# Hopefully a very simple beginner question to answer



## MadTurboCow (Jan 15, 2021)

Hi,
We lived in the US for 4 years from 1999 to 2003 before returning to Australia. We brought a new US daughter into the world while there and now, 19 years later, she has started working and needs to complete a 1040 (but really it will be me who has to do it). She is only working part-time and earns less than $20K so it looks like she can simply claim the Foreign Earned Income Exclusion to prevent double taxation. However I can't find any information about how to actually record it on the 1040.

Can someone clarify how I can record this please?

Thanks in advance.
Rob


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## Moulard (Feb 3, 2017)

Wages get added onto Line 1 of the 1040
The amount on Form 2555 Line 45 gets added to Schedule 1 and also onto line 8 of the 1040 as a negative number.
In most simple terms, It gets added as wages on line 1, and then subtracted on line 8 of the 1040.



https://www.irs.gov/pub/irs-pdf/i2555.pdf



If the two of you are grappling with this stuff, pub 54 is a good summary of the key stuff to know..



https://www.irs.gov/pub/irs-pdf/p54.pdf



OK.. now onto stuff you should know... now that I have answered your question.

It is worth noting that it may very quickly be better for her to use foreign tax credits instead of the foreign earned income exclusion.

First, one can carry over excess taxes paid to the ATO for 10 years, which can be used to offset US taxes on income that is not taxed in Australia (consider a future redundancy payment for example)

Second, foreign pension contributions are not considered earned income for the purposes of the FEIE and thus cannot be excluded (ie she would not be able to exclude employer super contributions)

The higher tax free threshold in Australia can make the FEIE better when ones income is low ($20k AUD is about the tipping point depending on the exchange rate)

But once you revoke your option to use the FEIE and start to use FTCs you cannot go back to FEIE for 5 years.


EDIT
I should add, if she only has a notice of assessment for the 19-20 tax year and this is her first US return then stick with the FEIE this time. The standard deduction will be enough to offset super contributions. 

While one can use either a cash basis or an accrual basis of accounting for foreign tax credits, cash is easier, (you just live with the fact that tax credit and income don't align well) but the differences in the tax years can be problematic if one has only paid Australian tax for half the US tax year due to the differences in tax years.

hope that makes some sense... if not happy to try to explain in more detail


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## Nononymous (Jul 12, 2011)

More of a general comment. If your US-born daughter has no interest in moving to the US in the immediate future, she's better off staying out of the US tax system. Ideally, ensure that she does not disclose US citizenship to any banks, so that she's not subject to FATCA reporting. As an "Accidental American" with no significant US ties she can safely ignore the general silliness of US tax requirements - if it's any consolation, the compliance rate for US citizens abroad is as low as 10 percent, from IRS data.

On the other hand, if she files for 2020 she'll receive free money from the stimulus benefit, currently $1800, likely soon to be $3200, and who knows after that. Personally I don't think it's worth giving up one's anonymity for that amount of money, but it's tempting. 

US tax obligations are often easy to meet early in life, but later on things get complicated and potentially expensive. In Australia there are issues with the Super. See fixthetaxtreaty.org for more info.


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## MadTurboCow (Jan 15, 2021)

Nononymous said:


> More of a general comment. If your US-born daughter has no interest in moving to the US in the immediate future, she's better off staying out of the US tax system. Ideally, ensure that she does not disclose US citizenship to any banks, so that she's not subject to FATCA reporting. As an "Accidental American" with no significant US ties she can safely ignore the general silliness of US tax requirements - if it's any consolation, the compliance rate for US citizens abroad is as low as 10 percent, from IRS data.
> 
> On the other hand, if she files for 2020 she'll receive free money from the stimulus benefit, currently $1800, likely soon to be $3200, and who knows after that. Personally I don't think it's worth giving up one's anonymity for that amount of money, but it's tempting.
> 
> US tax obligations are often easy to meet early in life, but later on things get complicated and potentially expensive. In Australia there are issues with the Super. See fixthetaxtreaty.org for more info.


Thanks for the suggestion however this all started when her bank contacted her to provide her tax details. She had already done that (Aus TFN) so ignored it and 2 weeks later when she went to pay for her petrol at a period station, her card was declined. Logged in (Commonwealth bank) and saw her account was frozen. She probably had to provide her place of birth when she opened the account so they knew she was born in the us. It seems the US is really ramping up on this. I read the other week about a 60 year old woman in France who had the same problem however she had not been to the us for 55 years and didn't have a SSN. So the bank froze her bank account until she could provide one. When she contacted the US INS, they said because of covid, getting a SSN will take even longer. Very unfair. 

Thanks for the suggestion anyway.


