The events of the Coronavirus (COVID-19) pandemic are unlike any we have ever seen before. The outcome of the crisis will play out in our memories and our history books. In response to the crisis, the IRS has issued several important tax changes, including new US tax deadlines 2021 for citizens living abroad, special guidelines regarding the expat tax credits, and small business relief.
Last updated March 18, 2021.
Quick Facts: Top Coronavirus Tax Changes for US Expats
- The IRS has postponed the April 15, 2021 filing deadline to May 17, 2021. (In 2020, all tax filings and payments were postponed until July 15, 2020 for all Americans, including those living abroad.)
- Despite the extension, the IRS recommends you file as soon as possible, especially if you may be owed a refund or missed stimulus payments.
- Tax credits and loans may help small businesses offset the economic impact of the COVID-19 Emergency.
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IRS Postpones 2021 Tax Deadline from April 15 to May 17
For the 2021 tax year, the IRS has postponed the regular April 15th deadline to May 17th to give Americans more time to prepare and file during the ongoing Coronavirus pandemic.
The extension also gives taxpayers the chance to incorporate changes from the American Rescue Plan Act, which was passed in the middle of tax season. This year, it’s especially important for expats to get their US taxes done correctly because it’s the only way to reclaim stimulus checks that you were eligible for but didn’t receive.
This extension is automatic. You do not need to file any additional forms or call the IRS to request it.
Despite the date change, the IRS is still urging Americans to file as soon as they are able. In particular, if you’re owed a refund or you’re entitled to stimulus payments, you should file electronically with direct deposit to get these funds as quickly as possible.
The IRS has not issued any statements regarding the June 15, 2021 tax filling deadline for Americans living abroad. If you intended to file by this deadline, you should still make plans to complete your return by this date—or sooner if possible.
In addition, quarterly estimated payments are still due on April 15, 2021.
List of 2021 US Tax Deadlines
Here’s a list of regular tax deadlines and how they were impacted by the IRS’s response to the Coronavirus pandemic in 2021:
- April 15th: Regular US Tax Deadline – This is normally when taxes are due. However, due to the Coronavirus pandemic, the IRS has extended the date to May 17th.
- May 17th: New 2021 US Tax Deadline – This is the new US tax deadline for Americans living in the US. Normally, if taxes due to the IRS are not paid by April 15th, interest accrues and/or penalties can be assessed. With the automatic extension, taxes owed can be auto extended to May 17th without interest or penalties.
- June 15th: Regular Extension for Americans Abroad – Expats receive an automatic two-month extension on their US filings. The IRS has not issued any changes to this deadline for 2021.
- October 15th: IRS Extension Deadline – All expats are eligible to extend their tax return due date to October. Expats who are not ready to file by June 15th can submit IRS Form 4868 to extend their tax deadline to October 15th.
- December 15th: Special Extension for Americans Abroad – Americans living abroad can write a letter to the IRS to request a final two-month extension to December 15th. Note: This is a discretionary extension and not automatically granted so it should only be used as a last resort.
Recap of 2020 IRS Tax Deadline Changes Due to Coronavirus
On March 21, 2020, in response to the growing concern over the Coronavirus (COVID-19) pandemic, the IRS announced that it had extended the deadline for Federal income tax returns from April 15, 2020 to July 15, 2020.
Based on this change, all taxpayers—including individuals, trusts and estates, corporations, and those who pay self-employment tax—were able to automatically defer tax payments penalty-free in 2020, regardless of the amount due.
State Tax Deadline Changes
The 2021 IRS tax due date extension applies only to your Federal taxes. At this stage, it’s unclear if states will follow the IRS’s example and extend their 2021 tax deadlines as well.
Last year, several states updated their tax deadlines following changes from the IRS, so we may see a similar response this year. It’s important to keep a close eye on your specific state for new Coronavirus relief measures.
Do I Need to File a US State Tax Return as an Expat?
Whether or not you need to file state taxes as an expat will depend on the state you lived in before moving abroad and your residency status. Some states do not require expats to file state taxes, while others make it difficult to avoid this requirement.
If you, your spouse, or your children have lived in a state at some point during the year, you maintain residence in a state, or you keep a driver’s license, ID card, or voting rights in a state, you may be required to file a US State Tax Return.
New Tax Rules for the Foreign Earned Income Exclusion During the COVID-19 Emergency
As Coronavirus safety concerns and travel bans increased, some Americans living abroad decided to return to the US. Many had intended to stay abroad but cut their plans short because of the pandemic. Taking into account these unique circumstances, the IRS decided to adjust the requirements to qualify for the Foreign Earned Income Exclusion.
Under the revised rules, if you reasonably expected to meet the eligibility requirements of the FEIE during 2019 or 2020 but failed to do so because of the Coronavirus pandemic, you can still claim the tax exclusion. However, you must have left your country of residence within a specified date range. The date range is determined by when the period of adverse conditions began in different regions.
Therefore, you can still qualify for the FEIE if you left these regions after the dates below:
- December 1, 2019 for the People’s Republic of China (excluding the Special Administrative Regions of Hong Kong and Macau)
- February 1, 2020 for all countries
The period for this exception will end on July 15, 2020, unless the Treasury Department and IRS choose to extend it. This means that, if you left China between December 1, 2019 and July 15, 2020, you could still qualify as physically present or a bona fide resident—so long as you expected to meet the requirements if not for the COVID-19 Emergency.
