# Question about F1040 (streamlined compliance)



## grumpygaijin (Jan 29, 2021)

Though it may have been answered elsewhere I couldn't find answers, so I'm posting here.

1) I'm one of those people who hasn't file since leaving the US (not knowing I needed to) so I'm trying to bring myself back into compliance (hoping to move back the US in the not-too-distant future). I need to file 2017, 18, and 19 ('20 to follow in a month or so). I'm starting with 2017, which is what this question is based on.

2) I've completed the 2555EZ (I've been living in Japan since 2003).

3) I'm confused about the 1116. From what I understand, since my foreign earned income is excluded, I canNOT claim any taxes credit based on that income. Is that right?

4) It seems then that filling out the form is quite simple. I'm doing the following, if anyone has suggestions, please point out my errors.
L3 (neither wife nor child have US SSN or ITIN)
L6a (only exemption is me)
L7 taken directly from my Japanese tax return and converted into USD) - Let's say $65,000 as an example.
L21 in parenthesis (-65,000) 2555EZ
L22 0
L37, 38 0
L40 6,350
L41 0
L42 4050
L43 0
L44 0
L47 0
L56 0
L63 0
L74 0
L78 0

and done. Is that right?

Cheers


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## Bevdeforges (Nov 16, 2007)

If line 44 is 0, you're done! And yes, you can't use the Foreign Tax Credits (form 1116) against any income you have excluded.


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## grumpygaijin (Jan 29, 2021)

Thank you Bevdeforges! 

I confess a little laziness for the next questions, but the worst that can happen is that I get called out .

Will there be any surprised when I go to fill out 2018 or 2019?

I'll be applying first for an ITIN for my son (then later a SSN) before I file 2020 ... do you know if I can retroactively claim EIC (earned income credit) for all years since he was born (2015)?

Thanks again for your quick reply.


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## Moulard (Feb 3, 2017)

Q3. You are correct. If you exclude income, then you have to proportionally reduce your credits, deductions etc 

In the simplest of terms say hypothetically you earned 150k USD and the exclusion limit was 100k USD you would be able to deduct 33% of your deductions, and use 33% of your foreign taxes 

If we were to notch up the complexity a bit and say that you had 10k USD in say interest (gross income now 160k) , and paid a flat tax rate in Japan of 30%.... (48k USD)

You would have to proportionally divide the Japanese taxes between wages and interest (a 45k : 3k split) and because you excluded foreign income only 33% of the taxes allocated to wages, then the japanese taxes available to offset US taxes on that 50k would be limited to 14.8k USD.

That in a nutshell is how the reduction in deductions and credits work when you exclude income. The tax credit side of the equation is a bit more complicated, because you similarly have to proportionally split the US taxes too... but we can save that until you need to consider Form 1116 because exclusions and deductions still leave you with a US taxable amount.


Q2 and Q4. One thing to consider and it is the hidden gotcha with Form 2555 is that you cannot exclude any foreign pension contributions made by your employer.


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## Moulard (Feb 3, 2017)

grumpygaijin said:


> Will there be any surprised when I go to fill out 2018 or 2019?
> 
> I'll be applying first for an ITIN for my son (then later a SSN) before I file 2020 ... do you know if I can retroactively claim EIC (earned income credit) for all years since he was born (2015)?


Yes. while tax forms have been more or less stable and only undergoing minor changes, Trumps attempts at a postcard sized tax forms, then later the TCJA has meant that each year there has been tremendous change in the forms structure. While ostensibly the same information is gathered, it can be at different line numbers and on different schedules.

If this was 10 years ago, you would have simply been able to clone the first return for the subsequent ones. Now, you have to be a bit more on your toes.


If you son is a US person, then he is not eligible for an ITIN only an SSN. and I believe the EITC requires an SSN that has been issued before the due date of the tax return... so no retrospective claiming.

EDIT.. Yes. I am right - no retrospective claiming





__





Earned Income Tax Credit (EITC) | Internal Revenue Service


If you’re a low- to moderate-income worker, find out if you qualify for the Earned Income Tax Credit (EITC) and how much your credit is worth.




www.irs.gov





Also another factor, seem to recall that you need earned income - and earned income you exclude does not count. You would need to use Foreign Tax Credits to offset US taxes.


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## grumpygaijin (Jan 29, 2021)

Thank you Moulard!

For my compliance records, I'm trying to do the simplest return I can possibly do. For 2020 (and beyond), I'm looking to get whatever benefits I might be eligible for. Since I wasn't eligible for the first stimulus, if I understand things, I can use it as credit against taxes owed OR claim it as a return, even though I haven't paid any taxes.

