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Taxation of US citizens

The US government imposes income tax on US persons based on their worldwide income, not residency. The following are considered to be US persons for tax purposes:

  • A citizen born in the United States or outside with at least one parent who is a US citizen;
  • A naturalized citizen;
  • A resident of the United States for tax purposes if they meet either the green card test or the substantial presence test for the calendar year;
  • Any other person who is not a foreign person.

The Internal Revenue Service (IRS) extends tax filing and payment deadline

Individual US taxpayers automatically qualify for a postponement of federal income tax payments for the 2020 tax year. Standard income tax reporting, normally due by 15 April, has been automatically moved to 17 May 2021 without penalties and interest. This extension applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances after the new deadline.

 

Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the 17 May deadline can request a filing extension until 14 October by completing Form 4868 through their tax professional, tax software or using the Free File link on www.IRS.gov.

 

Form 4868 gives taxpayers until 15 October to file their 2020 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by 17 May 17 to avoid interest and penalties. The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds associated with e-filed returns are issued within 21 days.

 

This relief does not apply to estimated tax payments that are still due on 15 Aril. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn't subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income. Most taxpayers automatically have their taxes withheld from their paychecks and are submitted to the IRS by their employer.

State tax returns

The federal tax filing deadline postponement to 17 May only applies to individual federal income returns and tax payments (including tax on self-employment income) otherwise due 15 April, not state tax payments or deposits or payments of any other type of federal tax. Taxpayers also may need to complete income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and may be different from the federal tax deadline.

 US nationals resident in Portugal for tax purposes

If you are a US citizen and resident in Portugal for income tax purposes, you need to be careful to avoid being taxed twice of the same income. The US-Portugal double tax treaty defines which country is entitled to assess different categories of revenue.