In the latest in our series of ‘A Reader Asks’ questions, a 30-something American expatriate who has been living in London for most of her life says she is really keen to vote in the forthcoming election – but she’s wary, as she’s heard that she might attract unwanted attention from the IRS if she does...
“Becky”, as we will call her, says she has always filed a U.S. tax return since she started making enough money to trigger the obligation to file. (US$12,200 annual gross income currently, for an unmarried taxpayer under the age of 65.)
But she says that in addition to having been, by her own admission, “too lazy and disorganized” until now to sign up to vote, Becky says she’s heard other expats express concern that voting in a U.S. election might cause them to appear on an IRS priority list.
These other expats’ fear – which Becky says she now shares – is that even those who have always filed tax returns that they did their best to ensure were correct might nevertheless end up getting hit with eye-watering penalties as a result of the IRS taking a sudden and unexpected interest in their modest filings. They believe this is entirely possible due to the complex nature of U.S. taxes for expats.
As the deadline for applying for an absentee ballot is rapidly approaching, we asked Katelynn Minott, a US expat and Managing Certified Public Accountant and Partner at Bright!Tax, the American expat tax specialist firm, whether Becky and her friends genuinely have any reason to be concerned…
The first thing to say is that this is a quite a common concern among expatriates, including those who file their U.S. taxes, owing to a widespread dread among Americans generally of being chosen for an audit.
The connection between taxation and "representation", as expressed by individual citizens through the act of voting, is of course deeply rooted in our minds, having been intrinsic to the founding of our nation.
So it's perhaps not surprising that some Americans who live abroad worry that Uncle Sam might therefore be tempted to ensure they are actually "entitled" to the privilege of "representation", by checking to see whether they have paid their taxes.
Others think that the U.S. government might just seek to take advantage of the opportunity that the existence of voter registration data might seem to present it with to snoop on these expats’ finances, given that the U.S. government has already shown such interest in snooping into its expatriate citizens' money affairs – to judge, for example, by the way it has been using the 2010 law known as FATCA to do so.
Technical point: U.S. expats
'required to file tax returns'
The first point to make is that all American citizens (and Green Card holders) are required to file U.S. tax returns every year, even if they live abroad, if their worldwide income exceeds IRS minimum filing thresholds. This requirement only stops if you renounce your U.S. citizenship.
For 2019, these thresholds are US$12,200 of any income (for an individual), or just US$400 of self-employment income. For Americans who are filing separately from their spouse – as those married to foreigners typically do – the income threshold for filing is just US$5. (See table, left.)
Not filing a tax return can leave a U.S. expat open to potential penalties down the road. And in this increasingly digital age, the IRS has a global influence and reach that it didn't have in decades past.
Most expats who file don’t end up owing money to the IRS anyway, as double-tax treaties enable them to make use of such features as Foreign Tax Credits or the Foreign Earned Income Exclusion when they file.
But even given all that, the fact remains that the mere act of registering to vote in a federal election will not, in itself, trigger a letter from the IRS, or an audit.
One reason for this is because voter registration happens at the state rather than federal level, and states don’t share voter registrations with the federal government.
Paying foreign taxes, or having any kind of foreign financial account – whether its a bank account, overseas investment account, or individual (rather than state) pension – is a much more likely way for expats to pop up on the IRS’s radar.
This is because, of course, under FATCA, nearly all foreign financial firms are now providing their American clients’ financial and contact details directly to the IRS (as provided for under Intergovernmental Agreements between the U.S. and the government of the country they're living in).
Expats who are worried about getting into trouble with the U.S. tax authorities because they have failed to file U.S. tax returns for one or more years, because they genuinely didn’t realize that they had to from abroad, can often catch up using an IRS amnesty program such as the Streamlined Procedure.
Those who catch up voluntarily won’t face late filing penalties, as long as the program stays open. (We recommend such individuals get good advice on this, ideally from more than one source.)
The 'state elections question'
This brings us, at last, to Becky's question: whether registering to vote in local (state) elections will alert the state tax department of the individual expat in question to the fact that they may not have been filing any state tax returns, and potentially paying taxes to the state in which they last lived.
As a non-profit organization known as the Overseas Vote Foundation (overseasvotefoundation.org) points out on its website, the answer as to whether there’s any kind of a link between overseas voting records and U.S. government officials “differs for federal elections and state/local elections”.
And for this reason, it suggests, an American currently resident abroad who is seriously concerned about avoiding the scrutiny of state tax authorities would probably wish to skip voting in local elections, just to be safe.
“For federal elections, there is NO link,” the OSVF notes, adding that these are the elections that are for president and vice president as well as both houses of Congress. (It defines a federal election as being one in which individuals are "voting to send the candidate to Washington".)
"[in an election] for federal offices only, the act of voting will have no effect on your liability to pay state income tax or any other tax.”
While it might seem harsh to be deprived of voting in the local elections in the state in which one may have lived for years, most expats who have been abroad for even just a few years often say they've begun to lose touch with what’s going on back home, as well as interest.
Furthermore, while the rules vary from state to state, the majority of states are happy to exempt expatriate citizens from having to file state tax returns, so long as they can demonstrate that they genuinely live abroad.
The hardest states to persuade are California, New Mexico, Virginia, and South Carolina.
In general, the more ties an expat retains to their former state – especially if these include financial accounts and property – the more reluctant the state might be to let go of them, and their annual tax returns.
While in general the IRS does audit a higher proportion of expats than Homelanders, registering to vote will definitely not, by itself, trigger an audit.
The best advice, as always, is to respect the law and file honestly.
As mentioned above, you probably won’t owe any U.S. tax, and in fact, you might even qualify for a refund that you weren’t aware of, as sometimes happens for expat parents of dependent children.
What's more, you won’t have to worry about possible future headaches.
Those Americans who have not yet registered to vote in this November’s election, or who are unsure if they are registered, should register to do so as soon as possible.
Katelynn Minott, pictured left, is a managing Certified Public Accountant and partner of Bright!Tax, an online American expat tax specialist firm that has clients in some 190 countries, according to its website. The views expressed in the article are for general information purposes only and should not be construed as recommendations or advice for any individual, nor should any action be taken on account of the information presented. Further information may be obtained by contacting Bright!Tax, at https://brighttax.com/.