A Professional Glossary for U.S. Taxpayers
Wondering if you have U.S. tax reporting obligations?
Do you need help understanding which forms to file? Our comprehensive guide simplifies complex tax terminology and requirements. Let MasAmerica help you navigate U.S. tax obligations with clarity and confidence.
IRS (Internal Revenue Service)
The IRS is the U.S. federal agency responsible for administering and enforcing federal tax laws. It collects taxes, issues refunds, and ensures compliance with the tax code.
U.S. Tax Reporting vs. Tax Payment Obligations
The U.S. tax system consists of two main obligations: reporting and payment. Having a reporting obligation does not necessarily mean you owe taxes. For instance, you might need to file a tax return even if no taxes are due.
Who Must Report?
Tax reporting obligations apply to the following individuals and entities:
- U.S. citizens and green card holders worldwide, regardless of where they reside
- Foreign citizens with U.S.-source income
- U.S. corporations and foreign corporations meeting similar criteria
For example, an Israeli citizen holding a U.S. green card must file U.S. tax returns, even if they’ve never visited the U.S. and all their income is derived from Israel. This obligation exists in addition to Israeli tax reporting requirements.
Important Deadlines
- Tax reporting deadlines vary by entity type.
- Tax payments are generally due on April 15 following the end of the tax year, with extensions to June 15 available for US citizens living abroad.
Compliance
The IRS rigorously enforces tax reporting and payment obligations. Failing to file, submitting inaccurate information, or missing payments can lead to significant penalties and interest.
Annual Tax Reporting
Any entity, whether an individual or a foreign corporation, that earns income from U.S. sources must file an annual income tax return with the IRS, assuming certain income thresholds are met.
For self-employed individuals, the reporting requirement applies if income exceeds $400 annually. For employees, filing requirements are based on income thresholds determined by filing status, including:
- Single
- Married filing separately
- Married filing jointly
- Head of household
- Qualifying widow(er)
Certain individuals, such as married couples filing jointly, heads of household, recent widows/widowers, seniors over age 65, and the blind, may have higher income thresholds for filing.
Tax Forms by Status
The forms you file depend on your status:
- U.S. citizens/green card holders: Form 1040
- Non-resident aliens: Form 1040-NR
- Partnerships: Form 1065
- U.S. corporations: Form 1120
- Foreign corporations: Form 1120-F
Additional forms may be required depending on your specific circumstances. Given the severe penalties for incorrect filings, we strongly recommend consulting with a U.S. tax advisor before filing.
Key Tax Concepts
FBAR (Foreign Bank and Financial Accounts Report)
The FBAR is an annual filing requirement for U.S. persons (including citizens, green card holders, and certain entities) who have foreign financial accounts with a cumulative value exceeding $10,000 during the calendar year.
Reportable accounts include:
- Bank accounts
- Brokerage accounts
- Pension accounts
- Shares in mutual funds
Filing Deadline: April 15 of the following year, with an automatic extension to October 15.
Penalties for Non-Compliance:
- Failure to file: $10,000 per violation
- Willful failure to report: The greater of $100,000 or 50% of the account balance at the time of violation.
FATCA (Foreign Account Tax Compliance Act)
FATCA requires foreign financial institutions (FFIs) to report information on U.S. account holders to the IRS. U.S. persons with foreign assets may also have reporting obligations under FATCA.
Who Must File IRS Form 8938?
U.S. citizens and green card holders living outside the U.S. must file Form 8938 if:
- They are required to file a U.S. federal income tax return, and
- The total value of their foreign financial assets exceeds:
- $200,000 (or $400,000 for a married couple filing jointly) on the last day of the tax year, or
- $300,000 (or $600,000 for a married couple filing jointly) at any point during the tax year.
Penalties for Non-Compliance:
- Failure to file: $10,000
- Additional penalties for continued non-compliance.
FATCA vs. FBAR:
FATCA reporting via Form 8938 is distinct from the FBAR (Form 114) requirement, though some taxpayers may need to file both.
W-9 Form
Form W-9 is used to certify that the signer is a U.S. person and to provide their U.S. taxpayer identification number (TIN).
Who Qualifies as a U.S. Person?