However, this doesn’t mean that you can claim the full amount for the FEIE. You can use this exception to qualify for the FEIE, but the amount of income you’re allowed to exclude from US taxation will still be based on your foreign earned income—which you can only earn while living abroad. Any income you earned while living in the US can’t be excluded, even if you were only in the US due to the COVID pandemic.
If, for example, you were living in China and intended to stay throughout the full year in 2020, but returned to the US on February 1st due to the Coronavirus pandemic, you can qualify for the FEIE for 2020 under the revised rules. However, you’ll only be able to exclude the foreign earned income you received during the month of January when you lived abroad.
To determine the maximum available exclusion you can claim, you’ll need to prorate the FEIE amount based on the percentage of the year that you lived outside the US.
Here’s how you would calculate the maximum FEIE exclusion for 2020 based on our example above:
- 31 days outside the US / 366 total days = 8.5%
- 8.5% x $107,600 (the FEIE amount for 2020) = $9,113.66 maximum exclusion
Calculating the FEIE can be tricky, especially if you were forced to move mid-year due to the Coronavirus pandemic. To skip the messy calculations, team up with an expat accountant who can make sure you get the maximum savings.
Coronavirus Tax Relief for Small Businesses
In addition to relief for individuals, the US government has enacted provisions to help businesses overcome the financial challenges of the Coronavirus pandemic. Relief for American business owners currently includes tax filing extensions, tax credits, and loans.
Tax Deadline Extension
The automatic tax deadline extension to July 15, 2020 applies to businesses as well as individuals. This includes self-employed freelancers and contractors abroad by extending the deadlines for estimated tax payments in 2020.
Families First Coronavirus Response Act: Payroll Tax Credits for Employee Leave
On March 18, 2020, President Trump signed the Families First Coronavirus Response Act (FFCRA). The FFCRA requires certain employers to provide paid leave to employees who are unable to work due to circumstances related to COVID-19. (Notably, businesses with under 50 employees may be exempt from some requirements if they would endanger the viability of the business.)
The FFCRA also includes provisions to help companies with fewer than 500 employees fund paid leave for workers during the crisis. If you are an expat who runs a small business with employees in the US, these provisions may apply to you.
Qualifying employers can use tax credits to offset certain Coronavirus-related costs dollar-for-dollar:
- Sick Leave Tax Credit – If an employee who is unable to work due to a Coronavirus quarantine, self-quarantine, or Coronavirus symptoms, eligible employers can claim a tax credit at the employee’s regular rate of pay, up to $511 per day ($5,110 maximum) for up to 10 days.
- Child Care Leave Tax Credit – If an employee who is unable to work because they need to care for a child whose school or care provider is unavailable due to the Coronavirus, businesses can take a credit equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 total for up to 10 weeks.
The Paycheck Protection Program
The Paycheck Protection Program (PPP), which is a part of the CARES Act, provides relief for small businesses and organizations—including all nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors with 500 or fewer employees. The goal of the program is to help these organizations continue to pay employees during the COVID-19 crisis.
While US citizens living overseas may apply for the program, the PPP form does ask whether the United States is the “principal place of residence for all employees of the Applicant included in the Applicant’s payroll calculation.” Therefore, we can assume those applying should have businesses that operate primarily within the US.
The PPP provides three main types of relief:
- Small Business Administration Loans: PPP loans can be forgiven if employers meet certain requirements. Specifically, the employer needs to spend 75% of the forgiven amount on payroll-related costs. Also, the organization must keep headcount and wages/salaries consistent (or restore them to full-time levels by June 30, 2020).
- Tax Credits for Employee Retention: Employers can claim a refundable payroll tax credit equal to 50% of qualified wages between March 13, 2020 and December 31, 2020. (Note: Employers cannot “double up” tax credits by using FFCRA and PPP tax credits on the same wages.)
- Deferral of Employer Social Security Taxes: Under the CARES Act, employers can defer the employer portion of Social Security taxes due between March 27 and December 31, 2020, provided at least 50% of the deferred taxes are paid by the end of 2021 and the remainder by the end of 2022. However, this does not apply to employers who’ve been forgiven for PPP loans.
Assistance for Americans Abroad
The State Department has encouraged Americans broad to enroll in the Smart Traveler Enrollment Program (STEP) to receive country-specific safety information and to help the US Embassy contact you and your family in case of an emergency.
If you experience a Coronavirus (COVID-19) related emergency while overseas, you should contact the nearest US Embassy or call:
- From the U.S. & Canada: 1-888-407-4747
- From Overseas: +1 202-501-4444
Greenback Team is Here to Help!
The Greenback Team is fortunate to be a 100% remote team distributed around the world – 11 countries and 12 states to be exact. And as many of us are expats ourselves, we’re here to keep you up-to-date and help you navigate all the changes related to your taxes.
We currently recommend that you file your expat taxes as soon as possible, particularly if you think you may be owed a refund. If you do owe taxes, you can file now and hold off on making a payment until the new extended deadline. Planning ahead will help you manage finances and reduce stress during this uncertain time.
Events and circumstances have been changing rapidly, and it is best to stay on top of taxes to take advantage of potential benefits coming your way. We’re here to answer any questions you may have during this confusing time, especially regarding US tax deadline in 2021 for citizens living abroad. Please get in touch with us today.