Economic Impact Payments for Americans Living Abroad
The COVID-19 pandemic has caused unprecedented stress for communities across the globe. Much needed financial relief has come in various forms. The United States government passed the CARES Act in late March offering several different programs to American businesses to help them withstand the economic crisis. Programs like the Paycheck Protection Program (PPP) created a pathway for many businesses to make it through the next few months.
Unfortunately, this form of assistance has been largely out of reach for the American expat community due to requirements that eligible businesses be operating within the United States. While American expats may be able to find support in their local communities, another avenue to assistance has been created by the individual Economic Impact Payments, which are available to taxpayers abroad.
Since April, the U.S. Treasury has been issuing these payments of $1,200 to eligible Americans. The payment doubles to $2,400 for married couples filing jointly and is increased by $500 for each dependent child under the age of 17. For example, an American family living in Spain with three young children could expect a total payment of $3,900 from the IRS, provided the eligibility guidelines are met.
While the information is continuing to change and some uncertainty remains, we have identified several of the common issues that are impacting American expats who have questions about their eligibility and the steps they must take to secure these benefits.
Am I potentially eligible for the Economic Impact Payment as an American living in Spain?
Yes. The stimulus payment is available to U.S. citizens and resident aliens with a social security number that is valid for employment in the United States. Incarcerated taxpayers and those who can be claimed as a dependent are ineligible, but there is no requirement that you be living or doing business in the United States.
Eligibility is income-tested and subject to a threshold of $150,000 for married taxpayers filing jointly, $112,500 for heads of household, and $75,000 for all other taxpayers. The payment is reduced by $5 for each $100 of income above these limits.
The IRS used information obtained from 2018 and 2019 tax returns to determine eligibility, current address, and applicable banking information. A portal for “Non-Filers” has been launched so that anyone who is not required to file a tax return, but is otherwise eligible for the payment, can provide the necessary information to receive their benefits.
Can I enter my payment details through the “Non-Filer” portal the IRS has established if I am required to file a U.S. tax return but have not done so?
No. If you are required to file a tax return in 2018 or 2019, you are not eligible to use the Non-Filer portal, which is intended for individuals who are not required to file a tax return. In order to receive your payment, you need to file the required U.S. tax returns. If you find yourself in this situation, you may want to consider one of the voluntary disclosure programs offered by the IRS to individuals who have overlooked their tax and account reporting obligations back in the United States.
If you have many years of unfiled tax returns, the Streamlined Compliance Program may allow you to get back into compliance by submitting the past three years of Federal tax returns and six years of Foreign Bank Account Reports (FBARs). The FBAR is required annually if the combined value of your non-U.S. accounts exceeds $10,000 at some point during the calendar year. No tax is calculated but severe penalties can apply for noncompliance.
Eligibility for the Streamlined Program requires that you submit a statement, signed under penalties of perjury, that outlines the facts demonstrating why you have acted reasonably in neglecting to file U.S. tax returns and FBARs.
Given the multitude of different compliance options available and possible exposure to penalties, consulting a tax advisor to assist you with this process is crucial.
Previously I made an election to file a joint U.S. tax return with my nonresident spouse and we continue to file jointly using an Individual Taxpayer Identification Number (ITIN). Am I still eligible for payment?
Maybe. The IRS has made clear that taxpayers who are otherwise eligible and file jointly with one spouse having an Individual Taxpayer Identification Number (ITIN) will not receive the Economic Impact Payment.
However, if you previously made the joint return election but no longer accrue any real tax benefit from filing jointly, filing separately may restore your eligibility. Filing a separate tax return in a year after having made the joint return election would not eliminate your ability to file jointly in future years. Then again, if you do benefit from the additional standard deduction or reduced tax bracket from filing jointly, the additional $1,200 Economic Impact Payment may not be greater than the tax savings produced by the joint return election.
Does the foreign earned income exclusion impact my eligibility for the Economic Impact Payment?
Yes. One nuance of the CARES Act is that eligibility for the stimulus payment is based exclusively on adjusted gross income (AGI) and AGI does not include any excluded foreign earned income.
Historically, tax-driven stimulus payments have required taxpayers to add excluded foreign earned income back to their AGI when determining eligibility. This language is not included in the CARES Act and many American expats with income in excess of the $75,000 threshold have reported receiving the stimulus payment after having elected the foreign earned income exclusion on their 2018 or 2019 tax returns. The IRS has explained that those who received the payment based on their 2018 or 2019 income but would not be eligible based on their current year income, will not be required to repay the benefit.
In the case of the foreign earned income exclusion, it is unclear whether the law will be updated to address this nuance before the 2020 tax filing deadline. This appears to create an opportunity for a possible windfall for certain taxpayers claiming the foreign earned income exclusion. Presently, taxpayers with income in excess of $180,000 would be potentially eligible for the full $1,200 benefit by claiming the foreign earned income exclusion.
