Millions of Americans who make their homes abroad do not file their US tax returns. Estimates indicate that approximately 50 percent of US expats are actually delinquent on their taxes. If you make your home abroad or you are considering moving abroad, it is important to ensure you are up-to-date on the following tax topics.
How Obamacare Affects Expats
There is sometimes a misconception that Americans who live abroad are exempt from the provisions of Obamacare or the Affordable Care Act, but that is not always the case. Designed to make certain that all Americans have proper health care coverage, the Affordable Care Act includes minimum requirements that your healthcare plan must meet. It also applies to all United States citizens. Even if you live abroad, you are not exempt from the Act. This means that you may be required to purchase a policy that meets the provisions of Obamacare, based on your personal circumstances. If you do not comply, you may be subject to a tax on your federal tax returns. If you qualify for the Foreign Earned Income Exclusion through the Physical Presence test or through the Bona Fide Residence test, then you may be exempt through December 2015.
If you do not qualify for an exemption, it is important to be aware that you may be subject to a tax, as follows:
2014-Taxes are $95 for each adult and $47.50 per child, up to a total of $285 for a family or 1 percent of your family income, whichever amount is greater.
2015-Taxes are $325 for each adult and $162.50 per child, up to a total of $975 for a family or 2 percent of the family income, whichever amount is greater.
2016 and beyond-Taxes are $695 per adult and $347.50 per child, up to a total of $2085 for a family or 2.5 percent of the family income, whichever amount is greater.
Foreign Bank Account Report
Also known as FBAR, the Foreign Bank Account Report is designed to help the United States identify individuals who may be hiding money in offshore accounts. Expats typically do not hide money, but even so, they may not always meet reporting requirements. If you are living abroad and you have $10,000 or more in foreign bank accounts, you are required to file FBAR Form FinCEN 114. This form must be filed annually by June 30. It is important to note that the penalties for failing to file this form can be expensive, so it is a good idea to file as quickly as possible, if you are subject to this filing requirement.
FATCA
The Foreign Account Tax Compliance Act requires you to report foreign assets if those assets exceed certain thresholds. Those thresholds vary based on filing status and residency. This includes such assets as bank accounts, foreign pensions, hedge funds, and investments. If you have any of these assets, you may be required to file FATCA Form 8938. You should also be aware the foreign financial institutions are required to provide reports regarding American clients.
Foreign Tax Credit
As an expat, you may already be familiar with the Foreign Earned Income Exclusion. This means that you are able to offset a significant part of your US tax liability. In some instances, earnings might exceed your allowable exclusion and you need to know how to handle such circumstances. In this type of situation, you might be able to utilize the Foreign Tax Credit in order to further reduce your US taxation. Basically, the Foreign Tax Credit offers a credit, dollar-for-dollar, for any taxes that you pay to a foreign country. There is a catch; however, and it is that you are not able to use the Foreign Tax Credit in order to offset any income that has been excluded previously using the Foreign Earned Income Exclusion. If you do not qualify for the Foreign Earned Income Exclusion, but you may a significant amount of money in taxes to your host country, this could prove to be a big help to you.
Streamlining Tax Filing
If you are delinquent in terms of filing your US taxes, then you are certainly not alone. Fortunately, the IRS has recognized that this is a common situation and has designed the Streamlined Filing Procedures in order to assist expats who may be behind in filing their US taxes. The program was revised somewhat recently. As a result, the restriction that previously prevented large numbers of expats from qualifying has been lifted. Among the most significant changes made to the Streamlined Filing Procedures is that the FBBAR and late filing penalties have been lifted. Expats who are delinquent are able to file their last three years of taxes and the last six years of FBARs under this program. It should be noted that expats who owe taxes to the United States will still be required to pay those taxes as well as any related interest.
When living abroad as an expat, it can sometimes be easy to fall behind on tax reporting requirements. The more you know about such topics, the easier it will be to make sure you are prepared and stay up to date with all of your tax obligations, even if you are living overseas.
