While most U.S. taxpayers must file their taxes by April 15th, U.S. taxpayers living abroad have additional options to extend the deadline of their filing due date. These extensions provide convenience as well as important benefits and protections. One major reason for overseas taxpayers to extend their filing deadline is to protect their eligibility for the foreign earned income exclusion, which can be lost if a return is not timely filed. Additionally, for those trying to meet the residency tests required for the foreign earned income exclusion or the foreign housing exclusion or deduction, these extensions provide needed flexibility.
Automatic Two-Month Extension – June 15th
Ordinarily, the April 15th due date applies to all U.S. taxpayers, even those living overseas. However, certain U.S. taxpayers living overseas may be allowed an automatic two-month extension. To qualify, the taxpayer must be a U.S. citizen or resident alien, and on the regular due date of their tax return:
- Must be living outside of the United States and Puerto Rico and their main place of business or post of duty is outside the United States and Puerto Rico, or
- Must be in military or naval services on duty outside the United States and Puerto Rico.
This generally means that taxpayers who use a calendar year reporting schedule and are residing abroad as of April 15th, the normal due date of the return, would be eligible for an automatic extended due date of June 15th. This extension is for the filing and payment of taxes, which makes this particular extension unique. No penalties will be assessed on qualifying tax returns received by June 15th, although interest will be charged for any late payments received after the normal due date of the return.
No form needed. Taxpayers do not need to file a form for the automatic two-month extension. Instead, when overseas taxpayers file their return by the June 15th deadline, they must provide a statement explaining they qualify by meeting one of the two situations listed above. As long as they meet these criteria, the extension will be automatic. In addition, as a best practice, we recommend that taxpayers should indicate at the top of page one of their United States Form 1040 that they were automatically extended to June 15, 2015.
Automatic Six-month Extension – October 15th
Unlike the automatic two-month extension, obtaining the automatic six-month extension requires the filing of Form 4868: Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This is the same form taxpayers living in the United States use to request this extension. Generally, Form 4868 provides an extension to file tax returns until October 15th and the form, as well as the estimated tax payment, must be submitted by April 15th, the normal due date. Taxpayers can file Form 4868 either in paper format or by e-filing, which provides an electronic acknowledgment to the taxpayer.
Taxpayers living overseas follow these same procedures but do not have to file Form 4868 by the normal due date. Instead, they file Form 4868 before their automatic two-month extension has passed. However, they must integrate the automatic six-month extension with their automatic two-month extension and, in effect, are granted an additional four months, also extending their deadline to October 15th. Unlike the first extension, Form 4868 does not extend the time to pay for overseas taxpayers; estimated taxes must be paid when Form 4868 is filed.
Example: Sam and Pat are married U.S. taxpayers who file their returns jointly. For the past three years, they have been living in the Netherlands where Pat works for a major financial institution. They follow a calendar year reporting schedule and, as of April 15th of the current year, they resided in the Netherlands. To timely file complete and accurate tax returns, they decide to take advantage of the automatic two-month extension. By June 15th, they will file their return which will include payment of their taxes, with interest, along with their qualification statement.
As the extended deadline approached, they realize they needed additional time to file their return. On June 14th, they e-filed Form 4868 and electronically made payment of their estimated taxes due. An electronic acknowledgment confirmed that their Form 4868 was received. Sam and Pat obtained an additional four month extension and their filing deadline was automatically extended to October 15th.
In late September, Sam and Pat filed their completed U.S. tax return. They had slightly underestimated their taxes when they e-filed Form 4868 compared to the taxes ultimately determined to be due. Sam and Pat will owe penalties, unless reasonable cause applies, and interest on this difference. The interest owed will be calculated from the normal April 15th due date and the penalties will be calculated from the June 15th extended due date.
Additional Two-month Extension – December 15th
October 15th may not be the final deadline for overseas taxpayers. It is possible for them to request another two-month extension in addition to the six-month automatic extension. However, this extension is not automatic and is at the discretion of the IRS. There also is no form to make this request. Taxpayers must write a letter to the IRS before the expiration of their six-month extension explaining their situation and why they need an additional two months to file. If the IRS approves their request, the taxpayers will have until December 15th to file their return.
The tricky part is that taxpayers do not receive notice of this approval; notification is only provided if the request has been rejected. Also, the request letter can only be sent in paper format to the IRS. So, as a precautionary measure, overseas taxpayers should consider sending this extension request through an approved overnight delivery service. As in the case of the automatic six-month extension, both penalties and interest may continue to accrue.
“Extension to Meet Tests” – Form 2350
The foreign earned income exclusion and the foreign housing exclusion or deduction helps overseas U.S. taxpayers minimize their U.S. taxes. For tax year 2015, the foreign earned income tax exclusion allows U.S. taxpayers to exclude up to $100,800 of foreign earnings. The standard limit for housing expenses in 2015 is generally $30,240.
However, to qualify for these exclusions or deduction, taxpayers must meet either the bona fide residence test or physical presence test. Often the due date of the return and the time needed to meet one of these tests does not coincide. To remedy this, taxpayers who need time to qualify for these tests may request an extension of more than six months to file their tax returns. To request this special extension, the taxpayer must file Form 2350: Application for Extension of Time to File U.S. Income Tax Return and meet all three of the following criteria:
- Be a U.S. citizen or a resident alien;
- Expect to meet either the bona fide residence test or the physical presence test, but not until after their tax return is due; and
- Maintain a tax home in a foreign country throughout the period of bona fide residence or physical presence test.
Form 2350 must be filed by the due date of the overseas taxpayer’s return, which will generally be June 15th. This is also a discretionary extension. If granted, the taxpayer will generally be given 30 days to file beyond the date they are reasonably expected to qualify for the exclusion or the deduction under the two tests.
U.S. taxpayers living abroad have a number of options to obtain extensions for filing their U.S. tax returns. The key is to request extensions correctly and by the appropriate dates. This will help minimize the penalties and interest associated with late filings as well as qualify for certain exclusions and deductions. Importantly, taxpayers living overseas should use these extensions to ensure their tax return is timely filed so the IRS cannot disallow their foreign earned income exclusion.
Acknowledgement: With grateful appreciation to Attorney Morris N. Robinson, CPA, LL.M. for his expert input and co-authorship.
If you are a U.S. taxpayer living abroad and have questions or need assistance with filing your U.S. tax returns, the attorneys at M. Robinson & Company may be able to assist you. Please feel free to contact us at 617-428-6900.
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