Questions and Answers

This section answers tax- related questions commonly asked by taxpayers living abroad.

Filing Requirements - Where, When, and How

1) When are U.S. income tax returns due?

Generally, for calendar year taxpayers, U.S. income tax returns are due on April 15. If you are a U.S. citizen or resident and both your tax home and your abode are outside the United States and Puerto Rico on the regular due date, an automatic extension is granted to June 15 for filing the return. Interest will be charged on any tax due, as shown on the return, from April 15.

2) Where do I file my U.S. income tax return?

If you claim the foreign earned income exclusion, the foreign housing exclusion, the foreign housing deduction, or an exclusion of income for bona fide residents of American Samoa, and you are not making a payment, you should file your return with the:

Internal Revenue Service Center

Philadelphia, PA 19255-0215.

If you are not claiming one of the exclusions or the deduction, but are living in a foreign country or U.S. possession and have no legal residence or principal place of business in the United States, you should send your return to the address shown above.

If you are not sure of the place of your legal residence and have no principal place of business in the United States, you also can file with the Philadelphia Service Center. However, you should not file with the Philadelphia Service Center if you are a bona fide resident of the Virgin Islands or a resident of Guam or the Commonwealth of the Northern Mariana Islands on the last day of your tax year. See the discussion in chapter 1.

3) I am going abroad this year and expect to qualify for the foreign earned income exclusion. How can I secure an extension of time to file my return, when should I file my return, and what forms are required?

a) You should file Form 2350 by the due date of your return to request an extension of time to file. Form 2350 is a special form for those U.S. citizens or residents abroad who expect to qualify under either the bona fide residence test or physical presence test and would like to have an extension of time to delay filing until after they have qualified.

b) If the extension is granted, you should file your return after you qualify, but by the approved extension date.

c) You must file your Form 1040 with Form 2555 (or Form 2555-EZ).

4) My entire income qualifies for the foreign earned income exclusion. Must I file a tax return?

Generally. Every U.S. citizen or resident must file a U.S. income tax return unless total income without regard to the foreign earned income exclusion is below an amount based on filing status. The income levels for filing purposes are discussed under Filing Requirements in chapter 1.

5) I was sent abroad by my company in November of last year. I plan to secure an extension of time on Form 2350 to file my tax return for last year because I expect to qualify for the foreign earned income exclusion under the physical presence test. However, if my company recalls me to the United States before the end of the qualifying period and I find I will not qualify for the exclusion, how and when should I file my return?

If your regular filing date has passed, you should file a return, Form 1040, as soon as possible for last year. Include a statement with this return noting that you have returned to the United States and will not qualify for the foreign earned income exclusion. You must report your worldwide income on the return. If you paid a foreign tax on the income earned abroad, you may be able to either deduct this tax as an itemized deduction or claim it as a credit against your U.S. income tax.

However, if you pay the tax due after the regular due date, interest will be charged from the regular due date until the date the tax is paid.

6) I am a U.S. citizen and have no taxable income from the United States, but I have substantial income from a foreign source. Am I required to file a U.S. income tax return?

Yes. All U.S. citizens and resident aliens, depending on the amount of the foreign source income, are subject to U.S. tax on their worldwide income. If you paid taxes to a foreign government on income from sources outside the United States, you may receive a foreign tax credit against your U.S. income tax liability for the foreign taxes paid. Form 1116 is used to figure the allowable credit.

7) I am a U.S. citizen who has retired, and I expect to remain in a foreign country. Do I have any further U.S. tax obligations?

Your U.S. tax obligation on your income is the same as that of a retired person living in the United States. (See the discussion on filing requirements in chapter 1 of this publication.)

8) I have been a bona fide resident of a foreign country for over 5 years. Is it necessary for me to pay estimated tax?

U.S. taxpayers overseas have the same requirements for paying estimated tax as those in the United States. See the discussion under Estimated Tax in chapter 1.

