What follows you around everywhere, all the time?
If you thought that it’s your shadow or your dog, try “taxes” instead. Even if you’re in a far-flung corner of the world, international tax obligations are hard to shake off. The US, particularly, taxes you on your worldwide income. So filing US tax returns becomes a must-do if you are an American citizen or resident alien whose earnings have hit a certain threshold.
Complying with tax obligations is non-negotiable, sure. But there is some cause for relief: if you’re a taxpayer living abroad, you get a bit of wiggle room to file your tax returns through the various tax extensions available to expats and resident aliens.
In this article, we will take you through the tax extensions for expats, shedding light on what they entail and how they can help you navigate the complexities of international tax compliance.
An expat is someone who lives or works in a country other than their country of citizenship. Expats may move abroad for various reasons:
- Personal exploration
It could also refer to someone who has given up their original citizenship in their home country to obtain citizenship in a different country.
Being an expatriate also entails several complexities, such as navigating local and overseas tax obligations, healthcare systems, and other practical aspects of life in a foreign country.
Therefore, if you’re an American citizen who has moved to another country and lives or works in that country - cue drumroll - you’re an expat, which means you can avail of these extensions!
A resident alien is someone who isn’t a US citizen or national but meets either the green card test or the substantial presence test for the relevant calendar year:
- Green card test: You’re a US resident if you hold a lawful permanent resident status in the United States for any duration within the calendar year. Resident aliens have immigrant visas, commonly dubbed “green cards,” which is why this test is called the green card test.
- Substantial presence test: To qualify, your physical presence within the United States must meet the following criteria:
- You must be present in the US for a minimum of 31 days during the ongoing calendar year; and
- An aggregate of 183 days across the current year and the two preceding years.
This calculation involves counting all the days of physical presence in the present year, only one-third of the days from the first prior year, and only one-sixth of the days from the second prior year.
Let’s take an example to see how this calculation works.
Suppose you were physically present in the US for 120 days in 2020, 2021, and 2022. You would count all the days you were present in 2022, which is 120 days. You would then count one-third of the days in the first prior year, which is 40 days, and one-sixth of the days in the second prior year, which is 20 days.
Since you were present for a total of only 180 days, you would fail the substantial presence test for 2022.
The short answer is yes.
As IRS Publication 54 states, “If you are a US citizen or resident alien, your worldwide income is generally subject to US income tax, regardless of where you are living. Also, you are subject to the same income tax filing requirements that apply to US citizens or resident aliens living in the United States.”
Whether you need to submit an income tax return depends mainly on your:
- Filing status
So, typically, if your total income from all income sources around the world in 2022 equals or surpasses the threshold for your specific filing status, you should file a return. Take a look at the table given below to see the threshold amounts corresponding to each filing status.
|65 or older||$14,700|
|Head of household||$19,400|
|65 or older||$21,150|
|Qualifying surviving spouse||$25,900|
|65 or older||$27,300|
|Married filing jointly||$25,900|
|Not living with spouse at end of year||$5|
|One spouse 65 or older||$27,300|
|Both spouses 65 or older||$28,700|
|Married filing separately||$5|
Gross income is all the income (that is not tax exempt) that you receive in the following forms:
To see if you meet the income threshold for filing a return, while calculating your gross income, you must include any income that you can exclude as foreign earned income or as a foreign housing amount.
While this means that most expats living abroad have to file tax returns, in reality, owing to a certain “magic circle” of expat tax reliefs, they often end up not owing taxes. However, failing to file returns (if you’re required to file them) is its own problem and one that entails penalties/interest being imposed.
If you are self-employed and your net earnings from self-employment hit $400 or beyond, you’re required to submit a return, regardless of whether your gross income is lower than the figure corresponding to your specific filing status.
When using a calendar year, the typical return due date for individual taxpayers is April 15. If the due date lands on a Saturday, Sunday, or legal holiday, the deadline shifts to the next business day (as was the case this year, where the filing date was April 18, 2023). However, when it comes to expats living abroad or resident aliens, there is more flexibility in the form of various tax extensions.
If you’re a US citizen or a resident alien living abroad and your return’s typical due date falls on the regular deadline:
- You receive an automatic 2-month extension to file your return and pay federal income tax. As the typical return due date is April 15, the automatically extended due date would be June 15.
- This applies if you live outside the United States and Puerto Rico, with your primary business location or duty post also outside these territories.
- It also applies if you’re in military or naval service stationed outside the United States and Puerto Rico.
But there’s a catch: Even if you qualify for this extension, any unpaid tax after the regular due date (April 15) will accrue interest. So, even if you do file your return by June 15, it’s advisable to pay the taxes due by the original deadline to avoid incurring this interest on your tax dues.
To apply this 2-month extension automatically, you need to include a statement with your return that clarifies which of the two circumstances made you eligible for the extension.
In the case of a jointly filed return, either you or your spouse can meet the criteria for the automatic extension. However, if you and your spouse decide to file separately, the automatic extension is applicable only to the spouse who meets the eligibility requirements.
