Assets (Form 8938))
In addition, some individuals may be required to file a tax return or submit other information returns even if they earn less than the minimum income for their filing status. It is also important to note that because retirement benefits are not “foreign earned”, they are not eligible for the Foreign Earned Income Exclusion and, although, these payments are usually taxable only in the country of residence, you are/may be required to file a US tax return to report such income.
Inflation Affected Changes for Tax Year 2020: Foreign Earned Income Exclusion (FEIE): Up to $107,600 per person;
Note: The exclusion amount does not apply to rental income, dividends, interest or capital gains, social security, retirement benefits and unemployment or any income other than earned income.
Tax on a Child's Investment and Other Unearned Income (Kiddie Tax): The kiddie tax generally applies to children under age 19 (but 24 if full-time student) who have unearned income in excess of $2,200. Such income exceeding $2,200 is taxed with the parents’ tax rates if the parents’ tax rates are higher than the tax rates of the child.
If a parent has more than one child affected by the kiddie tax, the net unearned income of all children is combined in calculating tax with the parent's tax rate.
Estate and Gift Tax Exclusions:
For the tax year 2020 the exclusion from tax on estates is $11,580,000.
The annual exclusion from tax on gifts (cash and fair market value of property, assets, intangibles, etc.) is $15,000 per donee per year. This includes gifts of assets located outside of the US. If you give any individual (resident or nonresident) more than $15,000 during a calendar year, you may need to file a Gift Tax Return (Form 709).
Moreover, an unlimited amount can be gifted to a spouse who is a US citizen, whereas gifts to a non-US citizen spouse are subject to an annual exclusion. This annual exclusion for gifts to non-US citizen spouses is $157,000 as of 2020.
Disclaimer: In applying the provisions of this and any other tax article, it is important to understand the impact of applicable tax laws will vary between individual taxpayers. Please consult your tax adviser to determine how the tax laws discussed may affect your particular US tax situation.
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