If I Move Out of the Country, Do I Still Pay U.S. Income Tax?

If you are a U.S. citizen living abroad, the U.S. income tax requirements are generally the same as if you lived in the United States. All gross income, whether made in the United States or abroad is subject to U.S. income taxes. Your return must be filed if your income meets certain thresholds, which for single filers is around $10,000 and for married filing jointly filers is around $20,000, both indexed for inflation.

The due date for filing these returns is the same as if you lived in the United States; however, you are automatically granted a two-month exemption if you are living abroad on the due date. To get this exemption, you simply have to attach a statement to your return saying that you were living abroad on your due date.

All U.S. tax returns must be filed in U.S. currency; therefore, to the extent that you have earned income in foreign currency, you must convert it to U.S. dollars using the yearly average exchange rate which can be found on the IRS’s website.

Finally, to the extent that you own an interest in a foreign bank account and the value exceeds $10,000 the federal government generally requires you to disclose this by June 30th every year.

© 2014 Parsonage Vandenack Williams LLC

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FATCA Requirements for Individuals

The IRS recently released guidance regarding new reporting requirements under the Foreign Account Tax Compliance Act (FATCA).  Under FATCA, the IRS requires that certain U.S. taxpayers with “specified foreign financial assets” exceeding certain thresholds report those assets to the IRS by attaching form 8938 to their income tax return this year. Generally, taxpayers living in the U.S. and holding foreign financial assets must file form 8938 if:

  1. the aggregate value of their foreign holdings exceeds $50,000 ($100,000 for joint returns) on the last day of the taxable year (increasing to $200,000/$400,000 for taxpayers living abroad); or
  2. the aggregate value exceeded $75,000 ($150,000 for joint returns) at any point during the taxable year (increasing to $300,000/$600,000 for taxpayers living abroad).

Taxpayers may be subject to a penalty of $10,000 for a failure to file form 8938 when required, increasing to $50,000 for a continued failure after IRS notification.  Additionally, underpayments of tax resulting from undisclosed foreign financial assets are subject to an understatement penalty of 40 percent.  The IRS hopes that such penalties, coupled with reporting requirements for foreign financial institutions regarding their U.S. accountholders, will result in increased tax compliance and reduced tax evasion (see http://www.irs.gov/pub/irs-pdf/i8938.pdf for further information).

© 2012 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com