FTR - I don't agree with all Trump policies, but if the filing of tax returns could be simplified, I'd be all for it! Why does it take a 290 page booklet (2017 Publication 17) to explain a 2-page form. Seriously, could the government make things MORE complicated than they already are? LOL (Answer, yes they could!!)

All of my income is from Japanese employers (now that I am aware of the limit on foreign income, I will be mindful to NEVER go over it) and they do NOT contribute to my pension. In Japan the law is that all residents MUST have health insurance (there are about 3 schemes - if you're not eligible for any of the private you MUST sign up for the national plan). By default, they also sign you up for national pension, which I can opt out, but it's a bit of challenge. I didn't opt out .. figuring I might be here long enough to get the payments after retirement. (Another catch is - if I don't pay in for 25 years, I cannot claim any benefits. I can request a one-time lump sum payment [equal to 3 years], but since the government is in charge of it - I get screwed and get a small fraction of what I should actually get.)

My son is not YET registered with the US as a citizen .. so .. if I understand correctly (and I freely admit I may NOT understand correctly) he can be considered an NRA (no resident alien) for tax return filing purposes. I guess there's no benefit in doing that, from what you wrote. Maybe I'll just apply for the SSN. 

Similarly to the stimulus money, I read somewhere (maybe it's not the EIC) that though I don't pay taxes I would be entitled to $1400 of the available $2000 in the form of a refund for my son. I'll see if I can find where I read that and post it later.

Cheers for the reply and info!


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## Moulard (Feb 3, 2017)

Fully agree that for compliance purposes you would want to take the simplest route to get in done and dusted. Some of what I write is to help you plan moving forward.

The EIP stimulus payments were advances on the 2020 tax returns paid on the basis of what was in the 18 or 19 returns, so you will be able to balance the books so to speak when you get around to filing the 2020 return. Technically you can delay filing your 2020 return until 15 December .. which may be worth doing if it will mean you can claim your son as a qualified dependent for the EIP. 
Other qualification factors come into play for other refundable tax credits so you will have to figure out whether the fast and simple route is preferable to a small potential payment to you. . 

The whole US citizen child born abroad is kinda like the "if a tree falls in the forest and no one hears it" scenario. Legally he could be a citizen at birth, but not recognized as a citizen until the birth is reported. 
I suspect I agree with fewer Trump policies than you do, but really the changes to the tax forms were pure theater. "See I have halved the size of the tax forms"... but ignoring the fact that in essence all they did was cut each page in half, doubling the number of pages. 

Re National Pension... sounds like it is a social security type system... you should check if there is a totalisation agreement between the US and Japan. If there is contributions in one scheme will count toward contribution requirements in the other scheme.


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## grumpygaijin (Jan 29, 2021)

Cheers for the additional info Moulard.

Clearly you know a LOT more than I do.

Just a couple of comments (because I'm enjoying the exchange).

We MAY agree how many of Trump's policies were good - it's probably closer than you might imagine! I liked some of his ideas, but few (all?) of his methods. [I have no use for either party, so I don't view Biden in any more favorable terms that I did Trump! LOL] As for the tax form thing .. I didn't know about it and it sounds typical of ANYTHING the government does. No surprise at all, to hear that the actual changes were nothing more than lipstick on a pig.

I'm going to have to do a LOT more digging for info before I 'spend' any of the money. Honestly, I think the government didn't do a good job of vetting who qualifies and who doesn't. Talking about stimulus payments. Just because I'm American and file a tax return shouldn't be the only qualifier. I can think of other groups and individuals needing the money a whole lot more than me. I would add - it's typical of how the government does things. It's no stimulus if it needs to be paid back. The J-gov't paid about $1000 to everyone legally in country. No expectation of paying it back. shrug

You're probably right .. simple and easy is almost certainly preferable to a small payout. Again, as I understand the child tax credit .. as long as I jump through all the hoops he can be claimed and at least in theory, he'd be eligible for the aforementioned $1400 return.

According to Japanese law, he can be dual-citizen until 20 (18?), then he has to decide. If he decides Japan (the US will return his US passport) and he can maintain both (both not legally in the eyes of Japan, but legal in the eyes of the US). To say it's a complicated situation is fair.

Thanks for the tip on the totalization agreement. I had not considered that, but if it were so .. it would be more of a relief. I DO know that if I'm eligible to collect from Japanese pension, I MUST enter the country once every calendar year or the gov't can just wipe out my eligibility. I put nothing past any government in taking benefits away from eligible recipients.


