![[US] Expat taxes: what is owed and what is expected](http://globalpayrollassociation.com/cdn/shop/articles/bigstock-African-American-Family-Unpack-15141902_1200x.jpg?v=1645806643)
In 2021, many Americans received financial support from IRS stimulus payments and Advance Child Tax Credit Payments. Such financial support doesn’t come without obligations, some your advance payments may need to be paid back by April 18 to avoid interest or fees. Forbes details the expectations and obligations for expats.
When it came to stimulus payments, US expats were considered equal to their friends and family at home. Like taxpayers in the states, they were eligible for all three stimulus cheques. The stimulus payments were no-strings-attached payments. Even if someone received more than they should, they weren't required to return it.
This year is different for expats, as many could end up owing taxes on their 2021 tax return due to excess Advance Child Tax Credit Payments. The support offered by the Advance Child Tax Credit is dependent on one's residence. Expats can only get up to $1,400 refunded per child. If anyone received advance payments totalling more than that amount as an expat, they may have repay it.
Four refunds expats could receive
American expats typically don't owe US taxes. Thanks to expat tax benefits such as the Foreign Earned Income Exclusion, Foreign Tax Credit, international tax treaties and totalization treaties, expats can reportedly deduct or exclude tax debt. After doing so, expats receive payment for any refundable tax credits for which they qualify.
1. The Round 3 stimulus payment
The first potential refund for expats comes from the third round of stimulus. While the $1,400 should have been paid in 2021, it's not too late to claim it. If an expat failed to receive a third-round cheque that they were eligible for, it should be reported when they file their current tax return. If a child was born or adopted in 2021 they are eligible dependents who qualify for the third stimulus, as well, assuming their Social Security number is received in time.
2. The Additional Child Tax Credit
Thanks to the Additional Child Tax Credit, families could see significant savings, which could translate into refunds. American expats can benefit in two ways. The age of qualifying dependents has increased from 16 to 17. Previously, if a child turned 17 at any time during the tax year, they were no longer considered a dependent for the credit. This year, parents can claim children as long as the children were 17 years old or younger on December 31, 2021. The Additional Child Tax Credit has increased. Americans living abroad can deduct up to $3,600 per child under 6 or $3,000 per child 6-17. For refunds, expats who lived outside the US for more than 6 months in 2021 can receive a maximum of $1,400 per child.
3. More Additional Child Tax Credit
For many, 2021 was a year of change. Some moved abroad for the first time, while for others, it was time to return to US soil. If an expat lived more than half of the year in the US, they could receive the higher credit as a deduction or refund.
4. The Child and Dependent Care Credit
Similarly, those who lived half the year or more in the US are eligible for a refund on expenses deductible via the Child and Dependent Care Credit. Until this year, the credit was only a deduction. Now, it is reportedly possible to receive a refund. For expats, the old rules still apply. If someone owes taxes, the tax credit available to them can be taken as a deduction, just not a refund.
Three situations an expat might owe taxes for
For anyone who believes they may owe taxes, it's a good idea to file or make an extension payment by the payment deadline. This year it's April 18. Every expat who falls in the above situations is advised to file an extension ASAP and before June 15, 2022 (the expat filing deadline). To file, an expat can mail in Form 4868, make an extension payment to the IRS directly or file their extension online through tax software.
1. Expats who received advance payment of the Additional Child Tax Credit
As mentioned above, the Additional Child Tax Credit could lead to a refund for expats. But, if someone received advance payments, they might end up owing. The IRS began sending out advance payments of the Child Tax Credit in July. The deposits were intended to be 50 per cent of the total Child Tax Credit an individual would use on their 2021 tax return. The exact amount of the payments was based on their tax return from either 2020 or 2019.
The sum was an estimate based on their past tax returns. If their income increased in 2021, they might not have been eligible for the amount they received. Expats cannot claim the full refund. For example, if someone used an American address to file in previous years, the IRS probably based their tax credit off this address. If they weren't eligible for the amount they received, they will have to repay it.
2. Expats with both US and foreign income
Many expats rely on the FEIE to avoid facing taxation on their income from outside the US. This year, they can exclude up to $108,700. FEIE only excludes earned income sourced outside the United States. Any income from within the United States is not included in the FEIE, regardless of residency outside the US
3. High earners living in lower-tax countries such as Hong Kong or Switzerland
The average salary in Switzerland is 124,000 CHF (about $134,000); already above the FEIE exclusion limit. Someone earning the average salary in Switzerland using the FEIE would still be liable for taxes on their remaining income. The Foreign Tax Credit also wouldn’t help them much because it helps avoid double taxation. Since Switzerland has a lower tax rate, expats could still face tax debt.
