4 Things For U.S. Expats To Know At Tax Time

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4 Things For U.S. Expats To Know At Tax Time

The pandemic has changed nearly every American’s life, including U.S. expats, and while these changes could impact their 2020 taxes, with changes to international travel and residency, U.S. expats may have different considerations to take into account than their friends and family back in the U.S.

Written exclusively for Expat Network by H&R Block Expat Tax Services

Here are four things you should know about your 2020 U.S. expat taxes.

1. You must file U.S. expat taxes if you are a U.S. expat who earned foreign income abroad, even if that time was disrupted by the coronavirus.

If you earned foreign income abroad in 2020, and are U.S. citizen or permanent resident, you must file your U.S. expat taxes. Expat tax rules say taxable foreign income for U.S. citizens living abroad includes: wages, interest, dividends, and rental income.

If you’re an expat whose time abroad was disrupted by coronavirus, you still may qualify for the Foreign Earned Income Exclusion and housing exclusion. In normal times, you would have to pass either the Bona Fide Residency Test or the Physical Presence Test in order to claim the FEIE. However, this year, the IRS waived the time requirements for these exclusions so, even if travel restrictions impacted you in 2020, you may still be able to claim them.

For FEIE, you qualify for the COVID-19 relief if you meet one of these requirements.

You were required to leave China, Hong Kong, or Macau between December 1, 2019, and July 15, 2020, or
You were living abroad in another country and were required to leave between February 1, 2020, and July 15, 2020

2. Most American expats do not owe U.S. taxes.

While U.S. citizens must file a yearly tax return even if they live abroad — U.S. expats don’t usually owe anything. That’s because there are a variety of credits and deductions in place to help prevent Americans from being double taxed on foreign-earned income. These include the Foreign Tax Credit, as well as the previously mentioned Foreign Earned Income Exclusion and Foreign Housing Exclusion.

Working with a tax professional well-versed in U.S. expat taxes or with a tax filing product created with common U.S. expat deductions in mind, can help you receive every credit and deduction you deserve.

3. U.S. expats can claim the Recovery Rebate Credit if they were owed stimulus payments.

Remember, American expats qualified for economic impact payments, also known as stimulus payments, if they fell within the income threshold, had a social security number, and filed taxes — even if they lived overseas.

If an expat was eligible for but didn’t receive the first or second stimulus payment or don’t believe they received the full amount they were entitled to, they may claim the Recovery Rebate Credit on their 2020 tax return.

Like all Americans, if an expat family faced a new situation in 2020, like a change in income or a new child, which may have entitled them to additional stimulus money, they can reconcile their stimulus payments on their tax return.

4. Not filing taxes can result in losing your passport, or being hit with fines, and other penalties.

Adding to the complexities of figuring out what tax rules you can take advantage of, it’s important to know that your passport can be revoked by the IRS if you’re not compliant.

While traveling home may not be possible for you during the pandemic, if you haven’t filed taxes during your time abroad and owe unpaid taxes those yearly penalties can add up and put you at risk of losing your passport. The IRS does send at-risk taxpayers a letter, but as many expats are aware, international mail can be slow.

In addition, depending on what foreign accounts you have you may need to file specific forms depending on the account type and value. You can face steep penalties for not filing the right paperwork. Working with an experience expat tax advisor well-versed in these matters can help you file accurately and confidently based on your specific situation.

The deadline to file your U.S. tax return is April 15, but U.S. citizens abroad are granted an automatic extension to June 15, 2021. While American expats, which includes U.S. citizens and permanent residents, may face added tax complexities as a result of living and earning income abroad, they don’t need to head into tax season alone.

To help expats meet their filing obligations, H&R Block recently announced a new online do-it-yourself tax software for U.S. expats who want to file on their own, with a software designed specifically to meet their needs. This means, whether they want to have an advisor prepare their taxes or take control of their taxes through DIY filing, H&R Block has the options and expertise expats need to file. To learn more about the expat DIY service or to get started filing taxes today visit hrblock.com/expat.

Moving Abroad Checklist

Initial Considerations

Will your partner be travelling with you?

If so, what will they be giving up in your present home and will they be able to continue with their career in your new home? You will need to check whether a separate visa is required for your partner to work or if your visa gives that right. If they are unable to work you will need to decide on the effect on your finances and what alternatives are available to give a fulfilling life (home business, training, voluntary work).

Are you taking family with you?

Moving with family raises many exciting opportunities, but also can create challenges. The HSBC Expat Explorer survey indicates that expat kids can take six months to settle in to their new country (see article). Getting young or even older children to prepare to move and leave their friends and family behind can be a challenge and should be thought through.

The options for education is another area that needs to be thought through.

Moving your child to a new country with a different education system can be a great opportunity to broaden their experience, but if they are close to key exams the timing can make this inadvisable. If you do take your family with you, it is important to decide between joining the local school system or choosing an international school.

Where will you be living?

Whether you will be living in a house or apartment, furnished or unfurnished, these decisions will affect what you need to take with you. The time you are planning to live overseas will also affect whether you should leave your property at home empty, rent it out or sell it. See the article Sell, Store or Ship.