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## Moulard (Feb 3, 2017)

On Trump, yes, US citizens who have lived for extended periods outside of the US, tend to have, how can I put it, ... a more global perspective.

I moved to Australia as a young child, and on receiving my first pay-cheque my father told me about US citizenship taxation. So I have had a lifetime to slowly come to grips with it.

To paraphrase.. how do you digest the Internal Revenue Code? ... One bit at a time... and I have had lots of bites. 

Boxing day tradition has me watching the start of the Sydney to Hobart, the Opening day of the Melbourne Test and reading up on this sort of stuff during the slow bits.

On the EIP I am torn.. On the one hand, I agree that it probably should have targeted those resident in the US, but on the other, if the decision in Tait vs Cook justified citizenship based taxation on the basis of the inherent benefit of US Citizenship, then the EIP is clearly one such benefit. Every US govt service I use is paid for on a cost basis due to the USCIS funding model. I know I won't get any so called benefit when I retire and my superannuation is distributed. Tax free in Australia, taxable in the US and it will simply result in me having to rely on a government aged pension 20-30% sooner and thus US tax law indirectly affects my non-US family and friends who will have to pick up the burden.

... but I digress...

One thing to bear in mind is that with streamlined, unless you are under the IRS Radar (for whatever reason) you have as much time as you need to figure out the best approach on filing. If there is one thing that I have learned from that lifetime of study is that never make a panicked or rushed decision. Read, think, digest, reread and come to a calm and rational decision that takes into account your appetite for risk. The reality is that that risk is probably negligible until you are back in the US.

Given your 2020 return, can easily be extended to 15 Oct by filing Form 4868, so really, if the plan is to file streamlined, that is probably the target date so you have say 9 months to figure out what is best for you.


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## Bevdeforges (Nov 16, 2007)

As far as doing the Streamlined filings, most folks I know have filed the current tax return first, and then they go back and file the 3 prior years. It seems to work out the simplest that way, though Your Mileage May Vary.

Oh, and regardless of what they would like you to believe, it looks like they are and have been paying out those Covid relief payments to plenty of non-citizens overseas. Apparently based on the notion that "all" US SS benefits recipients are eligible.


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## grumpygaijin (Jan 29, 2021)

Moulard - touche on your reply about the EIP. There are pros and cons to both sides of the issue. If I had a preference it would be that the government were smaller and less powerful in terms of affecting my perceived freedoms! LOL

I have no reason to think the IRS is interested in me. At all. I suppose a lot of this came about from a couple of different things. One was from a couple of years back, the early stages of a plan to move back to the US (which I'm thankful now didn't work out). A second being an unrequested mail-in voting ballot being sent to me at my mum's house in NY, when the last state I was a legal resident a different state. I suppose we could add a third reason of the stimulus money .. I don't need it, but at the height of the corona virus lockdowns I figured someone in the family could use it. 

Cheers for your thoughts that it might not matter until I return Stateside, but since I've already gone through one aborted plan, the possibility that a second could come up on a moment's notice makes me want to be prepared, should such an eventuality come. I WILL take your advice in delaying my 2020, solely based on the interest of getting whatever benefits I can, which is going to require some legwork on my part. Additionally I prefer to breeze through immigration upon arrival to the US; that can easily happen with a US passport for my son. It's interesting to note that I have the most trouble entering the country in which I have citizenship - every other country is a cursory glance at my documents, a stamp in my passport, and done, except Guatemala - the lady was so bored, she didn't glance at anything - just a stamp. SMH

A final comment about the streamlined procedure....from what I'm understanding thanks to some of your clarifications and various readings .. the forms are unlikely to change for me. In fact, as far as I can tell, there is no single form I could fill out that would have any impact, so I'm likely to send all them in and hope for the best. I don't anticipate any problems but since the situation IS related to the gov't, anything is possible.

Bevdeforges - thanks for the idea. I wouldn't have thought about doing things that way, although you could certainly be right (I have more reasons to believe you are, than any reason to think you are not). It seemed sensible to me to start with the earliest year and work my way to the present time. A second reason for choosing to do it this way was the cursed stimulus monies. If the payout was based on a 2018 or 2019 tax return, I thought that I should file those first .. so they could calculate properly, then apply for the first stimulus money as a tax credit for 2020, etc. etc. I'm still working it out in my mind.