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## MadTurboCow (Jan 15, 2021)

Moulard said:


> Wages get added onto Line 1 of the 1040
> The amount on Form 2555 Line 45 gets added to Schedule 1 and also onto line 8 of the 1040 as a negative number.
> In most simple terms, It gets added as wages on line 1, and then subtracted on line 8 of the 1040.
> 
> ...


Thank you so much for this information. I will get back to the tax process and hopefully can figure out all out from the information you have provided. Really appreciate the help and I will probably have more dumb questions before I'm finished.


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## Nononymous (Jul 12, 2011)

MadTurboCow said:


> Thanks for the suggestion however this all started when her bank contacted her to provide her tax details. She had already done that (Aus TFN) so ignored it and 2 weeks later when she went to pay for her petrol at a period station, her card was declined. Logged in (Commonwealth bank) and saw her account was frozen. She probably had to provide her place of birth when she opened the account so they knew she was born in the us. It seems the US is really ramping up on this. I read the other week about a 60 year old woman in France who had the same problem however she had not been to the us for 55 years and didn't have a SSN. So the bank froze her bank account until she could provide one. When she contacted the US INS, they said because of covid, getting a SSN will take even longer. Very unfair.


Oh that does suck. She's in that "bank knows she's American but she can't get an SSN" Catch-22 that is potentially locking dual citizens out of banking services during the plague.

Consider calling the bank and telling them that she has an SSN, and it is 123-45-6789! (I have heard of people doing this, albeit with more random numbers.)

Two thoughts:

First, very important, FATCA problems are not the same as US tax problems. Your daughter could supply an SSN to her bank, regain access to her account, and still choose never to file a US tax return. In other words, being subject to FATCA reporting does not *compel* a person to file (although it does potentially send the US government a data point). Compliance is a decision she should make independently of the bank situation.

Second, get in touch with others in Australia to see if there are banks more tolerant (or, frankly, slack) with FATCA compliance. I'm in Canada but born in the US. Banks here let me open an account with a drivers license as ID (which does not show place of birth); the only reference to FATCA is a checkbox on the application that says "Are you resident of another country for tax purposes?" If one does not check the box, one is not subject to FATCA reporting or asked to supply an SSN. Yes it's lying. (For what it's worth, that's what my own dual-citizen child has been encouraged to do, though they were at least born outside the US.)


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## Moulard (Feb 3, 2017)

MadTurboCow said:


> She probably had to provide her place of birth when she opened the account so they knew she was born in the us. It seems the US is really ramping up on this.


Its not just the US, Australia has had enabling legislation for both FATCA and CRS. So even without FATCA Australian financial institutions are now required to gather the tax residencies of their customers and report it to the ATO for distribution. Both Acts allowed grandfathering of existing accounts from reporting, but when a new account is opened or an existing crosses specific balance thresholds the under Australian law, the institution is required to obtain the tax residency of the account holder(s) and pass onto the ATO account information.



Nononymous said:


> First, very important, FATCA problems are not the same as US tax problems. Your daughter could supply an SSN to her bank, regain access to her account, and still choose never to file a US tax return. In other words, being subject to FATCA reporting does not *compel* a person to file (although it does potentially send the US government a data point). Compliance is a decision she should make independently of the bank situation.


This is in fact true. Just because the ATO reports that you have an account, and its balance to the IRS, this does not necessarily mean that one has income that crosses the reporting threshold.
Further, it is not even necessarily true that the data that the ATO sends is meaningful or even accurate or in a form that the IRS can digest and compare at this point in time.



> Second, get in touch with others in Australia to see if there are banks more tolerant (or, frankly, slack) with FATCA compliance. I'm in Canada but born in the US. Banks here let me open an account with a drivers license as ID (which does not show place of birth); the only reference to FATCA is a checkbox on the application that says "Are you resident of another country for tax purposes?" If one does not check the box, one is not subject to FATCA reporting or asked to supply an SSN. Yes it's lying. (For what it's worth, that's what my own dual-citizen child has been encouraged to do, though they were at least born outside the US.)


I have not read the enabling legislation (FATCA or CRS) or the FATCA IGA in a long time, but the FATCA IGA does allow for certain financial institutions to be deemed compliant. In particular financial institutions with a local client base. If memory serves, this is basically defined as an institution with no international presence, and that does not solicit customers outside of Australia. I have always done so, even before FATCA, but it is a good reason to bank with say an Australian Credit Union, or other smaller local bank (ie. not the big four).

Of course CRS came around a year later and complicates this, I could not tell you if CRS has the same exemption.



> When she contacted the US INS, they said because of covid, getting a SSN will take even longer. Very unfair.