If I have been living outside the United States, how will I receive my Economic Impact Payment?
If you are eligible, you may have received your Economic Impact Payment in one of three ways:
- Direct deposit to your U.S. bank account. If you are required to file a tax return and are eligible for a tax refund that you have requested be direct deposited to a U.S. bank account, the IRS has likely already issued the payment to you as a direct deposit. As of early May, close to 600,000 individual payments had already been issued to Americans with foreign addresses.
- Mailed check to your address on record with the IRS. The IRS has clarified in its published FAQs on May 14th that the online portal for taxpayers, other than “Non-Filers,” will now only allow you to input bank account information when there has been a problem with your mailing address. They further explained that if you had been using a U.S. bank account to make electronic payments for your U.S. tax liability, your banking details would not have been picked up in this process, thus placing you in the paper check group.
- Prepaid debit card mailed to your address on record with the IRS. The IRS has also been issuing prepaid debit cards to certain taxpayers in lieu of paper checks. Among the group receiving the debit cards are taxpayers who had their returns processed at the Austin Service Center. This center processes many of the U.S. tax returns filed with foreign addresses, so a strong possibility exists that these debit cards will be landing in the American expat community.
As of this article’s posting, American expats who have not already received their payment will have a check mailed to them at their address on file with the IRS and do not presently have a mechanism for proactively providing U.S. bank account information outside of a 2018 or 2019 tax return requesting a refund. Due to obvious challenges with international mail, this mechanism for delivery will create additional hurdles.
What happens if I am expecting my Economic Impact Payment to be sent to my address in Spain, but I have not received it?
You can currently check the status of your Economic Impact Payment by using the “Get My Payment” portal offered by the IRS available at this link: https://www.irs.gov/coronavirus/get-my-payment
Through this portal, you will be able to determine the status of the payment as well as the payment method. The IRS is also mailing out Notice 1444 to advise taxpayers of the payment details. Given the volume of payments that will inevitably be mailed to eligible taxpayers overseas, the likelihood of many of these checks or debit cards failing to arrive in the mail is high.
Taxpayers who have been notified that they were issued a payment but did not actually receive the check have been advised to take several different actions. If you file with a foreign address, it can take up to nine weeks from the scheduled mailing date for the check to arrive.
After this nine-week window has passed and your money still has not arrived, you can contact the IRS to initiate a trace on the payment. This is done by either calling the IRS or submitting Form 3911, Taxpayer Statement Regarding Refund.
If the trace determines that the check was never cashed, the original check will be cancelled, and a replacement check issued. Alternatively, if the check was cashed, the process will be more involved, and you will be obligated to complete a claim package issued by the Bureau of the Fiscal Services (BFS). BFS will review the claim and the signature on the cashed check to make a determination before reissuing the payment.
I renounced my U.S. citizenship in 2019 but the IRS still issued me a payment. Can I keep these funds?
The IRS has made clear that if you will be a nonresident in the United States in 2020, you are not eligible for the payment. They are aware that the payment was erroneously sent to a number of nonresident aliens and deceased individuals.
If you have recently abandoned your U.S. residency or citizenship status, the IRS may have issued you a payment erroneously. Recent IRS guidance has clearly stated that they do expect individuals who received the payment in error to return it; however, no penalties have yet been announced for those who do not follow these guidelines.
If a check was issued to you in error, you are instructed to mark the check as “VOID” and mail it back to the IRS along with a statement of explanation. If a direct deposit was made, you are to draft a personal check payable to “U.S. Treasury” and note “2020EIP” and your Social Security Number in the memo line. A statement of explanation should also be included.
The IRS address to use will depend on your state of residence. Ineligible taxpayers with a foreign address have been instructed to return the Economic Impact Payment to:
Austin Internal Revenue Service, 3651 S Interregional Hwy 35, Austin, TX 78741, USA
If you are among the group who received the payment issued on a prepaid debit card, you would return the debit card along with the statement of explanation to:
Money Network Cardholder Services, 5565 Glenridge Connector NE, Mail Stop GH-52, Atlanta, GA 30342, USA
The IRS has been actively updating information about the Economic Impact Payment program and has just opened limited phone support for taxpayers with questions or concerns. Long wait times should be anticipated.
American Tax Partners is a U.S.-based tax services company dedicated to providing expert global tax support for American Expats in Spain and Spanish Nationals with business or investment activities in the United States. Offering flat fee pricing, we serve as a single point of contact for managing all your international tax compliance obligations.
Contact us today to schedule a free consultation at info@amtaxpartners.com or visit our website at amtaxpartners.com.
