Deadlines and Penalties for paying US income taxes late

U.S. expats generally have different tax deadlines than U.S. residents. Here's a breakdown of the key deadlines, keeping in mind they can shift slightly depending on weekends and holidays:

Standard Deadlines (Not Year-Specific):

• April 15: This is the regular deadline for U.S. residents to file their federal tax returns. Expats receive a 2-month automatic extension.

• June 15: This is the automatic 2-month extension for expats to file their federal tax returns.

• October 15: This is the extended deadline for expats who filed for an additional extension using Form 4868 by the June deadline.

Important Notes:

• Payment of Taxes: Even with filing extensions, any taxes owed are generally still due by April 15 to avoid penalties and interest.

• Specific Circumstances: Certain situations may have different deadlines (e.g., self-employed individuals, those with foreign trusts, etc.).

Here's a breakdown of the penalties for paying US income taxes late:

Failure-to-File Penalty

• Rate: 5% of the unpaid taxes for each month or part of a month that a tax return is late, up to a maximum of 25%.

• Important: This penalty is much harsher than the failure-to-pay penalty. Even if you can't pay, you should file your return on time.

Failure-to-Pay Penalty

• Rate: 0.5% of the unpaid taxes for each month or part of a month that the tax remains unpaid, up to a maximum of 25%.

• Combined with Failure-to-File: If both penalties apply, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty for that month.

Interest

• In addition to penalties: Interest accrues on unpaid taxes, even if your penalty reaches its maximum. The interest rate changes periodically and is determined by the federal short-term rate plus 3%.

Example

You owe $2,000 in taxes and don't file your return or pay until 3 months after the deadline:

• Failure-to-file penalty: 5% x $2,000 x 3 months = $300

• Failure-to-pay penalty: 0.5% x $2,000 x 3 months = $30

• Interest: (depends on the current interest rate)

Important Notes

• Extensions: If you can't file by the deadline, file an extension. This will avoid the failure-to-file penalty, but you'll still need to pay your estimated tax due to avoid the failure-to-pay penalty.

• Penalty Abatement: In certain circumstances, you may qualify for penalty abatement (removal) if you have reasonable cause, such as illness or a natural disaster.

• Minimizing Penalties: Pay as much as you can on time, even if you can't pay in full. This can reduce your penalties.

Resources

• IRS website on Failure-to-File penalty: https://www.irs.gov/payments/failure-to-file-penalty

Deadlines and Penalties for paying UK income taxes late

The penalties for paying UK income taxes late can be quite significant. Here's a breakdown:

Late Filing Penalties

• Immediate Penalty: £100 fixed penalty if your tax return isn't filed by the deadline (generally 31st January following the tax year).

• Daily Penalties: £10 per day for up to 90 days if your return is more than 3 months late.

• Further Penalties: If your return is over 6 months late, an additional penalty of 5% of the tax due or £300 (whichever is greater) will be charged. This penalty is applied again if the return is over 12 months late.

Late Payment Penalties

• Initial 5% Penalty: A penalty of 5% of the unpaid tax will be charged if you haven't paid your tax bill by the 31st of January deadline.

• Further Penalties: Additional penalties of 5% of the unpaid tax will be applied if you still haven't paid after 6 months and again after 12 months.

Interest

• Charged on Unpaid Tax: Interest will accrue on any unpaid tax from the original due date. The interest rate is variable and based on the Bank of England base rate plus 2.5%.

Important Points

• HMRC Can Be Strict: HMRC is known for taking late payments and penalties seriously.

• Payment Plans: If you cannot pay your full tax bill on time, you may be able to set up a payment plan with HMRC to avoid some of the late payment penalties. However, interest will still apply.

• Reasonable Excuse: In limited circumstances, you may be able to appeal penalties if you have a reasonable excuse (e.g., serious illness, natural disaster).

Resources

• GOV.UK Website – Penalties for late filing and payment: https://www.gov.uk/self-assessment-tax-returns/penalties

Deadlines and Penalties for not filing the FBAR or for filing it incorrectly

The FBAR report is typically due on April 15, but it often has the same automatic extension to October 15 as the tax return itself.

There are significant penalties for not filing the FBAR (FinCEN Form 114, Report of Foreign Bank and Financial Accounts) or for filing it incorrectly. These are:

Non-Willful Violations

• If the IRS determines you weren't aware of the FBAR requirement and your failure to file wasn't intentional, the penalty can be up to $10,000 per account per year for each unintentional violation. The penalty is adjusted for inflation annually.

