News for Americans Abroad


Tax and Banking

Child Tax Credit and Expatriates

By Olga Kocybik (AIWC Düsseldorf)FAWCO

If you are a US citizen or resident alien living outside the United States, even though you may not owe any US tax,
you generally are required to file US income tax returns, estate tax returns, and gift tax returns. 
If you have an
interest in, or signature or other authority over, non-US financial accounts whose aggregate value exceeded
$10,000 at any time during the year, you generally must file an FBAR, regardless of whether you have to
file other returns.

The Child Tax Credit (CTC) is up to $2,000 per child per year with $1,400 refundable portion. That being said, provided no tax is owed to the IRS, the parent(s) would be able to receive a payment of $1,400 per child. The new income thresholds are:

  • $200,000 for single, head of household, and married filing separately; and,
  • $400,000 for married filing jointly.

In addition, the refundable portion of the NEW credit cannot be greater than 15% of your earned income which exceeds $2,500. For example, if you earned $11,000, your refundable portion is limited to $1,275 ($11,000 less $2,500 times 15%). Other limitations and reductions of the credit exists but they are unlikely to apply to those living abroad.

Additional rules for expatriates

And as with everything else out there, there are some exceptions and special guidelines as to how the tax rules apply to expatriates:

  1. A taxpayer MUST have earned income in order to claim CTC. Those who currently use the Foreign Earned Income Exclusion and exclude all their income will not be eligible. A solution would be to revoke the Foreign Earned Income Exclusion election and start filing using the Foreign Tax Credit method instead. The change of methods should be analysed in detail as other factors may contribute to increasing your U.S. tax liability; and
  2. For those with foreign spouses, the definition of the “Support Test” requirement mentioned earlier extends to the child’s financial support provided by the other spouse. In essence, the filer of the U.S. tax return should be able to provide at least half of the financial support for the child in question.

What if you were eligible for the CTC all these years but have not filed your returns?

You may still make up for the lost opportunity. But keep in mind that the IRS has the three- and two-year statutes of limitations. If you have already filed but wish to change your return, such amended must be filed within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later. If NO return was filed, the statute of limitations is 2 years from the time the return was due including extensions. To illustrate, if you have not filed but was eligible to receive the CTC refund for 2016, you have until April 15, 2019 (2 years from the due date of the 2016 return or April 15, 2017) to file the 2016 return and obtain the CTC. 

In applying the provisions of this and any other tax article, it is important to understand the impact of applicable tax laws will vary between individual taxpayers.  

Please consult your tax adviser to determine how the tax laws discussed may affect your particular US tax situation. 

Citizenship

Is It Time for Medicare?

Dates often slip by for those who live outside the US. However, if you are approaching your 65th birthday, it’s the time to consider signing up for Medicare.  Although Medicare does not typically cover medical costs incurred while living abroad, there are several things to consider:  whether you plan to return to the US, whether you (or your spouse) are working outside of the US and provided health insurance by an employer, and the potential costs of premium penalties for late enrollment.    

The sign-up period is no sooner than three months prior to your 65th birthday and the three months after your 65th birthday; in other words you have about a six-month window.  For example, if your birthday is May 20, the original enrollment period would be February 20 through August 19. It takes 4 to 6 weeks to process the enrollment application. 

If you miss the enrollment period, then you would need to enroll in the General Enrollment Period (GEP) of January 1 - March 31, with coverage becoming effective on July 1 of that year. Some people will be able to enroll at the end of their previous insurance coverage right away, but they need to check with Medicare. Always remember that it will take several weeks minimum to process an application once it is received by Medicare. There may be exceptions in individual cases, but again, check with Medicare directly, so there are no lapses in insurance coverage.

Normally, you can sign up online through the Social Security Administration website, www.ssa.gov, but if you reside overseas, you should phone your closest overseas SSA office and you can be enrolled over the phone. Not all Consular posts have SSA offices. For example, I live in the United Arab Emirates and was registered by phone from a representative in Rome.

For those who have already registered for Social Security benefits, you may have been registered for Medicare Part A benefits. There is no charge for Part A, if you have paid into social security a minimum of 40 quarters.

Part B and other sections of Medicare will likely charge a fee; currently the minimum fee for Part B is $135/month. You may want to have Part B if you ever plan to move back to the US or frequently visit.  If you fail to register on time for Part B, you may incur premium penalties and gaps in coverage when you move back to the U.S and apply at a later date.  

Please refer to www.ssa.govwww.ssa.gov/foreign/foreign.htm and www.medicare.gov for information and instructions.


US Liaison: Johanna Dishongh  This email address is being protected from spambots. You need JavaScript enabled to view it.

American Citizens Abroad aca thumb

April 2019 submitted by Dale Finlayson


Taxes


The April 15th tax deadline for filing 2018 tax returns is looming. Expat filers get an automatic extension to June 15th – but if you owe any tax, you must pay by the April deadline or face a late-payment penalty. And under the new tax legislation (I learned at the FAWCO conference), anyone earning more than $5 – yes, you read that right, FIVE DOLLARS! – during the tax year must file a return. And “earnings” includes bank interest. So in effect, every expat must file. A further extension to October 15th must be submitted by June 15th by filing IRS Form 4868. Once filed, you’ll automatically be granted an extension to October 15th. The deadline for filing the FBAR (Form FinCEN 114 via the BSA e-filing system) is automatically extended to October 15th and no extra forms need to be filed. But keep in mind that interest will continue to accrue on any money you owe the IRS.


Voting


ACA advises US citizens living overseas that voter suppression (including purges of the voter rolls) in about half of the states makes registering to vote each year more important than ever before. Preserve your right to vote! State primaries will be starting soon and you can vote from overseas for national office-bearers. Don’t miss out – 2020 will be an important election year!
As the AWCCS is a member of FAWCO, we ask our members to register to vote through their website. The US (formerly Overseas) Vote Foundation is withdrawing support for the link to the FAWCO website (an alternative is being sought), because so few members linked to it register to vote. For the moment, it is still available on the FAWCO website and the more FAWCO members who register via the website, the greater FAWCO’s credibility when lobbying in Washington during the annual Washington Week.


ACA and Tax reform


American Citizens Abroad was asked to contribute to the US Government Accountability Office’s (GAO) report on the implementation of the Foreign Account Tax Compliance Act (FATCA) and its effects on US persons living overseas. Important summary conclusions were that close to 75% of taxpayers reporting foreign assets to the IRS also reported them separately to the Treasury – indicating potential unnecessary duplication; and that some Americans living abroad can’t get services from foreign banks that find the law too burdensome.

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