The IRS requires that taxpayers pay their federal income taxes on a pay-as-you-go system, meaning federal income taxes must be paid as income is earned or received during the year. For those in the US, federal withholding from their pay typically accomplishes this requirement. For expats, however, this may not be the case. If, after considering the foreign earned income exclusion, foreign tax credits, and other deductions/credits, tax is due, then quarterly estimated tax payments may be required to avoid underpayment penalties. We’ve got all the info on taxes for expats who need to make estimated payments below.
Do I Need to Pay Estimated Taxes?
If you fall under the following categories, then estimated taxes apply:
- Individuals, Partners, S Corporation shareholders: If you expect to owe tax of $1,000 or more when your return is filed
- C Corporations: If you expect to owe at least $500 when the return is filed
What Are the Exceptions?
If you satisfy the following, you are not required to pay estimated tax for the current year:
- You had no tax liability for the prior year
- You were a US citizen or resident for the whole year, and
- Your prior tax year covered a 12-month period
- The tax due on your prior year Form 1040, minus withholding taxes, is less than $1,000
What Is the Underpayment Penalty on Taxes for Expats?
Form 2210 can be used to calculate the underpayment penalty. In brief, the tax liability is broken out in quarters, and any payments or withholdings are subtracted. An underpayment penalty (currently 4%) is calculated on any outstanding amounts. Note: the IRS will assess interest on the underpayment too!
What Is the Estimated Tax Safe Harbor Rule?
Estimating your current liability can be difficult. The IRS states that there will be no underpayment penalty assessed if the following are satisfied:
2018 Adjusted Gross Income less than $150,000 ($75,000 if filing separately): Pay the smaller of:
- 90% of 2019 estimated tax
- 100% of the tax shown on the 2018 return
2018 Adjusted Gross Income greater than $150,000 ($75,000 if filing separately): Pay the smaller of:
- 90% of 2019 estimated tax
- 110% of the tax shown on the 2018 return
A Few Other Ways to Waive the Underpayment Penalty on Taxes for Expats
First, you could annualize your income if your income was received unevenly throughout the year. You could also request a waiver if the failure to make estimated payments was caused by a casualty, disaster, or other unusual circumstance. Lastly, if you retired after reaching age 62 or became disabled during the tax year, and underpayment was due to reasonable cause and not willful neglect, you may be able to waive that penalty!
How Can I Calculate Estimated Tax Payments?
For individuals, partners, and S Corporation shareholders, the first step is to estimate the following:
- Adjusted Gross Income
- Taxable Income
Your prior year’s tax return will be a useful guide; use it as a starting point and make any adjustments necessary in anticipation for the current year. Form 1040-ES is a worksheet provided to help figure and pay your estimated tax.
For C Corporations, use Form 1120-W as a worksheet to figure estimated tax.
When and How Do I Pay Estimated Taxes?
The calendar year deadlines for taxes for expats are listed below.
Period Due Date*
Jan 1 – March 31 April 15
Apr 1 – May 31 June 15
Jun 1 – Aug 31 Sep 15
Sep 1 – Dec 31 Jan 15, next year
If the due date falls on a Saturday, Sunday, or a holiday, payment will be due on the next day after Saturday, Sunday, or a holiday.
If you want to pay online, you can do so on the IRS website. If you prefer to pay by mail, the IRS has information on that as well. Want to pay by phone? You can find the instructions to do so listed on your Form 1040-ES. You can also pay via electronic funds withdrawal when e-filing your 2018 tax return.
One quick note: corporations must utilize the Electronic Federal Tax Payment System. See Publication 542 for additional information.
Have More Questions About US Expat Taxes?
Greenback can help! We will review your tax situation with you and can set up your estimated tax payments, so you don’t have to. Contact us with your questions today.