Willful Violations

• If the IRS determines you intentionally disregarded the FBAR requirement, the penalties are significantly harsher:

  • Civil: The greater of $100,000 or 50% of the balance of the accounts at the time of the violation, per account per year. The penalty is adjusted for inflation annually.

  • Criminal: Potential fines and imprisonment of up to 5 years.

Important Considerations:

• No Automatic Audit: Filing a late FBAR doesn't automatically trigger an audit. However, not filing increases your audit risk.

• Delinquent FBAR Submission Procedures: For non-willful violations, the IRS has specific procedures for filing late FBARs, potentially mitigating some penalties.

• Amnesty Programs: Occasionally, the IRS offers amnesty programs, allowing taxpayers to come into compliance with reduced or no penalties.

Seeking Professional Advice

• Highly Recommended: Since FBAR penalties are severe, it's strongly recommended that you consult a tax professional or attorney specializing in FBAR compliance if you have any concerns about late or incorrect filings.

Deadlines and Penalties for not filing Form 8938 or for filing it incorrectly

Form 8938 (Statement of Specified Foreign Financial Assets) is used to report foreign financial assets if their total value exceeds certain thresholds. Here's what you need to know:

Filing Thresholds for Expats: (Thresholds and deadlines are different for US residents)

• Single Filers:

  • If the total value of your specified foreign financial assets exceeds $200,000 on the last day of the tax year OR $300,000 at any time during the tax year, you must file Form 8938.

• Married Filing Jointly:

  • If the total value of your specified foreign financial assets exceeds $400,000 on the last day of the tax year OR $600,000 at any time during the tax year, you must file Form 8938.

Deadline for Filing Form 8938 for Expats:

Form 8938 must be filed with your federal tax return (Form 1040). For U.S. expats, the deadlines are as follows:

• June 15th: This is the automatic extension deadline for expats to file both their federal tax return and Form 8938.

• October 15th: If you filed for an additional extension using Form 4868 by the June deadline, you have until October 15th to file Form 8938.

Penalties for Not Filing or Filing Late:

• Failure to File: The penalty for not filing Form 8938 is $10,000.

• Continued Failure to File: If you don't file Form 8938 after the IRS notifies you, the penalty can increase up to $50,000.

• Inaccurate Filing: If you file Form 8938 but the information is inaccurate, you may face a penalty of $10,000.

Filing Thresholds for U.S. Residents: (Thresholds and deadlines are different for expats). UK expats to the US may be US residents.

• Single or Married Filing Separately:

  • If the total value of your specified foreign financial assets exceeds $50,000 on the last day of the tax year OR $75,000 at any time during the tax year, you must file Form 8938.

• Married Filing Jointly:

  • If the total value of your specified foreign financial assets exceeds $100,000 on the last day of the tax year OR $150,000 at any time during the tax year, you must file Form 8938.

Deadline for Filing Form 8938 (U.S. Residents):

Form 8938 must be filed with your federal tax return (Form 1040) by the tax deadline, which is usually April 15th. If you file for an extension, the deadline is typically October 15th.

Overlap and Differences between FBAR and Form 8938

While both FBAR (FinCEN Report 114) and Form 8938 deal with foreign financial assets, they have different reporting requirements and may not always cover the same assets:

FBAR (FinCEN Report 114):

• Focuses on foreign bank accounts, such as checking, savings, investment accounts, and certain types of insurance policies with a cash value.

• Threshold: If the aggregate value of your foreign bank accounts exceeds $10,000 at any point during the year, you need to file an FBAR.

• Filed with: FinCEN (Financial Crimes Enforcement Network), not the IRS.

Form 8938 (Statement of Specified Foreign Financial Assets):

• Covers a broader range of foreign financial assets, including bank accounts, stocks, bonds, mutual funds, partnership interests, and other types of investments.

• Thresholds: Vary depending on filing status and residency.

• Filed with: IRS, along with your tax return (Form 1040).

Overlap and Differences:

• Overlap: Many foreign bank accounts that you report on FBAR will also need to be reported on Form 8938 if they meet the asset thresholds for your filing status and residency.

• Differences:

  • FBAR requires reporting even if the aggregate value of foreign accounts at any time during the year is just over $10,000, while Form 8938 has higher thresholds.

  • FBAR is filed with FinCEN, while Form 8938 is filed with the IRS.

In Summary:

While there is some overlap in reporting, depending on your specific financial circumstances, you may be required to file both FBAR and Form 8938. It's essential to check the requirements for each form and report accordingly to comply with regulations and avoid penalties.