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Expat Tax Essentials
Tax deadlines can hit before you know it, and you may be faced with the prospect of filing your taxes late. While it’s always best to file your tax returns as early as possible to avoid late penalties, interest, and other potential issues, if you’re a US expat who missed the filing deadline, you have some options.Here’s everything you need to know about filing late taxes for expats:
For most Americans filing their tax returns, the deadline falls in mid-April, typically April 15th (though for filing year 2022 and 2023, it falls on April 18th). However, Americans who reside and work outside of the US receive an automatic two-month extension from the IRS. This means your tax returns aren’t technically due until June 15th (or the next business day if the 15th falls on a weekend).
While that gives US expats more time to get their financial documents in order, it’s important to note that if you owe the IRS taxes, you are required to pay them by April 15th. The automatic extension allows you to file late, but if you did not pay the taxes you owe by the April deadline, then you may be charged penalties and interest for not paying on time.
If you suspect you’ll receive a refund from the IRS, there’s no penalty for filing by the June 15th deadline.
Pro Tip: If you pay up to 90% of your expected tax bill by April 18th, you can file your return and pay the remainder of your taxes by June 15th, without penalty.
If you need even more time to file your taxes, you can request an extension by filling out IRS Form 4868, the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This will give you until mid-October to file your return.
But again — if you owe any taxes, you should pay them by April 15th. Otherwise, interest will accrue for each month that your taxes are late.
Late tax returns are subject to penalties. Late tax payments are subject to IRS penalties. The two main types of penalties that the IRS assesses for late taxes are:
The Failure to File penalty is charged if you file your actual return past the deadline. Normally, this penalty is 5% of unpaid taxes for each month beyond your filing deadline up to a maximum of 25% of your unpaid taxes due.
The Failure to Pay penalty is levied on all taxes due that are not paid by the filing deadline. This penalty is normally an interest charge of 0.5% per month on the basis of your total unpaid taxes. This penalty can continue until it reaches 25% of your total unpaid taxes.
At least 90% of your expected taxes due must be paid by the mid-April filing deadline – even if you plan on filing taxes late via the automatic two-month extension. Otherwise, you may face a Failure to Pay penalty even if you file your return on time.
In many cases, we find that expats do not owe taxes due to foreign tax credit and foreign earned income exclusion. But just in case, it’s good to file in April or file an extension until October, to make sure you won’t have to pay penalties.
There are a few other IRS penalties you may incur when paying your taxes late, such as an Accuracy-Related penalty, which charges you for not reporting your income or other information correctly. If you pay estimated taxes throughout the year, you can also receive a penalty for not paying your estimated taxes on time or in full.
Most US expats qualify for tax credits that prevent them from double taxation — and in many cases significantly lower or even eliminate their US tax bills. But, when you file late taxes, you may miss out on some of these privileges.
For expats filing late taxes, there is no guarantee of eligibility for the Foreign Earned Income Exclusion – which allows you to exclude over $100,000 of foreign-earned income from your tax bill.
Claiming this exclusion requires that you file Form 2555 with your tax return in a timely manner. If you don’t file in time, the IRS reserves the right to revoke your ability to use the FEIE. And, once revoked, you cannot claim it for at least five years.
The FEIE can save you thousands per year in taxable income, so avoid losing this exclusion by filing your taxes on time.
When US citizens first move overseas, many of them don’t realize they’re still on the hook to pay US taxes. If you are filing taxes years late due to non-willful negligence, which means you did not knowingly decide not to file your taxes, then you may qualify for an IRS tax amnesty program called the Streamlined Filing Procedure.
The Streamlined Filing Procedure was designed to help US expats catch up on past-due tax returns and other financial requirements, like the FBAR (Report of Foreign Bank and Financial Accounts).
To qualify for the Streamlined Procedure, you must meet the below requirements:
With the Streamlined Procedure, you can catch up on the last three years of tax returns and the last six years of FBARs. The process can be a bit challenging to navigate on your own though, so we recommend talking to a professional if you have any questions along the way.
If you’re only behind on last year’s tax return, it’s best to file normally. But if you need to catch up on previous years or multiple returns and FBARs, then the Streamlined Filing Procedure may be your best option.
It’s better to get caught up with the IRS late than not at all, and an experienced tax professional can help you figure out the right path forward.
Greenback Expat Tax Services can help you file late taxes! Our dedicated team of CPAs and IRS Enrolled Agents have expat tax expertise to help Americans abroad catch up on past-due taxes and stay compliant. We’ll even let you know if you’re eligible for any tax credits that can lower your tax bill.
When you live in the US, tax day is simple: April 15th! When you move abroad, it’s not so straightforward! Learn about all the expat deadlines and extensions you need to know to file.