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Top Coronavirus Tax Changes for American Expats Living Abroad

The events of the Coronavirus (COVID-19) pandemic are unlike any we have ever seen before. The outcome of the crisis will play out in our memories and our history books. While the Coronavirus has impacted everyone around the globe, Americans abroad need to stay updated on important changes to tax rules, as well as travel and safety advisories. In this article, you’ll learn about all the major tax changes brought on by the Coronavirus pandemic, including expat tax credits, deadlines, stimulus payments, and small business relief.

Quick Facts: Top Coronavirus Tax Changes for US Expats

  • If you returned to the US due to the Coronavirus pandemic but had planned to stay abroad, you can still claim the Foreign Earned Income Exclusion (FEIE).

  • Americans abroad are eligible for Coronavirus stimulus payments. The best way to receive yours is via direct deposit to a US bank account.

  • You must have filed your US expat tax return for your 2018 or 2019 income to receive a stimulus check.

  • Tax filings and payments are now due July 15, 2020 for all Americans, including those living abroad.

  • If you think you may be owed a refund, file early to receive your refund in as little as 21 days.

  • Tax credits and loans may help small businesses offset the economic impact of the COVID-19 Emergency.

  • Greenback is committed to helping Americans abroad weather this crisis by providing critical safety information, financial news, and tax-savings advice. Our 100% remote team will continue to provide the most up-to-date facts and recommendations.

New Tax Rules for the Foreign Earned Income Exclusion During the COVID-19 Emergency

As Coronavirus safety concerns and travel bans increased, some Americans living abroad decided to return to the US. Many had intended to stay abroad but cut their plans short because of the pandemic. Taking into account these unique circumstances, the IRS decided to adjust the requirements to qualify for the Foreign Earned Income Exclusion.


Under the revised rules, if you reasonably expected to meet the eligibility requirements of the FEIE during 2019 or 2020 but failed to do so because of the Coronavirus pandemic, you can still claim the tax exclusion. However, you must have left your country of residence within a specified date range. The date range is determined by when the period of adverse conditions began in different regions.


Therefore, you can still qualify for the FEIE if you left these regions after the dates below:

  • December 1, 2019 for the People’s Republic of China (excluding the Special Administrative Regions of Hong Kong and Macau)

  • February 1, 2020 for all countries

The period for this exception will end on July 15, 2020, unless the Treasury Department and IRS choose to extend it. This means that, if you left China between December 1, 2019 and July 15, 2020, you could still qualify as physically present or a bona fide resident—so long as you expected to meet the requirements if not for the COVID-19 Emergency.


The CARES Act: Coronavirus Relief for Americans Abroad

The US government has passed into law a $2 trillion stimulus package to address the broad economic impact of the Coronavirus pandemic. The stimulus, called the the Coronavirus Aid, Relief, and Economic Security (CARES) Act, includes:

  • Direct payments to Americans

  • Expanded healthcare funding

  • Unemployment benefits

  • Aid for contractors and ‘gig’ workers

  • Interest-free business loans

  • Funds for the evacuation of Americans–which may be used

How CARES Act Stimulus Payments Will Work for Americans Abroad

Americans living abroad will qualify for aid, including direct payments. Because income levels will determine the amount of relief money individuals receive, you’ll want to be up-to-date on your tax filings to make sure you get the correct payment. Here’s how stimulus payments will work:


How Much Money Will I Receive?

  • Single Americans with income less than $75,000 will get $1,200.

  • For individuals with incomes over $75,000, payments will reduce by $5 for every $100 in income above $75,000.

  • Those making more than $99,000 will not receive payments.

  • These thresholds and payments are doubled for married couples.

  • Parents will get a $500 payment for each child under age 17, regardless of income.

How Will the IRS Calculate My Payment?

If you’ve filed it, income will be based on your 2019 tax return. If you have not, your payment will be based on your 2018 income.


How Will I Receive My Payment If I’m Abroad?

Mainly, payments will be delivered via direct deposit to US bank accounts. If you’ve set up direct deposit when filing a previous tax return, you’re all set.


For those who have not set up direct deposit with the IRS—including those who are not required to file a tax return—you can provide your banking information on the IRS website.


