By Capt. Jennifer Bryer, 7th Army Joint Multinational Training Command
GRAFENWOEHR, Germany — It is time to pay the piper: U.S. federal taxes for 2015 are due April 18, 2016 (an exception to the normal due date of April 15 because of the Emancipation Day holiday in Washington D.C.).
Living overseas can add another layer of complexity to taxes. Fortunately, the USAG Bavaria Tax Centers are here to help. Tax centers across Bavaria opened their doors on Feb. 1. The tax centers provide free tax preparation services by IRS-trained Soldiers, Civilians and attorneys.
Here are some common issues to consider during tax season:
States can require their residents and/or domiciliaries to pay income tax. A state has the authority to tax domiciliaries of that state, even if the domiciliary does not currently live in that state due to military assignment. Each state’s law is different, so to be sure you are complying with applicable state law. Stop by your local tax center and inquire about the rules for your state of legal residence.
The Service Members Civil Relief Act, or SCRA, allows Service members to maintain their home of record for residency and tax purposes. Residency in a different state is not established unless the Service member takes active steps to establish residency in a new state.
The Military Spouse Residency Relief Act, or MSRRA, provides similar protection to military spouses for issues of taxation, voting, and residency. If the military spouse and Service member are residents of the same state, then the spouse is able to maintain his/her state of residency even when they move to a new state because of military orders.
Both the SCRA and MSRRA only apply to a Service member’s military pay and a spouse’s pay, it does not address a Service member’s non-military pay.
Every state has different requirements for establishing residency, but some of the common actions that establish residency in a state include registering to vote, paying taxes, getting a driver’s license, and/or owning a home in that state.
State tax issues are often the most complicated part of a taxpayer’s tax return. Every state has its own tax system, and many states have special rules for military income. Some states that do not tax military income still require military members to file paperwork.
Foreign Earned Income
The IRS allows taxpayers to exclude up to $100,800 in foreign earned income from their 2015 tax year. To qualify for the exclusion, you must meet one of two tests: 1) bona fide residence test, or 2) the physical presence test. The bona fide residence test applies to taxpayers who are residents of a foreign country, while the physical presence test applies to taxpayers who have lived outside of the United States for at least 330 days in 12 consecutive months and who have not spent more than 30 days total in the United States during that time. It is important to note that income earned as an employee of the United States Government or its entities is not excludable.
Individual Tax Identification Number
If your spouse is not a U.S. citizen or resident, she/he does not need to report earned income. It may be to your advantage, however, to elect to treat your spouse as a U.S. resident so that you can file a joint return. Foreign spouses ineligible for Social Security numbers will need to apply for an Individual Tax Identification Number, or ITIN, using IRS Form W-7.
Foreign Bank Accounts
Any United States citizen who has a financial interest in or signature authority (or other authority) over any financial account in a foreign country must report the accounts if the aggregate value exceeds $10,000 at any time during the calendar year. This report is called a FBAR, and stands for a Report of Foreign Bank and Financial Accounts. The form number is FinCEN Report 114, and must be filed online. If you currently have or have had over $10,000 in any foreign bank account during 2015, you must report this to the Department of the Treasury on the FinCEN Report 114 not later than June 30, 2016. This form is not part of your federal tax return and it must be received by the Treasury Office by June 30, 2016. Accounts at on-post banking institutions such as Community Bank and Service Credit Union do not count as foreign accounts for FBAR purposes.
Help is available
Taxes can be complicated. We are here to help. Visit your local tax center or contact the tax centers. For more on tax exemptions, visit my article “Large number of claimed exemptions leads to high tax bills.”