Overseas taxpayers should not include in their estimated income any income they receive that is, or will be, exempt from U.S. taxation.

Overseas taxpayers can deduct their estimated housing deduction in figuring their estimated tax.

The first installment of estimated tax is due on April 15 of the year for which the tax is paid.

9) Will a check payable in foreign currency be acceptable in payment of my U.S. tax?

Generally, only U.S. currency is acceptable for payment of income tax. However, if you are a Fulbright grantee, see the discussion under Fulbright grants in chapter 1.

10) I have met the test for physical presence in a foreign country and am filing returns for 2 years. Must I file a separate Form 2555 (or Form 2555-EZ) with each return?

Yes. A Form 2555 (or Form 2555-EZ) must be filed with each Form 1040 tax return on which the benefits of income earned abroad are claimed.

11) Does a Form 2555 (or 2555-EZ) with a Schedule C or Form W-2 attached constitute a return?

No. The Form 2555 (or 2555-EZ), Schedule C, and Form W-2 are merely attachments and do not relieve you of the requirement to file a Form 1040 to show the sources of income reported and the exclusions or deductions claimed.

12) On Form 2350, Application for Extension of Time To File U.S. Income Tax Return, I stated that I would qualify under the physical presence test. If I qualify under the bona fide residence test, can I file my return on that basis?

Yes. You can claim the foreign earned income exclusion and the foreign housing exclusion or deduction under either test as long as you meet the qualification requirements. You are not bound by the test indicated in the application for extension of time. You must be sure, however, that you file the Form 1040 return by the date approved on Form 2350, since a return filed after that date may be subject to a failure to file penalty.

If you will not qualify under the bona fide residence test until a date later than the extension granted under the physical presence rule, apply for a new extension to a date 30 days beyond the date you expect to qualify as a bona fide resident.

13) I am a U.S. citizen who worked in the United States for 6 months last year. I accepted employment overseas in July of last year and expect to qualify for the foreign earned income exclusion. Should I file a return and pay tax on the income earned in the United States during the first 6 months and then, when I qualify, file another return covering the last 6 months of the year?

No. You have the choice of one of the following two methods of filing your return:

a) You can file your return when due under the regular filing rules, report all your income without excluding your foreign earned income, and pay the tax due. After you have qualified for the exclusion, you can file an amended return, Form 1040X, accompanied by Form 2555 (or 2555-EZ), for a refund of any excess tax paid.

b) You can postpone the filing of your tax return by applying on Form 2350 for an extension of time to file to a date 30 days beyond the date you expect to qualify under either the bona fide residence test or the physical presence test, then file your return reflecting the exclusion of foreign earned income. This allows you to file only once and saves you from paying the tax and waiting for a refund. However, interest is charged on any tax due on the postponed tax return, but interest is not paid on refunds paid within 45 days after the return is filed. (If you have moving expenses that are for services performed in two years, you can be granted an extension to 90 days beyond the close of the year following the year of first arrival in the foreign country.)

14) I am a U.S. citizen. I have lived abroad for a number of years and have only recently realized that I should have been filing U.S. income tax returns. How do I correct this oversight in not having filed returns for these years?

File the late returns as soon as possible, stating your reason for filing late. For advice on filing the returns, you should contact either the Internal Revenue Service representative serving your area or the Internal Revenue official who travels through your area (details can be obtained from your nearest U.S. consulate or Embassy). You can also write to the Internal Revenue Service, International Section, P.O. Box 920, Bensalem, PA 19020-8518.

15) In 1997, I qualified to exclude my foreign earned income, but I did not claim this exclusion on the return I filed in 1998. I paid all outstanding taxes with the return. Can I file a claim for refund now?

It is too late to claim this refund since a claim for refund must be filed within 3 years from the date the return was filed or 2 years from the date the tax was paid, whichever is later. A return filed before the due date is considered filed on the due date.

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