Because you will need a US bank account, setting up direct deposit may be more challenging for Americans living abroad. If you don’t have a US bank account, you may want to consider a State Department Federal Credit Union (SDFCU) checking account, which is available with ACA membership.


When Will Stimulus Payments Be Sent?

In April, Americans abroad and in the US began to receive stimulus payments via direct deposit. However, because the IRS has not provided a schedule for payments, the order in which they are being distributed is unclear.


What If I’m Behind on My US Expat Taxes?

Consult with an accountant to file your 2018 and 2019 tax returns as soon as possible. To make sure taxpayers have ample time to file accurately, stimulus payments will be available throughout 2020. However, working with a professional can help you file quickly to get benefits sooner and cross taxes off your to-do list.


Changes to the IRS Tax Deadlines Due to Coronavirus

In response to the growing concern over the Coronavirus (COVID-19) pandemic, the IRS announced on March 21st that it had extended the deadline for Federal income tax returns from April 15, 2020 to July 15, 2020.  All taxpayers—including individuals, trusts and estates, corporations, and those who pay self-employment tax—can defer payments penalty-free until the new deadline regardless of the amount due.


IRS will automatically provide this relief to taxpayers. You do not need to file any additional forms or call the IRS to qualify for the extended tax payment deadline.


Why You Should Still File Early

Despite the new deadline, the IRS encouraged taxpayers who are owed a refund to file as early as possible so they can get access to these funds quickly. The IRS has made it a priority to continue accepting returns and processing refunds. Currently, most refunds are processed within 21 days. With many Americans at home and abroad concerned about finances in the current environment, a tax refund may bring significant relief and peace of mind.


List of New US Tax Deadlines for 2020

Here’s a list of regular tax deadlines and how they have been impacted by the IRS’s response to the Coronavirus pandemic:


April 15th: Regular US Tax Deadline –  This is normally when taxes are due. However, due to the Coronavirus pandemic, the Secretary of Treasury has extended the date to July 15th.


June 15th: Regular Extension for Americans Abroad – Typically, expats receive an automatic two-month extension on their US filings. However, due to the coronavirus pandemic, the IRS has extended this deadline to July 15th as well. Note that both the tax filing and tax payments are now due on July 15th.


July 15th: New 2020 Tax Deadline for All Americans – This is the new US tax deadline for Americans living in the US and abroad. Normally, if taxes due to the IRS are not paid by April 15th, interest accrues and/or penalties can be assessed. With the breaking news from the IRS, all taxes owed can be auto extended to July 15th without interest or penalties.


October 15th: IRS Extension Deadline – All expats are eligible to extend their tax return due date to October. Expats who are not ready to file by June 15th can submit IRS Form 4868 to extend their tax deadline to October 15th.


December 15th: Special Extension for Americans Abroad – Americans living abroad can write a letter to the IRS to request a final two-month extension to December 15th. Note: This is a discretionary extension and not automatically granted. Thus it should only be used as a last resort should you not have your proper paperwork in on time or other extenuating circumstances. Some expats may need more time to qualify for the Foreign Earned Income Exclusion, which, in most cases we recommend you file Form 2350 for additional time instead of trying a December extension.


Tax Deadline Changes State-by-State

While the IRS tax due date extension applies only to your Federal taxes, there’s also a flurry of activity and tax changes happening state-by-state in response to the Coronavirus pandemic. It’s important you keep a close eye on your specific state changes and you can monitor this list of state filing relief run by the American Institute of CPAs.


Not sure if you need to file a US State Tax Return? If you, your spouse, or your children have lived in a state at some point during the year, you maintain residence in a state, or you keep a driver’s license, ID card, or voting rights in a state, you may be required to file a US State Tax Return. There are some states that do not require filing a State Tax Return.


States Not Requiring Filing a State Tax Return

  • Alaska

  • Florida

  • Nevada

  • South Dakota

  • Texas

  • Washington State (not DC)

  • Wyoming

Please note that New Hampshire and Tennessee only assess income tax on dividend and interest income.