If you fall into either of the following two scenarios, your due date for filing tax returns and making tax payments will automatically be extended:
- If you are deployed in military service in a combat zone or have qualifying service outside a combat zone
- If you are on armed forces deployment beyond the US while engaged in a contingency operation, away from your permanent duty station
For these individuals, the deadline for both filing and tax payment is extended by 180 days after the following:
- The final day of being in a combat zone, participating in a contingency operation, or performing qualifying service outside of the combat zone
- The final day of continuous qualified hospitalization due to a service injury from a combat zone, contingency operation, or while performing qualifying service outside the combat zone
Sometimes, despite the two-month extension, you may be unable to file your returns, as overseas tax obligations might be a bit complicated. For instance, if your resident country follows a fiscal year-based tax system (as opposed to the US’s calendar-year system), you may need more time to gather all the information you need to file your returns.
In such cases, you typically have the option to apply for an extension of six months to file (but not to pay). To get this automatic extension, you need to file Form 4868 physically or employ IRS e-file for electronic submission.
Does this mean that the 6-month period will begin from June onward, i.e., from the extended deadline?
No. The 2-month period and the 6-month period start simultaneously. This means that you get only 4 months in addition to the automatic 2-month extension, i.e., typically till October 15. The additional 4-month extension (unlike the original 2-month extension) does not extend the time you have to pay your taxes.
Therefore, you should estimate how much you owe in taxes and pay that along with your application for an extension (Form 4868). If you are unable to pay your estimated taxes in full, you can still get the extension. However, you will owe interest on the unpaid amount from the original due date (April 15) of the return.
Unless you have a reasonable cause for not paying your taxes on time, you will likely be charged a late payment penalty. Penalties for paying the late payments are assessed from the extended due date of the payment (June 15).
Yes! More expat tax extensions!
Say you cannot file your returns even by the extended deadline of October 15. The IRS throws you another lifeboat in the form of an additional extension. This extension, however, differs from the previous ones in that it is not “automatic.” This means it is granted at the discretion of the IRS.
To avail this 2-month discretionary extension until December 15, you must send the IRS a letter explaining the reasons why you need the additional 2 months.
You must ensure you send the letter by the extended due date (October 15 for calendar-year taxpayers) to the following address:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0045
Unless your request is denied, you will not hear back from the IRS.
The IRS has you covered.
Usually, the IRS does not grant extensions beyond six months. But as part of ensuring that your global tax obligations do not lead you to get taxed twice (double taxation) on the same income, the IRS offers certain expat tax benefits. Two of them are as follows:
- Foreign earned income exclusion: This allows you to exclude your foreign earnings from your income up to a certain limit ($112,000 for tax year 2022).
- Foreign housing exclusion or deduction: This allows you to exclude or a deduct your foreign housing amount from your gross income if your tax home is in a foreign country and you meet the requisite criteria.
Tax home: Your tax home is different from your family home. It refers to the general vicinity of your main place of business, employment, or post of duty. It is where you are “permanently or indefinitely engaged to work as an employee or self-employed individual.” Having a tax home in a given location doesn’t make that location your residence or domicile for tax purposes. If the nature of your work dictates that you do not have a “regular” or “main” place of business, the place where you regularly live could qualify as your tax home. If you neither live nor work regularly out of a given location, your tax home is wherever you work.
If you require extra time to fulfill the bona fide residence test or the physical presence test to qualify for these expat tax reliefs, you could get an extension exceeding six months.
You can file for such an extension if:
- You hold American citizenship or are a resident alien.
- You anticipate qualifying for either the bona fide residence test or the physical presence test, but this won’t happen until after your tax filing deadline.
- Your tax home is in a foreign country (or countries) throughout your period of bona fide residence or physical presence, whichever applies.
To request this extension, you must file Form 2350 (Application for Extension of Time to File US Income Tax Return) either by giving it to a local IRS representative or other IRS employee or by mailing it to this address:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0045
Form 2350 needs to be submitted by your return’s deadline, which would be June 15 (if you meet the criteria for the automatic 2-month extension).
If you are granted an extension, it will generally be until 30 days after the date on which you can reasonably expect to meet the criteria for an exclusion or deduction under the bona fide residence test or the physical presence test.
Suppose you secured this extension but failed the bona fide residence test or the physical presence test.
In such a case, it would be wise to file your income tax return ASAP. This is crucial, as you are liable to pay interest on any tax owed after the standard due date of the return, despite having been granted an extension.
In a situation where you submit your return before you clear either of the residency tests, you must report your income from both American and overseas sources and settle the tax incurred on that income.
If you eventually qualify under either of the tests, you can apply for the foreign earned income exclusion, foreign housing exclusion, or foreign housing deduction using Form 1040-X, which is used to file amended returns.
- US citizens and resident aliens meeting certain income thresholds must file US tax returns.
- Adhering to tax rules is essential, but expats get flexibility through various tax extensions.
- Expats abroad get an automatic 2-month extension from the original deadline for filing and paying taxes.
- Expats can apply for a 6-month extension to file, but not pay, using Form 4868.
- A discretionary extension of 2 more months offers extra time if needed, though it’s not automatic. To apply, expats must send the IRS a letter explaining why they need this extension.
- Expats can submit an extension request for some more time to meet residency tests for foreign earned income exclusions or the foreign housing exclusion or deduction.
- If you couldn’t meet the tests after getting an extension, file your return without delay to avoid interest on owed tax.
- If you file before meeting residency tests, report income from all sources and apply for exclusions/deductions later using Form 1040-X.
International tax reporting can seem daunting. But by incorporating the available extensions into expatriate tax planning, expats can get more time to map their global tax obligations and stay compliant.
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