AMERICAN TAXPAYER SERVICES

U.S. Income Tax Rules for Americans Living Abroad

U.S. Income Tax Obligations while Living Abroad

As a U.S. expatriate residing in Southeast Asia, you may still be required to file U.S. federal and state income tax returns each year and report your worldwide income! The filing requirements are the same for citizens and permanent residents living in Thailand as well as in the U.S. For example, a single individual under the age of 65 with worldwide income of $9,750 is required to file U.S. income tax returns even though there may be no tax due. These filing requirements vary according to age and marital status. Moreover, an individual must file a tax return if self-employment income was $400 or more during the tax year.

If you fail to file your U.S. income tax return, whether a return is required or not, the statute of limitations on tax assessments for that year never runs out. Thus, if you live abroad for 10 years, and then return to the United States, the Internal Revenue Service may question your failure to file income tax returns for those ten years. Although you are not prevented from giving up your U.S. citizenship, the IRS has the authority to tax you as a U.S. citizen for an additional 10 years if your principal purpose was to avoid U.S. taxes as an expatriate.

If you file your income tax return each year while living abroad, the statute of limitations for IRS audits will expire three years after those tax returns are filed. That means the IRS cannot go back, in the absence of fraud or substantial understatement of your income, and try to audit or change those returns at a later date. Thus, U.S. citizens should always file a tax return even if they don’t have taxable income and/or don’t owe any taxes.

The Internal Revenue Service currently allows an expatriate to file past tax returns, which were not previously filed, to claim the foreign earned income tax exclusion and foreign tax credits as if the returns had been file on a timely basis. That usually means most delinquent expatriates who file past income tax returns owe little taxes or interest after claiming those benefits.

Foreign Earned U.S. Income Tax Exclusion

If you have full-time residence abroad for a full calendar year, or live there for 330 days out of any consecutive 12-month period, you can exclude up to $95,100 of earned income and under certain circumstances a portion of your housing costs from U.S. Income Taxation. If you are married, and both of you earn income and reside and work abroad, you can also exclude up to another $95,100 of your spouse’s earned income from taxation. You cannot, however, exclude the pay you receive as an employee of the U.S. Government or its agencies. Further, if you are self-employed, you must still file a Schedule C along with your U.S. income tax return and pay U.S. self-employment tax (social security) on your net earnings. The upside of this requirement provides greater Social Security benefits when you retire.

Due Date of Income Tax Returns

If your personal permanent residence is abroad on April 15^th of any year, you get an automatic extension until June 15^th to file your income tax return for the previous calendar year. If you need more time beyond June 15^th, you can file for an additional extension request, which extends the due date of your income tax return until October 15^th. However, if you owe income taxes and fail to pay the estimate tax liability by April 15^th, you will be subject to additional interest and penalties for any underpayment.

U.S. “State” Income Tax Obligations

Do not assume just because you moved out of the U.S. that your previous state of residence has no claim on taxing your income. Many states such as California, Virginia, New Mexico, and South Carolina make it very difficult to give up your “tax domicile” and require that you file state income tax returns (and pay the tax) even if you do not move back until years later.

Some of the criteria that a state looks at to determine if you are a resident for income tax purposes includes your driver license, if you register to vote there, if you maintain an address there, the location of your bank accounts, if you own or rent real property there, the license plates on your cars, and if you still receive utility bills in that jurisdiction.

You must be careful to reduce or eliminate all indicators of residency or your previous residency site in the U.S. It is important to carefully plan your departure from your previous home state by taking the actual steps necessary to prove that you no longer have a “Tax Domicile” there after you move abroad. If you do not, income taxes, penalties and interest later assessed can be huge.

You may be required to pay income taxes in any state if you receive rental income from there, even if you are no longer a physical resident. However, investment income such as from stock sales, dividends, and interest are normally not subject to state income taxes unless you live there. Moreover, pensions are no longer taxable in the state in which you earned the pension if you permanently leave that jurisdiction.

Beware of Email, Telephone Scams Using the IRS Name

Officials caution taxpayers to be aware of scams involving proposed advance payment checks. Although the government has not yet enacted an economic stimulus package in which the IRS provides advance payments, known informally as rebates to many Americans, a scam using the proposed rebates as bait has started.

The goal of the scams is to trick people into revealing personal and financial information, such as Social Security, bank account or credit card numbers, which the scammers can use to commit identity theft. Some examples of scams are listed below.

Rebate Phone Call

Scam: Consumers receive a phone call from someone identifying himself as an IRS employee. The caller tells the targeted victim that he or she is eligible for a sizable rebate for filing his or her taxes early.

Fact: The IRS does not gather the information by telephone.

Refund E-mail

Scam: The IRS has seen several variations of a refund-related bogus email, which falsely claims to come from the IRS, telling the recipient that he or she is eligible for a tax refund for a specific amount.

Fact: The IRS does not send unsolicited email about tax account matters to individuals or businesses.

Audit E-mail

Scam: An e-mail notifies a recipient that his or her tax return will be audited. It may contain a salutation in the body addressed to the specific recipient by name.

Fact: The IRS does not send unsolicited, tax-account related emails to taxpayers.

Paper Check Phone Call

Scam: In a current telephone scam, a caller claims to be an IRS employee who is calling because the IRS sent a check to the individual being called. The caller states that because the check has not been cashed, the IRS wants to verify the individual's bank account number.

Fact: The IRS does not contact taxpayers to verify bank information.

The only official IRS Web site is located at www.irs.gov.

People who have received a questionable email claiming to come from the IRS may forward it to a mailbox the IRS has established to receive such emails, phishing@irs.gov. Those who have received a questionable telephone call that claims to come from the IRS may also use the phishing@irs.gov mailbox to notify the IRS of the scam.

Foreign Bank and Financial Accounts Report (Form TD F 90-22.1)

Each United States citizen, who has a financial interest in or signature authority, or other authority over any financial accounts, including banks, securities, or other types of financial accounts in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship each calendar year by filing TD F 90-22.1 with the Department of the Treasury on or before June 30, of the succeeding year. Since 2004, the Treasury is authorized to assess a penalty of $10,000 for each failure to file a TD F 90-22.1. However, this assessment authority is discretionary, and allows the penalty to be waived if the failure to file or file late is due to reasonable cause. To see a copy of this form and its instructions, go to www.irs.gov/pub/irs-pdf/f90221.pdf.

Important Contact Information

American Citizens Services, U.S. Embassy, Bangkok

Mon-Fri, 0730-1100, 1300-1400 (Closed Last Friday of Each Month)

Tel: 02-205-4049 / Emergency After-Hours, Tel: 02-205-4000

E-mail: acsbkk@state.gov

Web: http://bangkok.usembassy.gov/service.html

American Citizen Services, U.S. Consulate, Chiang Mai

Public Announcements: http://bangkok.usembassy.gov/embassy/wwc/recent.html

Mon-Fri, 0730-1630 (By Appointment only)

Emergency Tel: 053-107-777

E-mail: acschn@state.gov

Web: http://chiangmai.usconsulate.gov/service.html