Reporting foreign income and filing a tax return when living abroad

IRS Tax Tip 2023-36, March 21, 2023

U.S. citizen and resident aliens living abroad should know their tax obligations. Their worldwide income — including wages, unearned income and tips — is subject to U.S. income tax, regardless of where they live or where they earn their income. They also have the same income tax filing requirements as U.S. citizens or resident aliens living in the United States.

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

Taxpayers living outside of the U.S. and Puerto Rico have an automatic extension to file – but not to pay

A taxpayer has an automatic two-month extension to June 15, 2023, if both their tax home and abode are outside the United States and Puerto Rico. Even with an extension, a taxpayer will have to pay interest on any tax not paid by the regular due date of April 18, 2023.

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, 2023. Taxpayers should attach a statement to their tax return if one of these two situations applies. More information is in the instructions for Form 1040 and Form 1040-SR, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad and Publication 519, U.S. Tax Guide for Aliens.

Reporting requirement for foreign accounts and assets

Federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts.

• Schedule B (Form 1040), Interest and Ordinary Dividends – In most cases, affected taxpayers attach Schedule B to their federal return to report foreign assets. Part III of Schedule B asks about the existence of foreign accounts such as bank and securities accounts and usually requires U.S. citizens and resident aliens to report the country in which each account is located.
• Form 8938, Statement of Foreign Financial Assets – Some taxpayers may also need to attach Form 8938 to their return to report specified foreign financial assets if the total value of those assets exceeds certain thresholds. The instructions for this form have the details.

People must also report foreign assets of $10,000 or more to the Treasury Department

U.S. persons with an interest in or signature or other authority over foreign financial accounts where the total value exceeded $10,000 at any time during 2022 must also file a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR) with the Treasury Department.

The form is available only through the BSA E-filing System website.

The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is April 18, 2023. U.S. persons who miss the April deadline have an automatic extension until Oct. 16, 2023 (as October 15 is a Sunday), to file the FBAR. FinCEN’sPDF website has the details.