On May 8, the IRS issued IRS Newswire IR-2020-92, reminding US taxpayers that this coming Wednesday May 13 is the deadline to provide bank account information to the IRS through their Get My Payment website. Providing bank deposit information accelerates the receipt of the EIP, since payments by check will be sent out over several months. Plus, waiting for international mail delivery can add several weeks to an already much slower process.
The issue for Americans abroad was, until very recently, that the Get My Payment website was not programmed to process foreign addresses. This issue has now been resolved, and for the past two days, a high number of foreign resident US taxpayers have been able to successfully log into Get My Payment and enter their bank information.
I’m going to say this again loudly, because I feel it’s that important:
MOST US EXPATS SHOULD NOW BE ABLE TO LOGIN TO GET MY PAYMENT AND PROVIDE THE IRS THEIR US BANK INFORMATION TO AVOID HAVING TO WAIT FOR A PAPER CHECK EIP. PLEASE ACT BEFORE WEDNESDAY to avoid missing this opportunity!
Not only is getting the EIP by bank deposit a lot faster than getting it by mail, it is also safer and less of a hassle. It’s not like Americans abroad, or even most Americans in the USA, given the lockdown, can easily walk into a US bank branch to deposit a US Treasury check….
Who needs to provide their bank information to the IRS?
All taxpayers who did not provide direct deposit instructions to the IRS on their last filed tax return.
If you filed your 2019 tax return after February 29, 2020 and you provided bank deposit instructions on that return, but had not provided them on your 2018 tax return, my recommendation is to confirm through Get My Payment that the IRS has your bank information.
It is better to be safe than sorry. Your 2019 bank information may not have made it into their database.
EIP not enough? Coronavirus related distributions from US retirement accounts may help
Qualified individuals are eligible to make coronavirus related distributions of up to $100,000 from IRAs, 401ks, 403(b)s and certain other US employer-sponsored retirement accounts.
With many families being severely impacted financially by this global crisis, additional funds, beyond any unemployment benefits, EIPs, grants or loans available, may be needed, and this provision can potentially provide a necessary additional source of funds.
Who is a qualified individual? An individual who
- has been diagnosed with COVID-19, or
- whose spouse or dependent has been diagnosed with COVID-19, or
- has been financially impacted because they have been quarantined, furloughed, laid off or had their work hours reduced because of the pandemic, or
- is a business owner who had to close or reduce the hours of their non-essential businesses, or
- has not been able to work due to lack of childcare
The $100,000 limit applies to all aggregate distributions taken in 2020.
Several benefits are available:
- No 10% early withdrawal penalty applies to individuals under age 59 ½
- The taxable portion of the distribution can be reported as taxable income over three years
- Repayments of the distributions are allowed up three years after the distribution was received
- Mandatory federal income tax withholding is not required, and
- Employers may modify their plan rules to allow coronavirus distributions, if their plans would not normally allow distributions while their employees are in service
For Americans abroad, a tricky issue with coronavirus related distributions is that they may be taxable in full on their 2020 foreign tax return.
If their foreign country taxes its residents on their worldwide income, it is quite likely that the distribution will be fully taxed in the year taken, and that the three year stretch permitted to report the income on the US tax return will not be allowed on the foreign tax return.
If the American abroad decides to repay the distribution, unless there is a tax treaty that allows this, it is also likely that this repayment will only be deductible on the US tax return, and not on the foreign tax return, resulting in a mismatch of taxable income.
Taxable income mismatches are not good, as they can negatively impact foreign tax credits efficiency and result in an overall higher tax burden for the expat.
Americans abroad living in some treaty countries may be able to claim treaty benefits to reduce some of this negative impact, but that’s still likely to be tricky.
Please consider carefully if taking a coronavirus related distribution from a US retirement account is the best option for you.
For some individuals, this may be the only significant source of funds, and if that’s the case, it is good to have this option available.
And with that, we end the report for this week.
Until the next post!