The IRS has announced that it will start accepting electronically filed amended tax returns this summer.
Up until now, amended tax returns have had to be filed on paper by post, meaning a long processing time of 6-8 weeks under normal conditions (and probably longer in 2020, due to a reduced service during the Coronavirus outbreak).
For expats in particular, posting an amended return from abroad can be problematic, due to often unreliable international postal systems in some of the countries where expats live.
To amend a tax return, expats must file IRS Form 1040-X. About 3 million Form 1040-X’s are filed annually, up until now all on paper, despite other forms being filed electronically.
“This new process is a major milestone for the IRS, and it follows hard work by people across the agency,” said IRS Commissioner Chuck Rettig. “E-filing has been one of the great success stories of the IRS, and more than 90 percent of taxpayers use it routinely. But the big hurdle that’s been remaining for years is to convert amended returns into this electronic process. Our teams have worked diligently to overcome the unique challenges related to the 1040-X, and we look forward to offering this new service this summer.”
When e-filing Form 1040-X launches, it will only be available for tax year 2019 and subsequent years though, with previous years still having to be filed on paper.
Form 1040-X for expats
All Americans have to file US taxes every year, reporting their worldwide income, including expats, even if they have to file taxes in their country of residence too.
“Making the 1040-X an electronically filed form has been a goal of the IRS for a number of years. It’s also been an ongoing request from the nation’s tax professional community.” – the IRS
International tax treaties don’t prevent expats from filing. Instead, to avoid double taxation, expats have to file additional forms such as Form 2555 to claim the Foreign Earned Income Exclusion, or Form 1116 to claim the Foreign Tax Credit. These forms can be filed electronically along with Form 1040.
Expats also often have to report their foreign businesses, bank accounts and investments.
Expats who have missed filing previous years shouldn’t just file Form 1040-X however, as there are amnesty programs such as the Streamlined Procedure available to allow them to catch up and become compliant without facing back taxes and penalties, depending on their circumstances.
Neither should expats file Form 1040-X to correct calculation errors, as the IRS computers check the calculations and work out the correct figures.
Form 1040-X should be filed to correct omissions or factual errors. For example, if certain income, or a dependent, or deductions were included that you later realize shouldn’t have been (or conversely weren’t included but should have been), filing an amended return is appropriate.
You can also file Form 1040-X to claim tax credits you may have missed, or if you need to change your filing status (e.g. from married filing separately to married filing jointly or head of household).
You can only file an amended return up to three years after the original Form 1040 was filed.
Filing from abroad is more complex than filing from in the US, due to the additional forms that need to be filed, currency conversions, and the overlap of two tax systems, so expats almost always benefit from advice from an expat tax specialist.