The CARES Act was passed in late March to provide assistance to American individuals and businesses negatively affected by the Coronavirus pandemic.
In the Act, assistance was granted to American individuals, including expats, in the form of a one-time stimulus payment. The maximum value of the payment is $1,200 per adult (so $2,400 for married couples filing jointly), plus an additional $500 for each dependent child under the age of 17.
Payments are made automatically to qualifying expats, either by direct deposit into a US bank account, or in the form of a check. The IRS has launched two new online tools for expats to provide their US bank account details if they have one (although some expats shouldn’t use either).
In this article we’ll look at the qualifying criteria for expats to receive a stimulus payment.
Social Security Numbers
To receive a CARES Act stimulus payment, expats must have a US social security number. Furthermore, for them to receive the additional payment for their spouse when filing jointly, their spouse must have a US social security number too. For them to receive the additional payments for dependent children under the age of 17, the children must also have US social security numbers.
There is a strange anomaly in the law whereby expats who when they file their US taxes check ‘married filing jointly’ and are married to a foreign spouse that doesn’t have a US social security number aren’t eligible for any stimulus payment.
In reality, this will affect a very small number of expats, as the vast majority of US expats married to a foreign spouse check ‘married filing separately’ when they file. Checking ‘married filing separately’ ensures that an expat’s foreign spouse remains outside the US tax system.
“The draft bill would have excluded many expats who claim the Foreign Earned Income Exclusion to exclude their overseas income from US taxation, however the final version of the law includes all Americans who live abroad.” – MarketWatch
There are very limited circumstances when an expat would want their foreign spouse involved in the US tax system and so would check ‘married filing jointly’, and get their spouse an individual tax identification number (ITIN) rather than a US social security number for the purposes of filing. Unfortunately the law as it stands excludes these expats from receiving any stimulus payment though.
The full amount of the stimulus payment is being paid to those Americans whose adjusted gross income is up to $75,000. The figure doubles for expats who are married and filing jointly (and their spouse has a US social security number). Above these thresholds, the amount of the stimulus payment decreases by $5 for every $100 of additional (adjusted gross) income, until the payments reach zero at adjusted gross incomes of $98,000 for an individual, or $198,000 for a married couple.
The stimulus payments don’t have to be repaid, and aren’t considered taxable income by the IRS.
The IRS is paying CARES Act stimulus checks based on adjusted gross income reported on expats’ 2019 year tax return, or, if they haven’t filed for 2019 yet (and the 2020 filing deadline has been extended for all Americans until July 15th this year), then the IRS is using the figure reported on their 2018 tax return.
As such, expats who haven’t filed minimally a 2018 tax return won’t receive a stimulus payment. All Americans who earn above the minimum income thresholds, including their worldwide income, are required to file. The minimum filing threshold in $2019 was $12,200, or just $400 of self-employment income, or just $5 for Americans who are married but file separately.
There is time for these expats to catch up with their US tax filing and receive one though. It’s important that they do so in the correct manner to avoid IRS penalties and back taxes. What they shouldn’t do for example is suddenly provide the IRS with their bank details using one of the new online tools for this purpose, and for the same reason neither should they just file for 2019 without having filed for 2018 first. Expats who have missed previous years too should seek advice regarding which IRS amnesty program might be most appropriate for their particular situation.
Expats who have any questions about their eligibility for a CARES Act stimulus payment or their US tax filing should consult a US expat tax specialist, who will ensure that they’re compliant in the most tax efficient manner possible given their circumstances.