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Written by Harold Goedde | Posted in Exit Tax • Expatriate • Form 1040 • Tax Refund

For this post, I will present some news about tax topics that may affect your current situation: earned income tax credit (EITC), delayed nonresident refunds, and expatriate income tax.

Earned Income Tax Credit

For taxpayers with the refundable EITC, starting with tax year 2016 (filing in 2017), the IRS will delay their refund until at least February 15. Congress recently enacted legislation requesting the IRS to do this to reduce refund fraud due to identity theft.

IRS to Issue Delayed Nonresident Refunds

The Service held up refunds of withheld U.S. tax claimed on 1040NR returns for six months or more to make sure the withholding amounts claimed by the taxpayers agreed with the amounts on Form 1042-S (issued by entities withholding taxes on foreign residents). Most of the returns were filed by foreign students attending U.S. universities but had a low risk for erroneous refunds. They were flagged by the IRS due to glitches in their software. These problems have been fixed and refunds, plus interest, will now be issued.

Taxpayers Permanently Leaving the U.S.

If you move to a foreign country, but maintain U.S. citizenship, you are still required to pay U.S. income tax because the U.S. tax law imposes a tax on worldwide income, not just U.S. income. Taxpayers will also be required to report information on foreign bank accounts.

If you give up your U.S. citizenship, an exit tax will be imposed if, before expatriating, the average annual tax for five years exceeds $161,000 or if you have a net worth of at least $2 million. If U.S. citizens give up their citizenship, they will be treated as if their assets were sold for fair market value on the day before their expatriation, and will have to pay tax on the gain from the deemed sale that exceeds $700,000.

[Source: Kiplinger’s Monthly Tax Letter—June 17, 2016]

Harold Goedde

Dr. Goedde is a former college professor who taught income tax, auditing, personal finance, and financial accounting and has 25 years of experience preparing income tax returns and consulting. He published many accounting and tax articles in professional journals. He is presently retired and does tax return preparation and consulting. He also writes articles on various aspects of taxation. During tax season he works as a volunteer income tax return preparer for seniors and low income persons in the IRS’s VITA program.