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PRESENTED BY GREENBACK EXPAT TAX SERVICES

What’s next for Americans who are behind on their taxes?

Behind on your taxes? Here’s how you can get caught up.

Published: 5 April 2018 08:52 CEST
Updated: 17 July 2019 13:38 CEST
What's next for Americans who are behind on their taxes?
Photo: 401kcalculator.org/Flickr

Many Americans who live abroad don’t realise that retaining their American citizenship means retaining their tax-filing responsibility – forever. The IRS offers various amnesty programs to help unwitting taxpayers become tax compliant without getting ensnared in penalties and charges that apply to those evading taxes with criminal intent. However, last year, the IRS terminated the OVDP (Offshore Voluntary Disclosure Program). So, many expats have been left wondering which programs they can still take advantage of, and how long those programs will be available.

What are the amnesty programs, and why were they initiated?

The two main options for expats who were behind on their taxes were the Streamlined Filing Procedures and the OVDP. The OVDP was designed for individuals who were intentionally hiding assets overseas and not reporting them to the IRS; the intent being to give them a way to come into compliance, pay some stiff penalties, but avoid criminal prosecution. 

The main difference between the OVDP and the Streamlined Filing Program was based on intent. Did you intend to hide or not report your accounts to the IRS or was the omission unintentional?

Click here to work with an accountant who specializes in expat taxes

The Streamlined Filing Procedures, on the other hand, are intended for individuals who did not know they were required to file US taxes while living abroad, so they are able to become compliant while also avoiding the vast penalties under the OVDP. If you are several years behind on your taxes and were unaware of the filing requirements, this program is likely the right choice. Expats who use this program have all late-filing and FBAR penalties waived. 

To use the Streamlined Filing Procedures to become compliant, expats are required to include a signed statement (Form 14653) certifying the fact that they did not know about the tax-filing requirements, that they are eligible to use the amnesty program, and that the requisite FBAR forms have also been filed. Also, expats will need to file FBAR for all required years, even if they didn’t meet the $10,000 threshold that triggers the requirement. 

Recently, the IRS unveiled a new amnesty program called the Updated Voluntary Disclosure Program (UVDP). This program is still new, and though the details are being sorted out, the general idea is the same as the OVDP. The new program can be used for domestic or international disclosures, but taxpayers must receive pre-clearance to use this program, and the penalties have increased quite a bit. However, the UVDP offers the same protection from prosecution as did the OVDP, and that protection is not provided to taxpayers who use the Streamlined Filing Procedures. 

As a last resort, taxpayers who do not reach an agreement with the IRS through the updated voluntary disclosure program have the right to use the appeals process through the IRS Office of Appeals. The downside to this option is that it is unclear if those who use the appeals process will still be protected from criminal charges through the disclosure program.

What does the future hold for the amnesty programs?

As of now, there are no indications that any change to the Streamlined Program will happen or that it will end in the near future. But, the amnesty programs that the IRS offers are typically for a limited time, and the fact remains that the program could be close at any time. The closure of the OVDP could signal the IRS’ intent to close the program at some point. For those not in compliance with US tax filings, the best option is to become compliant now to avoid a much more difficult time with the IRS in the future. 

Hopefully, should the Streamlined Filing Procedures ever be terminated, the IRS will also give a significant amount of advance notice – six months or more. Finding all the records needed to file a tax return accurately and to become compliant using Streamlined Filing Procedures can be very difficult, as it requires three years of delinquent Federal Tax Return filings and up to six years of Foreign Bank Account Reporting (FBAR).

What are the other implications?

In 2015, Congress passed the Fixing America’s Surface Transportation Act (the FAST Act), which allows the State Department to deny new passport applications and revoke existing passports in certain situations where the taxpayer is behind on their taxes. 

In a worst-case scenario, the IRS, the Treasury, and the State Department could begin targeting individuals who are behind on their taxes or not reporting foreign bank accounts via FATCA and then deny or revoke their US passport. 

The knock-on impact for US expats could be huge – if your host country Visa is linked to a US passport and that passport gets revoked that could lead to deportation!  

Click here to work with an accountant who specializes in expat taxes

What are the 2019 deadlines?

Taxpayers behind on their reporting should understand the deadlines. 

The US tax deadline and the deadline for FBAR is April 15th (unless Tax Day falls on a weekend or holiday). However, expats living abroad on the due date receive an automatic extension to June 15th for the Federal Tax Returns (June 17th in 2019), and an automatic extension to October 15th for the FBARs. If expats file for an additional extension, the final deadline for the tax returns is October 15th. Keep in mind that interest will accrue on any taxes owed beginning April 15th.

Though those are the deadlines, if you are behind, you are in good company. Many expats who did not realise they were obligated to file are several years late on their tax returns. There’s no reason to panic – simply work with an accountant who specializes in expat taxes, and you will be caught up in no time.

What should expats do?