Coronavirus Tax Relief for Small Businesses 

In addition to relief for individuals, the US government has enacted provisions to help businesses overcome the financial challenges of the Coronavirus pandemic. Relief for American business owners currently includes tax filing extensions, tax credits, and loans.


Tax Deadline Extension

The automatic tax deadline extension to July 15, 2020 applies to businesses as well as individuals. This includes self-employed freelancers and contractors abroad by extending the deadlines for estimated tax payments in 2020.


Families First Coronavirus Response Act: Payroll Tax Credits for Employee Leave

On March 18, 2020, President Trump signed the Families First Coronavirus Response Act (FFCRA). The FFCRA requires certain employers to provide paid leave to employees who are unable to work due to circumstances related to COVID-19. (Notably, businesses with under 50 employees may be exempt from some requirements if they would endanger the viability of the business.)


The FFCRA also includes provisions to help companies with fewer than 500 employees fund paid leave for workers during the crisis. If you are an expat who runs a small business with employees in the US, these provisions may apply to you.


Qualifying employers can use tax credits to offset certain Coronavirus-related costs dollar-for-dollar:

  • Sick Leave Tax Credit – If an employee who is unable to work due to a Coronavirus quarantine, self-quarantine, or Coronavirus symptoms, eligible employers can claim a tax credit at the employee’s regular rate of pay, up to $511 per day ($5,110 maximum) for up to 10 days.

  • Child Care Leave Tax Credit – If an employee who is unable to work because they need to care for a child whose school or care provider is unavailable due to the Coronavirus, businesses can take a credit equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 total for up to 10 weeks.

The Paycheck Protection Program

The Paycheck Protection Program (PPP), which is a part of the CARES Act, provides relief for small businesses and organizations—including all nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors with 500 or fewer employees. The goal of the program is to help these organizations continue to pay employees during the COVID-19 crisis.


While US citizens living overseas may apply for the program, the PPP form does ask whether the United States is the “principal place of residence for all employees of the Applicant included in the Applicant’s payroll calculation.” Therefore, we can assume those applying should have businesses that operate primarily within the US.

The PPP provides three main types of relief:

  1. Small Business Administration Loans: PPP loans can be forgiven if employers meet certain requirements. Specifically, the employer needs to spend 75% of the forgiven amount on payroll-related costs. Also, the organization must keep headcount and wages/salaries consistent (or restore them to full-time levels by June 30, 2020).

  2. Tax Credits for Employee Retention: Employers can claim a refundable payroll tax credit equal to 50% of qualified wages between March 13, 2020 and December 31, 2020. (Note: Employers cannot “double up” tax credits by using FFCRA and PPP tax credits on the same wages.)

  3. Deferral of Employer Social Security Taxes: Under the CARES Act, employers can defer the employer portion of Social Security taxes due between March 27 and December 31, 2020, provided at least 50% of the deferred taxes are paid by the end of 2021 and the remainder by the end of 2022. However, this does not apply to employers who’ve been forgiven for PPP loans.

Travel Advice and Restrictions

Due to the global impact of the Coronavirus (COVID-19) pandemic, the Department of State has urged Americans abroad to return homeimmediately. The government has encouraged expats to book commercial flights. However, some countries have begun closing borders and imposing quarantine protocols, preventing home-bound Americans from leaving. Expats who need assistance should contact their local US Embassy as soon as possible. State Department officials say they are working tirelessly to bring Americans home, though they are unable guarantee transport for all expats during this unprecedented global crisis.


While President Trump has restricted travel from several countries to prevent further spread of the virus, these restrictions do not apply to US citizens and permanent residents. However, Americans may be required to self-quarantine after visiting certain countries. Similarly, US citizens within the country’s borders have been asked to avoid all international travel.


Assistance for Americans Abroad

The State Department has encouraged Americans broad to enroll in the Smart Traveler Enrollment Program (STEP) to receive country-specific safety information and to help the US Embassy contact you and your family in case of an emergency.


If you experience a Coronavirus (COVID-19) related emergency while overseas, you should contact the nearest US Embassy or call:

  • From the U.S. & Canada: 1-888-407-4747

  • From Overseas: +1 202-501-4444


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Originally published: https://www.greenbacktaxservices.com

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