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"As a regular employee, I never owe any US taxes anyhow. Do I really need to file each year?" This is a common question US expats ask.

Updated: 4 days ago

"As a regular employee, I never owe any US taxes anyhow. Do I really need to file each year?" This is a common question US expats ask.



True, the foreign income exclusion or foreign tax credit may cancel out all your US taxes, resulting in $0 tax due. However, if your income was over the standard deduction amount, you are still required to file. For 2023, this amount was $13,850 for singles and $27,700 for couples.



What are the penalties for not filing? Technically, there are no penalties for not filing if you didn't owe taxes, but it's never a good idea to beak the law.



You may need to show the IRS some time in the future that you were always compliant, especially if your future tax situation may call for penalties. You may become self employed at some point, forget to file, and things will be much more complex.



In addition, the IRS can disallow the foreign income exclusion for 5 years if you haven't been compliant with filing returns. Although the foreign tax credit would still be available to you, this may still cause you excessive taxation.



Lastly, and most importantly, if you haven't been compliant with filing returns, you probably haven't been filing FBAR reports, either. These reports are required if you had over $10,000 USD or equivalent in non-US bank accounts. This includes if these amounts were spread between a few accounts. 



Even if your bank account has not reached these levels, if you have been working a few years, your pension and Keren Hishtalmut accounts which your employer set up for you can easily reach these levels. 



FBAR penalties are stiff; up to $10,000 USD per year for non-willful non-compliance, or 1/2 of your foreign account's value, if your non compliance is deemed willful. 



If you filed FBARs in the past and slacked off, it will be deemed willful unless you file before they contact you.



Amnesty programs such as the Streamlined Foreign Offshore Procedure are available, which exempt the taxpayer of the big financial penalties or criminal prosecution.

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