The government has undergone many changes since the original OVDP was launched in 2009 and the Streamlined Program in 2012. With both programs being revised, this could indicate that the IRS is moving away from a more lenient amnesty phase. 

It's more important than ever to become compliant or truly understand the risks if you don’t. If you plan to take advantage of the amnesty programs, do it before they go away.

What about tax reform?

With the sweeping changes that came with tax reform, many expats are wondering how their taxes will be affected. In fact, a recent survey showed that 54 percent of expats did not know if they would owe more or less tax after the passage of the Tax Cuts and Jobs Act. Further, 58 percent were not confident in their understanding of how tax reform impacts them. Though business owners and expats in specific financial situations have experienced some changes, for the most part, the tax reform left expat taxation alone.

Do you have specific questions about your expat taxes?

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Greenback accountants specialize in expat tax issues and can help you become tax compliant, minus the stress. Get started with Greenback today!

This article was produced by The Local Client Studio and sponsored by Greenback Expat Tax Services.

 

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TAXES

Should I include my grown-up child in my French tax declaration?

Young adult children are often still financially dependent on their parents, and under some situations you can continue to claim them on your French tax declaration.

Published: 13 May 2024 13:16 CEST
Should I include my grown-up child in my French tax declaration?

As soon as a child reaches the age of majority – 18 in France – they are, in principle, subject to personal income tax and should file their own tax returns, even if they do not receive any income. 

But at this age many children still live in the family home, or are studying at university and are likely still financially dependent on their parents.

The good news is that, if a child is still dependent on their parents’ financial support, they can be included in the tax household, which leads to a number of tax benefits, depending on your situation.

This includes adult children away at university, who – for tax purposes – may still be considered to be dependent and ‘living at home’, even if they are away studying at the other end of the country.

If you are not sure whether you need to add an adult child to your tax return, officials at your local tax office will be able to help you.

READ ALSO Tax benefits of having children in France

When can you include your adult child on your French tax return?

A child over the 18 may be attached to their parents’ 2023 tax return (declarable in 2024) in the following cases:

  • your child was under 21 on January 1st, 2023;
  • your child was under 25 years of age on January 1st, 2023, and in full-time education either on January 1st, 2023 or December 31st, 2023.
  • Disabled children over the age of majority can be included on their parents’ tax declaration regardless of age.

If your adult child lives with you and is attached to your tax household, you can deduct a lump sum of €3,968 from your income on your declaration for 2023 earnings. According to the tax authorities, this amounts to the cost of board and lodging.

READ ALSO Explained: How to fill out the French tax declaration

“When the child’s accommodation covers only a fraction of the year, this sum must be reduced in proportion to the number of months concerned (…) Even if it is a lump sum, the amount deducted must be declared by the beneficiary”, the tax authorities’ website states.

Be aware, however, in situations where the parents are taxed separately (for example, if they have divorced), an adult child who is still financially dependent can only be attached to one or other tax household, not both.

How do I add an adult child to my tax declaration?

Since the introduction of the prélèvement à la source (withholding tax), you can add your child to your tax household online in your personal space on the impots.gouv.fr website by clicking on Actualiser suite à une hausse ou une baisse de revenus in the Gestion mon prélèvement à la source section.

READ ALSO: How to file your 2023 French income tax declaration

You also need to report it on the annual tax return, in the box provided for this purpose, section D on page 2.

If you prefer, you can also visit your nearest tax office, where officials will help you.

What you need to declare

If your adult child is attached to your tax household, parents must declare on their tax return any income that child received for the entire year (that’s income from 2023 on tax returns filed in Spring 2024).

READ ALSO EXPLAINED: How to get a ‘numéro fiscal’ and create a French tax account

The following incomes are exempt from income tax:

  • internship allowances and apprentices’ salaries, provided they do not exceed the annual minimum wage (€20,815 for income earned in 2023). Any amount earned over this is taxable;
  • Salaries of students aged 25 or under working student jobs, up to an annual limit of three times the monthly SMIC (€5,204 for income earned in 2023). Any amount earned over this is taxable.

What about student grants or scholarships – should we declare those?

That depends on the type of grant or scholarship. 

Specific research scholarships, for example, should be declared, but bourses allowing children from lower-income families to attend further education establishments should not. 

READ ALSO 10 tax breaks you could benefit from in France

If you are unsure whether you should declare a grant or scholarship, you can find out more according to your specific situations here, or visit your local tax office.

Financial aid for children on low income

Even if your child lives on their own and files their own returns, parents who provide monthly financial assistance to adult children up to the age of 25 can declare the sums paid up to a limit of €6,368 per year. This aid is fully deductible, but must be declared on your adult child’s tax return.

“You must keep all receipts for expenses, as they may be requested by tax authorities. If the parents are taxed separately, each parent can deduct expenses up to this limit,” the tax office website says.

Try it out

You can simulate calculations for your 2024 tax return, with and without any adult children added, using the tax office simulator.

READ ALSO How much tax can you expect to pay in France in 2024?

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