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June 15 tax filing deadline approaches for taxpayers living and working abroad; Check withholding for 2018

IR-2018-135, June 8, 2018

WASHINGTON — The Internal Revenue Service today reminded taxpayers living and working out of the country that they must file their 2017 federal income tax return by Friday, June 15.

The special June 15 deadline is available to both U.S. citizens and resident aliens abroad, including those with dual citizenship. An extension of time is available for those who cannot meet it. 

Some key points to keep in mind:

Most people abroad need to file

An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income exclusion or the Foreign Tax credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are only available if an eligible taxpayer files a U.S. income tax return.

A taxpayer qualifies for the special June 15 filing deadline if both their tax home and abode are outside the United States and Puerto Rico. Those serving in the military outside the U.S. and Puerto Rico on the regular due date of their tax return also qualify for the extension to June 15. Be sure to attach a statement indicating which of these two situations applies.

Interest, currently at the rate of five percent per year, compounded daily, still applies to any tax payment received after the original April 18 deadline. For details, see the “When to File and Pay” section in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

The IRS is offering penalty and filing relief to many of those subject to the new transition tax on foreign earnings. See IR-2018-131 for details.

Special income tax return reporting for foreign accounts and assets

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

Deadline for reporting foreign accounts

Separate from reporting foreign financial accounts on their tax return, taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2017, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-filing System website.

The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is now the same as for a federal income tax return. This means that the 2017 FBAR, Form 114, was normally required to be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 18, 2018. But FinCEN is granting filers missing the original deadline an automatic extension until Oct. 15, 2018, to file the FBAR. Specific extension requests are not required.

Choose Free File

U.S. citizens and resident aliens living abroad can use IRS Free File to prepare and electronically file their returns for free. This means both U.S. citizens and resident aliens living abroad with adjusted gross incomes (AGI) of $66,000 or less can use brand-name software to prepare their tax returns and then e-file them for free. A limited number of companies provide tax software that can accommodate foreign addresses. A second option, Free File Fillable Forms, the electronic version of IRS paper forms, has no income limit and is best suited to people who are comfortable preparing their own tax return.

Both the e-file and Free File electronic filing options are available until Oct. 15, 2018, for anyone filing a 2017 tax return. Check out the e-file link on IRS.gov for details on the various electronic filing options. Free File is not available to non-resident aliens required to file Form 1040NR.

Automatic extensions available

Taxpayers abroad who can’t meet the June 15 deadline can still get more time to file, but they need to ask for it. Their extension request must be filed by June 15. Automatic extensions give people until Oct. 15, 2018, to file; however, this does not extend the time to pay tax.

An easy way to get the extra time to file is through the Free File link on IRS.gov. In a matter of minutes, anyone, regardless of income, can use this free service to electronically request an extension on Form 4868. To get the extension, taxpayers must estimate their tax liability on this form and pay any amount due.

Another option for taxpayers is to pay electronically and get an extension of time to file. IRS will automatically process an extension when taxpayers select Form 4868 and they are making a full or partial federal tax payment using Direct Pay, the Electronic Federal Tax Payment System (EFTPS) or a debit or credit card. There is no need to file a separate Form 4868 when making an electronic payment and indicating it is for an extension. Electronic payment options are available at IRS.gov/payments.  International taxpayers who do not have a U.S. bank account should refer to the Foreign Electronic Payments section on IRS.gov for more payment options and information.

Combat zone taxpayers get more time without having to ask for it

Members of the military and eligible support personnel serving in a combat zone have at least 180 days after they leave the combat zone to file their tax returns and pay any taxes due. This includes those serving in Iraq, Afghanistan and other combat zones. A complete list of designated combat zones can be found in Publication 3, Armed Forces’ Tax Guide, available on IRS.gov.

Various circumstances affect the exact length of the extension available to any given taxpayer. Details, including examples illustrating how these extensions are calculated, can be found in the Extensions of Deadlines section in Publication 3.

Report in U.S. dollars

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. tax return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.

Both Forms 114 and 8938 require the use of a Dec. 31 exchange rate for all transactions, regardless of the actual exchange rate on the date of the transaction. Generally, the IRS accepts any posted exchange rate that is used consistently. For more information on exchange rates, see Foreign Currency and Currency Exchange Rates.

Expatriate reporting

Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the United States during 2017 must file a dual-status alien tax return, attaching Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service, Philadelphia, PA 19255-0049, by the due date of the tax return (including extensions). See the instructions for this form and Notice 2009-85, Guidance for Expatriates Under Section 877A, for further details.

Check withholding

Taxpayers who owe tax for 2017 can avoid having the same problem for 2018 by increasing the amount of tax withheld from their paychecks. For help determining the right amount to withhold, use the Withholding Calculator on IRS.gov.

More information available

Any U.S. taxpayer living abroad with tax questions can refer to International Taxpayers page on IRS.gov and use the IRS Tax Map and the International Tax Topic Index to get answers.

Taxpayers who are looking for tax return preparers abroad should visit the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

To help avoid delays with tax refunds, taxpayers living abroad should visit the Helpful Tips for Effectively Receiving a Tax Refund for Taxpayers Living Abroad page.

More information on the tax rules that apply to U.S. citizens and resident aliens living abroad can be found in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, available on IRS.gov.