TAX MATTERS
TAX MATTERS Common Economic Impact Payment Issues in the American Expat Community The COVID-19 pandemic has caused unprecedented stress for communities across the globe. Much needed financial relief has come in various forms. The United States government passed the CARES Act in late March offering several different programmes to American businesses in order to help them withstand the economic crisis. Programmes like the Paycheque Protection Programme (PPP) created a pathway for many businesses to make it through the next few months. Unfortunately, this form of assistance has been largely out of reach for the American expat community due to requirements that eligible businesses be operating within the United States. While American expats may be able to find support in their local communities, another avenue to assistance has been created by the individual Economic Impact Payments, which are available to taxpayers abroad. Since April, the US Treasury has been issuing these payments of $1,200 to eligible Americans. The payment doubles to $2,400 for married couples filing jointly and is increased by $500 for each dependent child under the age of 17. For example, an American family living in the United Kingdom with three young children could expect a total payment of $3,900 from the IRS, provided the eligibility guidelines are met. While the information is continuing to change and some uncertainty remains, we have identified several of the common issues that are impacting American expats who have questions about their eligibility and the steps they must take to secure these benefits.
Am I potentially eligible for the Economic Impact Payment as an American living in the United Kingdom?
Yes. The stimulus payment is available to US citizens and resident aliens with a social security number that is valid for employment in the United States. Incarcerated taxpayers and those who can be claimed as a dependent are ineligible, but there is no requirement that you be living or doing business in the United States. Eligibility is income-tested and subject to a threshold of $150,000 for married taxpayers filing jointly, $112,500 for heads WWW.THEAMERICANHOUR.COM
of household, and $75,000 for all other taxpayers. The payment is reduced by $5 for each $100 of income above these limits. The IRS used information obtained from 2018 and 2019 tax returns to determine eligibility, current address, and applicable banking information. A portal for NonFilers has been launched so that anyone who is not required to file a tax return, but is otherwise eligible for the payment, can provide the necessary information to receive their benefits.
Can I enter my payment details through the “Non-Filer� portal the IRS has established if I am required to file a US tax return but have not done so?
No. If you are required to file a tax return in 2018 or 2019, you are not eligible to use the Non-Filer portal, which is intended for individuals who are not required to file a tax return. In order to receive your payment, you need to file the required US tax returns. If you find yourself in this situation, you may want to consider one of the voluntary disclosure programmes offered by the IRS to individuals who have overlooked their tax and account reporting obligations back in the United States. If you have many years of unfiled tax returns, the Streamlined Compliance Programme may allow you to get back into compliance by submitting the past three years of Federal tax returns and six years of Foreign Bank Account Reports (FBARs). The FBAR is required annually if the combined value of your non-US accounts exceeds $10,000 at some point during the calendar year. No tax is calculated but severe penalties can apply for noncompliance. Eligibility for the Streamlined Programme requires that you submit a statement, signed under penalties of perjur y, that outlines the facts demonstrating why you have acted reasonably in neglecting to file US tax returns and FBARs. Given the multitude of different compliance options available and possible exposure to penalties, consulting a tax advisor to assist you with this process is crucial.
Previously I made an election to file a joint US tax return with my nonresident spouse and we continue to file jointly using an Individual Taxpayer Identification Number (ITIN). Am I still eligible for payment?
Maybe. The IRS has made clear that taxpayers who are otherwise eligible and file jointly with one spouse having an Individual Taxpayer Identification Number (ITIN) will not receive the Economic Impact Payment. However, if you previously made the joint return election but no longer accrue any real tax benefit from filing jointly, filing separately may restore your eligibility. Filing a separate tax return in a year after having made the joint return election would not eliminate your ability to file jointly in future years. Then again, if you do benefit from the additional standard deduction or reduced tax bracket from filing jointly, the additional $1,200 Economic Impact Payment may not be greater than the tax savings produced by the joint return election.
Does the foreign earned income exclusion impact my eligibility for the Economic Impact Payment?
Yes. One nuance of the CARES Act is that eligibility for the stimulus payment is based exclusively on adjusted gross income (AGI) and AGI does not include any excluded foreign earned income. Historically, tax-driven stimulus payments have required Taxpayers to add excluded foreign earned income back to their AGI when determining eligibility. This language is not included in the CARES Act and many American expats with income in excess of the $75,000 threshold have reported receiving the stimulus payment after having elected the foreign earned income exclusion on their 2018 or 2019 tax returns. The IRS has explained that those who received the payment based on their 2018 or 2019 income but would not be eligible based on their current year income, will not be required to repay the benefit. WWW.AMERICANINBRITAIN.CO.UK
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