Filing US Taxes Abroad

For American citizens living and working in the Czech Republic, figuring out how to file annual Czech income taxes can be a challenge. Add the responsibility of filing US taxes on all income earned (both within and outside the US), and the situation becomes even more complicated, particularly for those of us who don’t understand the basics of the income tax system.

In accordance with US tax regulations, any American citizen or green card holder who has reported income within a fiscal year must file US taxes. Although a US citizen may not end up paying taxes on income earned abroad, he is required by law to go through the tax filing process.

Information on the Internal Revenue System is available on the US Embassy in the Czech Republic’s website. There are links to resources for filing taxes from abroad as well as Federal Benefits and Obligations.

To get a local perspective on how to file taxes from the Czech Republic, Prague TV spoke with Peter Piater, a tax accountant at the Prague-based firm Expat Taxes, to clarify frequently asked questions about the requirements of the US income tax system.

Filing your US taxes for 2016 doesn’t have to send you running into the nearest Czech bar to drown your sorrows. Follow these guidelines to file your US taxes on time and opt for a celebratory pub visit instead.

Who is required to file US taxes?

In general, all US citizens and green card holders living in United States or outside of the United States are required to file US income taxes on any income earned during that fiscal year. Nonresident aliens living and working part of the year in the US must also file taxes. For example, Czech and Slovak students who were in the US for internships, work and travel programs on a J1 Visa, must file US taxes in order to obtain a US tax and social security refund.

There is, of course, a gross income limitation, which if you do not reach, you do not have to file a US tax return. For a single person, it is 10.350 USD in 2016.

How do I get started?

Don’t panic. If it is your first time filing a US tax return, start early. If you are unsure about filling out the forms on your own, contact a tax professional. Even straightforward black and white information might become unclear and explainable in multiple ways when you actually start filling out the form.

What do I need?

Collect your documents before you begin. Expat Taxes offers a handy check list of all the necessary documents and basic information you need to file a US tax return. Documents include your proof of employment in the Czech Republic, your Czech residency status, your Czech tax return, CZ/USA 1 Form, 1099 forms, W2 forms, SSN, marital status, entry to Czech Republic, date/copy of last tax return, etc. (depending on individual circumstances).

Does the Affordable Care Act (Obama Care) apply to me?

Affordable care or Obama Care requires every American to have health insurance or to pay a yearly penalty when filing income taxes. If you are an expat who has been living abroad for more than one year, you do not have to pay your healthcare insurance in the US because you are required to pay it abroad (in our case, in the Czech Republic or Slovakia). If you live abroad for only part of the year or not for a complete calendar year, then you are required to pay for healthcare in the US for that year.

However, if you are sent by a US employer to the Czech Republic for less than 5 years, you pay health insurance and also social security only in US for the whole 5 years. If you will be in the CR for more than 5 years, or if you find a job by yourself in the CR, you pay social security and health insurance in the CR.

If my husband/wife is Czech and files Czech taxes, and I as a US citizen do not have any income in the CZ Republic, do I still have to file my US taxes?

No, you do not have to. But, there are two questions hidden in this one. First, you need to decide your filing status. If your spouse is not a US citizen, you must file as the head of the household to claim any dependents (children) on your tax return. If you do not have children, you can file as married but filing separately.

You are then not required to file a US tax return only if you do not have any income from any other country in total more than 13,350 USD (if you are filing as head of the household) or greater than 4,050 USD (if you are married filing separately).

If you are self-employed (working on a “zivno”), then the limit for filing is only 400 USD/year because of self-employment/social security tax.

Note that these minimum earnings amounts change each year by a few hundred dollars.

If I am “self-employed” (working on a živnostenský list) is there anything special I should know?

Self-employed Americans should be careful. If you are self-employed, even if you can exclude foreign-earned (i.e. self-employment) income from your US taxes, you are responsible for paying self-employment tax. Since the Czech Republic has a Totalization Agreement with the US, generally if you can prove that you pay Social Security taxes in the Czech Republic, you do not have to pay it again in the US. However, your obligation of filing taxes remains because on the tax return, you must prove that you are not obliged to pay the self-employment tax in the US.

How do I know if I need to file an FBAR?

You have to file an FBAR or “foreign bank account report” if you own a bank account, or have signature right over, one or more foreign bank accounts and the total value of those accounts exceeds 10,000 USD at any time during the year.

Is it harder to file US income taxes or Czech income taxes?

The logic and format behind filing in both countries is the same. You add together all your revenues from all sources and when you have the sum, you try to decrease it as much as you can by all kinds of deductions or credits. An expat tax return is a bit more complicated and requires more forms, such as the foreign income exclusion and social security coverage (for self-employed) in the Czech Republic.

I haven't filed my US taxes in ten years? How does back filing work?

Back filing is filing under a streamlined offshore procedure, which the IRS created. If you file the last 3 years’ tax returns and pay taxes for the last 3 years you missed as well as file FBARS for the last 6 years you missed, then you are permitted to start filing taxes with a “clean slate.” You do not pay any penalties or interest on top of the taxes, even if you did not file and did not pay income taxes for 10 years.

To use this procedure, you have to complete the form 14653 and show that you did not omit paying/filing taxes intentionally that it happened instead due to non-willful conduct.

If you want to get back on track in Jan 2017, you are required to file the last 3 years you missed 2013, 2014, 2015 and the actual year 2016. If you realize, for example, in October that you haven't filed for years, you do not have to wait for the tax season in January. You can file those 3 delinquent tax returns and 6 FBARs in October.

When are my US taxes due?

Submitting of a tax return and paying taxes is due on the 15th of April or on the first next working day thereafter. In 2017, it will be the 18th of April. However, Americans residing abroad are granted an additional two months, so the due date is the 15th of June 2017. The automatic 2-month extension also applies to paying the tax. However, you will owe 2-months interest on any taxes due, if the taxes are not paid by the 18th of April.

In closing, remember that specific questions about particular circumstances should always be addressed to a tax authority.

If you need help filing your Czech taxes, read Prague TV’s article on filing expat taxes in the Czech Republic.