Tax Changes Coming In 2017: What U.S. Expats Need To Know

Ephraim Moss

While the past year did not produce any monumental changes to U.S. tax law, there are a number of noteworthy changes that expats should keep in mind as we enter 2017. We also share a few highlights from President-elect Trump’s current tax plan.

First, The Changes Coming Under Enacted Law

The FBAR Due Date

In previous years, the FBAR was due by June 30th, and extensions were not allowed. For tax year 2016 and onwards, the FBAR due date is April 15th (which falls out on a Saturday in 2017), but with a maximum extension for a 6-month period ending on October 15th (which falls out on a Sunday in 2017). This is generally a positive development for expats as it coordinates the FBAR due date with the tax return due date, giving expats more time to gather their information and file both items at the same time.

The FBAR form (FinCEN Form 114) is filed electronically using the BSA E-Filing System maintained by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).

The Tax Return Due Dates

Due to April 15th falling out on a weekend, the due date for the 2016 tax return is moved to April 17, 2017. Due to October 15th falling out on a weekend, the extension due date for the 2016 tax return (with the filing of an extension form) is moved to October 16, 2017.

If you live outside the U.S. on April 17th this year, you are entitled to an automatic extension (without the filing of an extension form) until June 15th. However, if you owe tax, the extension applies only to the tax return filing and not the tax payment. Therefore, you must still submit your payment by April 17th to avoid paying interest on your late payment (late payment penalties do not commence until June 15th).

Also, for expats who need to file an extension (Form 2350) because they need additional time to meet either the bona fide residence test or the physical presence test to qualify for the foreign earned income exclusion and/or the foreign housing exclusion or deduction, such extension is due by April 17th (not June 15th), even if they are outside the United States at that time.

Foreign Earned Income and Housing Exclusion Amounts

For tax year 2016, the maximum foreign earned income exclusion is up to $101,300 per qualifying person ($102,100 for tax year 2017). The maximum foreign housing exclusion for 2016 is $14,182.

Standard Deduction and Exemption Amounts

The standard deduction amounts are: for joint filers and surviving spouses, $12,600 for 2016 ($12,700 for 2017); for heads of household, $9,300 for 2016 ($9,350 for 2017); for singles, $6,300 for 2016 ($6,350 for 2017); and for marrieds filing separately, $6,300 for 2016 ($6,350 for 2017).

For 2016 and 2017, the personal exemption amount is $4,050.

Tax Rates

For tax year 2016, the 39.6 percent tax rate affects single taxpayers whose income exceeds $415,050 ($466,950 for married taxpayers filing jointly), up from $413,200 and $464,850, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2016 are detailed in the IRS revenue procedure. (The tax year 2017’s rates are detailed in here.)

ITIN Expirations

Individual Tax Identification Numbers (“ITINs”) are numbers assigned to foreign taxpayers who are not eligible to obtain Social Security Numbers. ITINs may be relevant for purposes of claiming dependents or filing a joint return with a non-citizen spouse.

Under a new law, if you hold an ITIN, you need to renew if one of the following applies: (i) You have not used your issued ITIN on a federal income tax return in the last three years and you need to file a tax return in 2017; or (ii) You have an ITIN issued before 2013. Such ITINs will begin expiring in 2017. The first ITINs that will expire are those with middle digits of 78 and 79.

Retroactive TINs for the Child Tax Credit

Under a new law, timing limitations were added for claiming the child tax credit by providing that a taxpayer identification number (an ITIN or SSN) can be used to claim the credit only if it was issued (not applied for) on or before the due date of the return.

The major impact of this change will be on taxpayers using newly issued ITINs. The new provision disallows retroactive filing of either amended or original prior-year returns that were due before issuance of the ITIN to claim the credit.

FATCA Strengthens

2016 was an important year in the U.S. government’s implementation of FATCA. Digital information exchanges began between the U.S. and its partner countries, and the IRS, in turn, has received more and more foreign account information

Many of the FATCA partner countries and their foreign financial institutions (e.g., banks) have made substantial efforts to become FATCA compliant in order to avoid potentially devastating penalties for foreign institutions with significant portfolios of U.S. investments. In this regard, the U.S. government gave a December 31 deadline for countries to implement FATCA locally or lose FATCA-compliant status.

The continued worldwide implementation of FATCA is making it increasingly difficult for U.S. expats with international accounts to elude the reach of the IRS.

Next, The Changes Envisioned Under Trump’s Presidency

As part of Trump’s presidential campaign, the President-elect published a bullet-point tax plan on his website.

While we’re sure that at some point Trump announced that his changes would be “HUGE”, we can’t be certain as to which of these changes will have the backing of Congress and become politically realized. Some of the major changes on Trump’s list include:

  • Reducing the tax brackets from 7 to 3, with the top bracket taxed at the rate of 33%.
  • The 3.8 percent Obamacare tax on investment income would be repealed, as would the alternative minimum tax. (This would be of particular importance to expats because the tax cannot be offset by foreign tax credits.)
  • The standard deduction for joint filers would be increased to $30,000, and the standard deduction for single filers would be $15,000. The personal exemptions would be eliminated as would the head-of-household filing status.
  • Repeal of the estate tax.

Mr. Moss is a Tax partner in a boutique U.S. tax firm specializing in the areas of international taxation and expatriate taxation. The practice focuses on servicing U.S. individuals and small business located outside the U.S. with their U.S. and international tax matters and includes both tax planning as well as annual tax compliance (tax return preparation). He has extensive experience with filing delinquent returns under the IRS Streamlined procedure, FBARs, FATCA reporting (Form 8938), reporting interests in foreign corporations (Form 5471) and partnerships (Form 8865) as well as foreign trust reporting (Form 3520 and Form 3520/A). He works very closely with clients utilizing the various international tax treaties in order to maximize benefits through smart tax planning. Previously he held a senior position in the international tax practice of Ernst & Young. He is an attorney licensed in the State of New York.

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