Can back taxes cost you your passport? In some cases – yes.
4 min read
April 28, 2023
April 28, 2023
At a glance
Overlooking U.S. taxes as a citizen living abroad can mean risking your passport, making yourself subject to penalties and more. Find out what expats should know from H&R Block.
Your U.S. passport is your lifeline to travelling abroad, and as a U.S. expat, that fact has more weight than it does for other Americans.
Imagine this — you’ve been living outside the U.S. for a few years, building a new life in a far–away home away from home. You finally feel like you’ve got the whole living abroad thing down, and book a trip back to the U.S. to visit family and friends.
Imagine your surprise when you get to customs and find out your passport was revoked by the IRS. Alarming, right? It may sound like a scare tactic, but this scenario is a reality for some U.S. expats — and one we want to help you avoid.
Take care of your passport by taking care of your U.S. expat taxes
As a U.S. expat, you likely know where your passport is at any given time and the requirements needed to keep it up to date. Can you say the same about your tax requirements? You should be able to — the IRS recently said it’s following through on plans to implement tax penalties like revoking passports or denying renewals for those with tax debt of $54,000 or more. As a first step, the IRS sends at–risk taxpayers a letter. But as many expats know, international mail can be slow — or not arrive at all.
Then, while your letter is in the mail, your case is also sent to the Department of State. This is what could potentially prevent your return trip. Instead of traveling back to your home abroad, you’re stuck in the States until your situation is resolved, which could take months or years. Meanwhile, you may have a job, family and other responsibilities counting on you abroad.
If you’re thinking there’s no way you could owe that much, consider this: Many citizens living abroad don’t know they have to pay U.S. taxes on foreign income, meaning their unpaid taxes start stacking up. Pile on yearly penalties of $10,000 or more for failing to file returns or other required forms and $54,000 is not so much of a stretch.
Here’s what it means to you: If you owe the IRS $54,000 or more and you don’t have a payment plan or other agreement set up, your passport could be at risk.
If this makes you nervous, we get it. You should know the IRS does give you options, such as payment agreements, so you can avoid risking your passport. Plus, you’re not alone — our international tax advisors are experts in helping clients to become compliant and avoid tax penalties in these situations.
Other U.S. tax matters expats should know about
You might be thinking, “I’ve been filing my taxes; I’m good, right?” Well, maybe, but U.S. taxes for citizens living abroad are tricky and you need to be up–to–speed on the additional expat tax rules. It’s truly a case of what you don’t know might hurt you — and cost you dearly.
- Your foreign pension. Saving for an expat retirement is smart, but the type of foreign pension account you have matters. You may need to file specific forms depending on the account type and value. If they’re not reported correctly or not at all, you may owe large penalties — starting at $10,000 — but may be more. You need a knowledgeable tax advisor to help you figure out what to do in your situation.
- Your bank accounts. Don’t owe the IRS? You still might face penalties if you didn’t file the right paperwork (Foreign Bank and Financial Accounts or FBAR) for your foreign bank account. These penalties can be steeper than tax penalties — $10,000 for each violation.
- The IRS is turning up the heat with enforcement. While the IRS began the program to revoke passports a few years ago, it got more aggressive in 2019 with the involvement of the State Department. This tactic along with FATCA and FBAR reporting rules make it harder for expats to hide. What’s more, the amnesty programs for tax debt, interest and penalties have changed and may continue to change. That said, options available now might not be available in the future.
How H&R Block can help keep your passport safe and keep your taxes and FBAR in compliance
Here’s the good news. H&R Block’s Expat Tax Advisors can help you keep your passport safe, save money on your U.S. tax filing, and avoid double taxation with our Expat Tax Services.
For example, we can help make sure you’re in compliance, help you navigate tax tools like the foreign tax credit and foreign earned income exclusion, and if you haven’t filed while you’ve been abroad, we can help you get caught up with the IRS amnesty program.
Filing taxes for expats is tricky, so having an experienced tax advisor by your side can make all the difference. Luckily, we help expats all over the world do just that. No matter where in the world you are, we’ve got a tax solution for you. Get started with our made–for–expats online expat tax services today!
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