Do I have a US Tax Filing Requirement?

If you are a US citizen, a Green Card holder, or a US resident, then it is likely that you will have a US tax return filing requirement if your income is above a certain threshold. The threshold is dependent on your filing status and your age.

The United States levies tax on its citizens and residents on their worldwide income and gains and is one of only a few countries that taxes its citizens no matter where they live in the world.

Even non-US citizens/residents (more commonly known as ‘non-resident aliens’) cannot escape the US tax system if they have US sourced income or income effectively connected with a US trade or business (subject to certain exceptions).

As well as income tax return filing requirements, there are other informational reporting forms for US persons to consider. These forms have separate filing thresholds and may still need to be filed even if a US person is below the income tax filing threshold.

For example:

• The Report of Foreign Bank and Financial Accounts, ‘FBAR’ – this form is filed with FinCEN, the U.S. Treasury Department’s Financial Crimes and Enforcement Network, and reports the highest balances of a US person’s foreign (non-US) financial accounts. The threshold to file the FBAR is if the aggregate of all highest balances in the year exceeds $10,000.

• A Form 3520 ‘Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts’ would need to be filed if a US person receives a gift with a value of at least $100,000 from certain foreign persons or estates.

• A Form 709 ‘US Gift tax return’ would be due if a US person made gifts totalling more than $16,000 to each done during the calendar year. This threshold increases to $164,000 for gifts made to spouses who are not U.S. citizens.

The IRS can implement harsh penalties for the non-compliance of income tax returns and informational reporting forms. If you are an ‘accidental American’ i.e. you did not realise you were a US person for tax purposes, or a were not aware of your filing obligations as a US citizen living overseas, or you have simply fallen behind with filing your returns, it may be possible to submit your returns under Streamline Filing Compliance Procedures to mitigate late filing penalties. This program is available to taxpayers who are not compliant with their US reporting requirements or need to amend their tax returns to include undisclosed income or gains, and this was not due to wilful conduct. Filing under Streamline Filing Compliance Procedures usually involves submitting three years of completed Federal tax returns and 6 years’ worth of Foreign Bank Account Reports.

The US tax system and reporting obligations can be complex. If you are not sure of your US filing obligations, please contact the US tax team at Farnell Clarke and they will be happy to assist.