Speak to your local member. I believe some have added a bit of political pressure to re-open accounts that had been frozen.

INS is the wrong agency.. SSNs are managed by the Social Security Administration.

As an aside, if your daughter was born at some point between 1999 and 2003 then she may already have an SSN. 
While early on in the enumeration at birth rollout, biparents had to opt in when registering a birth, by the late 1990s many states just started doing it automatically.
Depending on the time of the birth and how shortly after her birth you left, you may very well have it tucked away with her birth certificate etc.


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## Nononymous (Jul 12, 2011)

Moulard said:


> As an aside, if your daughter was born at some point between 1999 and 2003 then she may already have an SSN.
> While early on in the enumeration at birth rollout, biparents had to opt in when registering a birth, by the late 1990s many states just started doing it automatically.
> Depending on the time of the birth and how shortly after her birth you left, you may very well have it tucked away with her birth certificate etc.


For what it's worth, a certain child born outside the US during this time period did not receive an SSN upon registration of the birth at a consulate. Either that or we lost it, but we have all the other citizenship paperwork and it's not there so I'm assuming it never happened. (Had I known about the tax issues at the time I would never have registered the birth, but with the non-US birthplace and another passport it's not a concern, as the citizenship can be concealed.)


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## Moulard (Feb 3, 2017)

Enumeration at birth was a reference to MadTurboCow's daughter - only relevant if you were born within the United States (doesn't happen with CRBA)


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## Nononymous (Jul 12, 2011)

Moulard said:


> Of course CRS came around a year later and complicates this, I could not tell you if CRS has the same exemption.


Since the US did not sign on to CRS, there's no issue with CRS compliance for the daughter, as presumably she'd have no other tax residency besides Australia.

Banks in Canada now seem to conflate FATCA and CRS when asking for tax residency or citizenship info, sometimes in confusing ways. From the non-compliance perspective it's a good thing that they only ask one vague question about being "resident of another country for tax purposes" rather than "are you a US citizen?" or "where were you born?" because it means that US citizens who aren't aware of the tax obligations may unwittingly keep themselves clear of FATCA.

Early on there were a number of FATCA-free credit unions in Canada but after CRS it seems like they all moved to this combined compliance approach. The downside of these tiny credit unions was that while they were fine for ordinary banking, they offered no investment services (or if they did it was by partnership with a larger institution that followed FATCA rules).


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## Nononymous (Jul 12, 2011)

Moulard said:


> Enumeration at birth was a reference to MadTurboCow's daughter - only relevant if you were born within the United States (doesn't happen with CRBA)


Right, understood. I had heard rumour that it was being submitted with the CRBA now as well.


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## Bevdeforges (Nov 16, 2007)

Actually, with regard to the FATCA vs CRB issue - banks are not required to maintain a W9 or W8 BEN on all customers - they can (and often do - at least here in France) create their own forms for their own needs. But, with all these forms they are not submitted to the IRS. They just need to be held by the bank (in case of an audit, I suppose). And that's sort of a pity, since the W9 form has specific instructions for how to fill the thing out if you don't have a US SSN (I think you fill in the SSN as 000-00-0000 - or at least that's what it was a few years ago).

As far as applying for a US SSN, check the website of the US Embassy or Consulate. If they have a "Federal Benefits Unit" they may be able to do something about issuing a SSN. (Varies from Embassy to Embassy but I can vouch for the FBU folks in Paris, even though they are working from home and are generally pretty swamped.)


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## Nononymous (Jul 12, 2011)

Bevdeforges said:


> And that's sort of a pity, since the W9 form has specific instructions for how to fill the thing out if you don't have a US SSN


A bank using W8 or W9 forms for FATCA compliance purposes wouldn't change the fact that as of January 2020, the grace period expired on allowing identified US persons to not have an SSN/ITIN. Technically banks must now suspend (or refuse to open) accounts belonging to US persons who do not provide an SSN/ITIN. Fortunately, compliance with this rule appears to be spotty.


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## 255 (Sep 8, 2018)

@MadTurboCow -- As @Nononynous said, your daughter is eligible for the 2020 & 2021 stimulus payments. She just needs to file her 2020 & 2021 U.S. federal income tax returns to claim the stimulus. She did not have to have income in 2020 to file a return -- she can file only to take advantage of the stimulus payments. That would be a 16% bonus to her $20K income! She'd also be under the standard deduction, so tax free to her. A pretty heady amount for a teenager. Cheers, 255


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## Moulard (Feb 3, 2017)

Yep. you got it.. Earned Income gets added in line one and then subtracted on the other income line (via the schedule) and thus the two lines should cancel out if all you earned income can be excluded.


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