Avoiding tax trouble
It is no secret that US taxes are complex and they are even more complicated for Americans abroad. To file confidently and avoid trouble with the IRS, consider filing through a service specifically designed for expats. You should always consult with a licensed professional for advice concerning your specific situation
Source: Forbes
(Links via original reporting)
In 2021, many Americans received financial support from IRS stimulus payments and Advance Child Tax Credit Payments. Such financial support doesn’t come without obligations, some your advance payments may need to be paid back by April 18 to avoid interest or fees. Forbes details the expectations and obligations for expats.
When it came to stimulus payments, US expats were considered equal to their friends and family at home. Like taxpayers in the states, they were eligible for all three stimulus cheques. The stimulus payments were no-strings-attached payments. Even if someone received more than they should, they weren't required to return it.
This year is different for expats, as many could end up owing taxes on their 2021 tax return due to excess Advance Child Tax Credit Payments. The support offered by the Advance Child Tax Credit is dependent on one's residence. Expats can only get up to $1,400 refunded per child. If anyone received advance payments totalling more than that amount as an expat, they may have repay it.
Four refunds expats could receive
American expats typically don't owe US taxes. Thanks to expat tax benefits such as the Foreign Earned Income Exclusion, Foreign Tax Credit, international tax treaties and totalization treaties, expats can reportedly deduct or exclude tax debt. After doing so, expats receive payment for any refundable tax credits for which they qualify.
1. The Round 3 stimulus payment
The first potential refund for expats comes from the third round of stimulus. While the $1,400 should have been paid in 2021, it's not too late to claim it. If an expat failed to receive a third-round cheque that they were eligible for, it should be reported when they file their current tax return. If a child was born or adopted in 2021 they are eligible dependents who qualify for the third stimulus, as well, assuming their Social Security number is received in time.
2. The Additional Child Tax Credit
Thanks to the Additional Child Tax Credit, families could see significant savings, which could translate into refunds. American expats can benefit in two ways. The age of qualifying dependents has increased from 16 to 17. Previously, if a child turned 17 at any time during the tax year, they were no longer considered a dependent for the credit. This year, parents can claim children as long as the children were 17 years old or younger on December 31, 2021. The Additional Child Tax Credit has increased. Americans living abroad can deduct up to $3,600 per child under 6 or $3,000 per child 6-17. For refunds, expats who lived outside the US for more than 6 months in 2021 can receive a maximum of $1,400 per child.
3. More Additional Child Tax Credit
For many, 2021 was a year of change. Some moved abroad for the first time, while for others, it was time to return to US soil. If an expat lived more than half of the year in the US, they could receive the higher credit as a deduction or refund.
4. The Child and Dependent Care Credit
Similarly, those who lived half the year or more in the US are eligible for a refund on expenses deductible via the Child and Dependent Care Credit. Until this year, the credit was only a deduction. Now, it is reportedly possible to receive a refund. For expats, the old rules still apply. If someone owes taxes, the tax credit available to them can be taken as a deduction, just not a refund.
Three situations an expat might owe taxes for
For anyone who believes they may owe taxes, it's a good idea to file or make an extension payment by the payment deadline. This year it's April 18. Every expat who falls in the above situations is advised to file an extension ASAP and before June 15, 2022 (the expat filing deadline). To file, an expat can mail in Form 4868, make an extension payment to the IRS directly or file their extension online through tax software.
1. Expats who received advance payment of the Additional Child Tax Credit
As mentioned above, the Additional Child Tax Credit could lead to a refund for expats. But, if someone received advance payments, they might end up owing. The IRS began sending out advance payments of the Child Tax Credit in July. The deposits were intended to be 50 per cent of the total Child Tax Credit an individual would use on their 2021 tax return. The exact amount of the payments was based on their tax return from either 2020 or 2019.
The sum was an estimate based on their past tax returns. If their income increased in 2021, they might not have been eligible for the amount they received. Expats cannot claim the full refund. For example, if someone used an American address to file in previous years, the IRS probably based their tax credit off this address. If they weren't eligible for the amount they received, they will have to repay it.
2. Expats with both US and foreign income
Many expats rely on the FEIE to avoid facing taxation on their income from outside the US. This year, they can exclude up to $108,700. FEIE only excludes earned income sourced outside the United States. Any income from within the United States is not included in the FEIE, regardless of residency outside the US
3. High earners living in lower-tax countries such as Hong Kong or Switzerland
The average salary in Switzerland is 124,000 CHF (about $134,000); already above the FEIE exclusion limit. Someone earning the average salary in Switzerland using the FEIE would still be liable for taxes on their remaining income. The Foreign Tax Credit also wouldn’t help them much because it helps avoid double taxation. Since Switzerland has a lower tax rate, expats could still face tax debt.
Avoiding tax trouble
It is no secret that US taxes are complex and they are even more complicated for Americans abroad. To file confidently and avoid trouble with the IRS, consider filing through a service specifically designed for expats. You should always consult with a licensed professional for advice concerning your specific situation
Source: Forbes
(Links via original reporting)