As I wrote above, I don't need the money (but I also sure as heck don't need any hassle that comes with it - such as: would the Japanese gov't consider that money taxable and require me to claim it on my return? On the same point, should I include the Japanese stimulus money on my US return as 'untaxed income'?) (heavy sigh) 

Cheers to the both of yous for the replies and help.


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## Moulard (Feb 3, 2017)

grumpygaijin said:


> Moulard - touche on your reply about the EIP. There are pros and cons to both sides of the issue. If I had a preference it would be that the government were smaller and less powerful in terms of affecting my perceived freedoms! LOL


It wouldn't even have to pause to draw a breath to agree to swap any EIP type benefits in exchange for the US reverting to a Territorial Tax system like most civilized countries.



> As I wrote above, I don't need the money (but I also sure as heck don't need any hassle that comes with it - such as: would the Japanese gov't consider that money taxable and require me to claim it on my return? On the same point, should I include the Japanese stimulus money on my US return as 'untaxed income'?) (heavy sigh)


The answer on any Japanese stimulus money will be "it depends". 

What it most likely depends on is how it was paid to you and where the legislation sits in law on the Japanese side and where that sits in the tax treaty.

If it was a social welfare payment, then it would probably fall under the social security clause as "other public pension"
If it was a tax refund (the way the US one was), then it would probably not even be considered income just an application of domestic tax law as allowed by the treaty


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## grumpygaijin (Jan 29, 2021)

Moulard - I suppose a third option is the head-in-the-sand approach. LOL

If I may a question - when I fill in the amount of the foreign earned income credit, do I write it as a minus? I understand the part about parentheses and the 2555EZ, but the wording makes it sound like it never zeros out .. even though it obviously does. Do you know how I should indicate that on the forms.

FYI I'm working on 2018 schedule 1 and it's a similar scenario .. how do I indicate the negation of income?

Cheers


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## Moulard (Feb 3, 2017)

Parenthesis representing a negative number is an accounting shorthand. I recommend always using parentheses for negative amounts.

I assume you are referring to the Foreign Earned Income Exclusion not something else (there is no Foreign earned Income Credit)

What you showed in your original post is correct - and really all schedule 1 does is summarize all of the content that used to be on the 1040 (see my previous comment about the theatre of reducing the size of the tax forms) along with line numbering changes.

Wages added on Line 1 (Wages salary etc) ;
Shown as a negative on the relevant lines on Schedule 1 (per 2555 instructions)
Which then gets copied across and shown as a negative number on line 6 (per schedule 1 instructions)

Resulting in an AGI on line 7 of zero if you had no other income


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## grumpygaijin (Jan 29, 2021)

LOL - yes - Foreign Earned Income Exclusion. What can I say? I don't multi-task well! I'm trying to deal with Uni offices in Japanese whilst filling in the tax forms while awaiting their replies! LOL

Cheers for the quick reply.

If I may (I'm a bit dense today) a quick summary:

2017 Line 7 65000 (as an example)

Line 21 Other Income. List type and amount (65000) 2555EZ 21. (65000)
22 22. 0

Then on 2018 and 19 Schedule 1
[1040 Line 1 70000]

Line 21 Other Income. List type and amount (70000) 2555EZ 21. (70000)
22 22. (70000)

Then on line 6 of F1040 - (70000) resulting in line 7 Adjusted Gross Income as 0.

I'm assuming 2019 will be the same with one exception - there is no 2555EZ, only 2555.

Again, thanks for your time.


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## Moulard (Feb 3, 2017)

Ah the good old office worker equivalent of a Koshikudake through over-commitment. (I grew up with the names Takamiyama, Konishiki and Akebono ringing in my ears) and have just realised I have done the same by missing the entire Hatsu Basho.

I just wanted to make sure you weren't referring to the earned income credit... which is a completely different thing.

Pretty much spot on. 

Line numbers and schedules change but you will work that out (they go from 6 to 3 schedules in 2019 I think)


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## grumpygaijin (Jan 29, 2021)

Ah yes, Sumo. When I first came here to live, I was a huge fan of Musashimaru, later Chiyotaikai and Kaio (who, although he never made it to Yokozuna, was as constant for many years as the day is long), and more recently Hakuho (who in my opinion is as great a Yokozuna as there has ever been and is certainly the greatest foreign-born Yokozuna). 

I prefer use the word - Karoshi (lit. death from overwork)!

Cheers for all the help. I anticipate printing it all up in the next day or so, the sending it off, only to begin working on my J-taxes while also planning for my 2020 US return.

What's the right phrase here: Good on ya for all the help. (or something like that)


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