Do I Still Have to File Tax Returns as an Expat?

I expected a lot of new experiences in my life when I moved from the U.S. to Mexico in 2018. I looked forward to meeting new people, discovering a new culture, and learning a new language. As a former Internal Revenue Service (IRS) attorney, however, one thing I didn’t anticipate was the number of U.S. expats I would meet who neglected to file their U.S. tax return.

Some people I met believed that they didn’t have any further obligation to file once they moved out of the U.S. But they’re mistaken; U.S. citizens are taxable on worldwide income even if they don’t live in the U.S. Wherever you earn money, unless you renounce your U.S. citizenship, Uncle Sam gets to tax it.

Other folks thought that because they made so little money they didn’t have to file. While it may be true that you may not owe taxes because your income was below the filing threshold ($24,800 for a married couple or $12,400 for a single filer for the 2020 tax year), filing a return has other potential benefits.

First, it may entitle you to a refund of taxes you paid through withholding. For example, if income tax is withheld from your monthly Social Security payment or from other retirement distributions, or if you work and claim the Foreign Earned Income Exclusion, you could receive a partial or full refund of any income tax that was withheld.

Second, even if you are not due a refund of tax you already paid, filing a return may entitle you to certain refundable credits which can be paid to you as a refund even if you don’t owe tax.

Common refundable credits include the earned income tax credit aimed at low-income earners, the child tax credit for families with children, and the American opportunity tax credit for certain costs related to higher education.

Additionally, if you didn’t receive the economic stimulus payments authorized by Congress in 2020, you can notify the IRS on your 2020 tax return and it will apply the payments against tax you owe on the return (or send the money to your bank account if you don’t owe tax).

Full Guide to Understanding Tax Reporting for U.S. Citizens Living Abroad

If you aren’t due a refund or entitled to a refundable credit, filing what is called a “zero balance” return (a return showing no tax due) starts the three-year period for the IRS to audit your return (called the statute of limitations). If the IRS later finds that there is income it believes should have been included on your return, the statute of limitations for it to question you about it may be expired. If you don’t file a return, the clock on the three-year period remains unwound.

The last group of people I met knew they had to file, but had taken that out-of-sight, out-of-mind attitude, and had generally given up on filing tax returns. While I understand their desire to live a more laidback life overseas, lessen their burdens, and put their pre-expat lives behind them, they are just kicking the can down the road. Being indebted to the IRS is a problem that never goes away.

In the event, it didn’t take much to convince them that not filing was a bad idea. In fact, most admitted that the specter of the IRS stayed like a dark cloud on the periphery of their thoughts, but since they were already a year or two delinquent, they didn’t know where to begin. My advice to them, as it is to anyone who is behind on their taxes, is to start with the current year. There is no sense in adding another late return to the pile.

This year, the usual April 15 due date to file an individual income tax return and pay any tax due was extended to May 17 because of the pandemic. But even in normal years without special extensions, it’s always a good idea to start with the latest return.

Expats get an automatic two-month extension.

One perk of being an expat is that U.S. citizens living outside the U.S. on April 15 are given an automatic two-month extension to file until June 15 (you must attach a statement to the return explaining that you qualify for the extension). It’s too late to make that deadline this year, but it’s still worth knowing about for future reference.

If you miss that June deadline for filing, all is not lost. Expat taxpayers can request a further extension to October 15, by filing Form 4868 on or before the due date of their original return.

And even if you miss that date, it’s still worthwhile to get your return filed as soon as possible.

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