Expat Tax Hoops to Jump Through for 2022

If you live overseas, do you still need to file a tax return? The short answer is: Yes. But when and how you do it may be a little different than what you’re used to.

Every U.S. citizen knows April 15: Tax Day! The regular due date for U.S. citizens to file their U.S. tax return and pay taxes for the previous year.

This April 15 falls on a Saturday. Additionally, Emancipation Day, a legal holiday in Washington D.C., falls on Monday, April 17. Because the Internal Revenue Service (IRS) rolls over the filing and payment due date to the next business day following a holiday or weekend, the due date to file your tax year 2022 Form 1040, U.S. Individual Income Tax Return, and pay tax, is pushed back to Tuesday, April 18, 2023.

If you can’t get your return filed by April 18, it’s still an important date to remember because it is also the last day to file Form 4868, Application for Automatic Extension to File US Individual Income Tax Return. As the form title implies, the extension is automatically granted, but only if you file the form by April 18. If you mail, or electronically file, Form 4868 on time, you get a six-month extension until October 16, 2023, to file your tax return. This Form 4868 extension provides more time to file your tax return, but it does not provide more time to pay your taxes. Your tax amount is still due on the regular due date of April 18, 2023.

But what if you live overseas? U.S. citizens are taxed on their worldwide income—even if they don’t live in the U.S. So whether you moved to Mexico (like I did), Spain, or Thailand, you still need to file a tax return at home in the U.S. I can’t tell you how many expats I’ve met who (falsely) believed that because they were living overseas, they didn’t need to file a tax return. But this can be a costly mistake to make.

The good news for U.S. citizens who live and/or work outside the U.S. on the regular due date (in April) is that they automatically qualify for a two-month tax extension. So this year you have until June 15, 2023 to file a return and pay any tax owed.

If you qualify for this extension, you need to include a statement when you file your Form 1040. The statement can simply say that you are a U.S. citizen who is living outside of the U.S. on the regular due date and that your main place of business is outside the U.S. No additional proof is required. But note that the rule states that you have to live and/or work outside the U.S. to qualify. Scheduling your Mexican beach vacation to include April 15 won’t net you two extra months.

When you live in the U.S., you must file and pay your taxes by the April deadline. If you don’t, late fees and penalties will apply.

So how does that work when you’re overseas and have the two-month extension to file your returns? The IRS will still charge interest on any unpaid tax from the regular (April 15) due date. So, if you file your return by June 15, and pay the entire tax due at that time, you will be charged interest on the tax amount from April 18 to June 15. (Expect to receive a bill in the mail from the IRS for this amount.)

To reduce these extra charges, you can estimate your tax liability using the information that you have and pay that amount with the Form 4868. You can use Form 1040-ES, Estimated Tax for Individuals, and worksheets on the IRS website to help you figure what amount to pay with Form 4868. You can claim credit for the amount paid with Form 4868 when you prepare and file your Form 1040. If you find that you overestimated your taxes and paid more than the actual amount due, the IRS will refund you the difference. If you underpaid, you can pay the additional amount with your Form 1040. The IRS will bill you for any interest.

If you can’t get your return filed by June 15, filing Form 4868 by that date will get you four more months to deal with your taxes. Again, however, your tax would still be due on the June date, and interest will be charged from the April date. To avoid penalties, you should estimate your tax due and pay what you can as soon as you can.

If you live overseas and expect to file Form 2555, Foreign Earned Income, with your Form 1040 because you qualify for the Foreign Earned Income Exclusion (FEIE), but you need more time to satisfy either the bona fide residence or physical presence tests, you do not file Form 4868 to request an extension. Instead, you file Form 2350, Application for Extension of Time to File U.S. Income Tax Return. The FEIE is a great tax benefit for U.S. citizens who live and work outside of the U.S. as it allows these individuals to exclude up to $112,000 of income earned while living in a foreign country from U.S. income tax, even if that income is from a U.S. source.

Unlike the Form 4868, an extension request made on Form 2350 is not automatically granted. You will have to explain to the IRS on the form why you expect to satisfy the requirements to meet the FEIE. The instructions to Form 2350 provide details on how to do this. If the IRS approves your request, it will notify you of your new filing deadline. If the IRS does not approve your request, your Form 1040 is due by the regular April due date, or, if you qualify for the two-month extension, by the June date. There is not a specific due date by which you must file the Form 2350 request, but you should file it in enough time so that if your application is denied, you can get your Form 1040 filed on time.

Similar to the Form 4868, an approved Form 2350 request does not grant you additional time to pay tax. You’ll still owe interest if you don’t pay your tax on time. But again, similar to the Form 4868, you can also estimate your tax and pay it with the Form 2350 to at least reduce these extra charges.

Besides interest, what extra costs are there if you don’t file your return and pay your tax on time? The IRS can assess a penalty if you don’t file your return by the due date, including extensions.

The Failure to File penalty is 5% of the unpaid tax liability, for each month your return is late. As an example, if your return was due on the regular due date in April, and you owed $1,000 in tax, you would be charged $50 for each month the return is late (5% of $1,000 equals $50). If you don’t file your return until August, you’ll have added $200 to your bill ($50 per month times four months). If you had filed your return, or the Form 4868 by the regular due date, you would have avoided this penalty.

If you file your return on time but don’t pay the tax due, the IRS may charge a Failure to Pay penalty. This is less expensive than the Failure to File penalty, only 0.5% of the unpaid tax liability, but it can still add up. Half a percent of $1,000 is an additional $5 per month that will be added to your tax bill. As an additional incentive to get your taxes filed on time, know that the IRS charges interest on the tax due and on the penalty amounts.

If you file your return and pay your tax late, you are subject to both penalties, though the penalties are reduced.

If you have a reasonable explanation for not paying or filing on time, the IRS may waive the Failure to File and Failure to Pay penalties. Valid reasons for failing to file or pay on time may include: an inability to get your records due to a fire, flood, or other natural disaster, or the death, serious illness, or unavoidable absence of the taxpayer or immediate family member.

While no one enjoys paying tax, it’s best to file and pay—and to do it on time. The IRS has a long memory, and they will make you pay for your mistakes.