Moving to another country is a dream for many, if not all. But to have that transition go smoothly, there are so many aspects one must keep in mind before they decide to move out of their home country into another.
But there’s one aspect of moving to another country that most Americans do not know much about, nor do they have on their urgent checklist is? It is the expatriate taxes and the ex-pat tax they owe their country when they move out.
If this is the first time you’ve heard about it, don’t worry, we get it. That is exactly why we have compiled a list of things you need to be mindful of. As an American living abroad, you should know about your expatriate taxes, and how you can pay them.
IRS and Expat Tax Services
Before we get into other details, let’s start by talking about what an ex-pat is.
The word “ex-pat” or “expatriate” can have different meanings in different contexts. We’re particularly talking about US ex-pats living anywhere in the world. However, an ex-pat tax is applicable solely to former American citizens/residents who have given up on their citizenship to move to another country permanently.
According to the IRS, an expatriate tax is applicable on ex-residents of the US who have renounced their US citizenship. Under certain conditions, it also becomes applicable to ex-residents of the United States who have been living abroad for longer periods of time and have ended their citizenship for federal tax purposes (to stop filing the US tax returns).
This is just the general definition of an expatriate that is eligible to pay taxes. Following are some of the rules that must be considered before starting paying ex-pat taxes:
- Your average annual net income tax for the past five years before the date of expatriation is more than a species that is adjusted for inflation. We advise checking the latest details on ex-pats on IRS’s official website.
- Your net worth is over 2 million dollars on the date of your termination of residency.
- You’ve failed to certify on Form 8854 that you’ve been adhering to all US federal tax obligations for the past five years.
We advise visiting the official IRS website and consulting a tax lawyer for further details.
What Happens If You Don’t Pay Any Expat Taxes?
If you meet all the requirements and you fail to file your (FBAR), you can be fined 50% of all the balance in your overseas accounts.
If you fail to file FATCA Form 8938, you can be fined anywhere between $10,000 and $50,000.
Remember, these are compounding penalties. This means that if you end up willfully ignoring the notices from FinCEN and IRS for around ten years, you could owe up to $500,000 in fines. You may also lose your passport and end up facing jail time.
Everybody knows the tax laws in the US are strict; now you know why.
How Do I Go About Paying My Expat Taxes?
As an American ex-pat, you’ll be required to file your taxes each year. Before you stress about booking a flight and returning for the deed, you should know that there are several ways to pay these taxes, both offline and online.
EFTPS (Electronic Federal Tax Payment System) is an excellent platform where you can satisfy your IRS’s tax debt online.
If all this seems overwhelming, you can simply consult your tax lawyers or contact firms that specialize in dealing with ex-pat taxes.
Summing Up: What Else Should I Know About as an American Expat?
If you want to avoid penalties, we suggest paying your due taxes at your earliest. In case you’re short on funds for some reason, you can go for a partial payment. Any payments that are paid after April 18 are subject to penalties.
So, you see, even if you have a small amount to spare, you should pay it at once to minimize the interests and any future penalties.
Lastly, these are a few more things you should be mindful of:
- If you’re a green card holder or married to an American with a joint income of over $25,100, you’ll be eligible for taxes as an ex-pat.
- If you’re single with an income over $12,550 anywhere in the world, you’re eligible to pay.
- If you’re a freelancer and your annual income exceeds $400, you’ll need to file your tax return.
- If you’re married to a non-American and your net annual income is over $5, you’ll need to file your tax returns. ($5 is a typo).
The details of these taxes are endless. The best way you can minimize the hassle is by outsourcing the details to the tax service.not