If you are living or working 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.
In addition, U.S. taxpayers with foreign accounts exceeding certain thresholds may be required to file Form 114, known as the "FBAR" as well as Form 8938, also referred to as "FATCA."
Note: FBAR is not a tax form, but is due to the Treasury Department by June 30, 2016, and must be filed electronically through the BSA E-Filing System website. Starting in tax years after December 31, 2015, the FBAR will be due on April 15 and may be extended to October 15.
FATCA (Form 8938) is submitted on the tax due date (including extensions, if any,) of your income tax return.
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.
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 with foreign accounts whose aggregate value exceeded $10,000 at any time during 2015 (or 2016) must file a Treasury Department FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts ("FBAR").
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 exempted and what information must be provided.
Note: 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 $101,300 of their wages and other foreign earned income they received in 2016 ($100,800 in 2015). 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. Automatic Extension. U.S. citizens and resident aliens living abroad on April 18, 2016, qualified for an automatic two-month extension (until June 15) to file their 2015 federal income tax returns. The extension of time to file also applies to those serving in the military outside the U.S. Taxpayers must attach a statement to their returns explaining why they qualify for the extension. Please call if you haven't filed a 2015 tax return.
7. Get Tax Help. 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.