A U.S. person includes:
- U.S. citizens, green card holders, and U.S. tax residents
- Corporations or partnerships created in the U.S. or under U.S. law
- U.S. domestic estates and trusts
Voluntary Disclosure
The U.S. voluntary disclosure program allows taxpayers to correct prior failures to file, report, or pay taxes and avoid or reduce penalties. If you have failed to report income, filed incomplete returns, or missed deadlines, we encourage you to consult a tax professional about regaining compliance.
ITIN (Individual Taxpayer Identification Number)
An ITIN is a tax processing number issued to non-U.S. citizens who are not eligible for a U.S. Social Security Number (SSN).
Who Needs an ITIN?
Non-U.S. citizens who need to file a U.S. tax return must apply for an ITIN.
How to Obtain an ITIN:
- Complete IRS Form W-7 and submit it with supporting documents to verify identity, such as a passport or national ID card.
- The application can be submitted via mail, in-person at an IRS office, or through an IRS-authorized agent.
Form 1040 – U.S. Individual Income Tax Return
U.S. citizens and green card holders must file Form 1040 to report income from all sources, both U.S. and non-U.S. This includes salary, interest, and dividends earned abroad.
Additional Reporting may be required for foreign financial assets and ownership in foreign companies.
Form 1040-NR – U.S. Nonresident Alien Income Tax Return
Non-resident aliens (foreign individuals who are not U.S. citizens or green card holders) must file Form 1040-NR if they engage in a trade or business in the U.S., or own U.S. real estate.
Key Considerations:
- U.S. real estate ownership often triggers a tax filing requirement.
- Filing ensures compliance with U.S. tax laws and avoids penalties.
Disclaimer:
This article provides general guidance for U.S. taxpayers living abroad and is not intended as legal advice. We recommend consulting a US tax advisor in Israel to ensure full compliance with U.S. tax reporting and payment obligations.
If you are concerned that the U.S. tax reporting obligation applies to you but are not sure how to find out, what forms to fill out, and what are the exact tax obligations that apply to you? And if you find other manuals confusing and unclear the following guide provided by Mas America will help you get to the bottom of things.
IRS
An acronym for the Internal Revenue Service, which is the United tax authority. This authority is responsible for the Federal Government’s tax collection and is responsible for enforcing federal tax legislation in the United States.
Find out more about the IRS in the link.
Reporting obligation vs. tax payment obligation
The U.S. taxation system includes two separate and independent obligations: the reporting obligation and the duty to pay the tax. This means that the obligation to report revenue does not necessarily establish a duty to pay tax. It is possible that a taxpayer will be required to file an annual income tax return, even though he is not liable to pay tax at all.
The obligation to report US income tax is quite broad and applies, provided that certain income thresholds are met:
- American citizens or holders of green cards – even if they do not live in the United States or have never visited it.
- Foreign citizens who have a source of income in the United States.
* These rules also apply to corporations.
Any entity that meets these criteria is owed an annual income tax reporting obligation. The aforementioned indicates that even an Israeli citizen who holds a green card and who has never visited the United States and all of his income is in Israel will be owed in addition to reporting to the Israeli Tax Authority as well as reporting to the American Tax Authority.
Tax reporting times are fixed by law and change according to the identity of the reporting entity. On the other hand, the tax payment obligation is independent and fixed for April of the following year.
Enforcing the duty of reporting as well as enforcing the duty of paying taxes are rigid and strict. Failing to report, reporting inaccurately or non-compliance with the tax payment obligation exposes the taxpayer to additional fines and sanctions.
Annual Tax Reporting
As noted above, any entity – whether a private individual or a foreign corporation – that generates income within the United States must, given compliance with certain income supplements, submit an annual income tax report to the U.S. Tax Authority.
As to the self-employed, the reporting obligation applies to those who earn an income of more than $400. When it comes to employees, the taxation system determines different income thresholds that are required to file a report. The threshold is set according to the personal status of the application ((single / married filing separately / married filing together / recent widower). In general, the method sets higher thresholds for married people who report together, heads of households, recant widowers, defendants over the age of 65 and blind. With all the rest – the method is relatively harsher and sets lower thresholds.
As part of the report, the applicant will include all his income, expenses, profits, deductions and credits. If the applicant is a U.S. citizen or resident, the report refers to worldwide revenues (that is all income, whether generated in a foreign country like Israel or within the United States). As for foreign citizens, the report will list only the income generated within the United States.
Each application will submit the report on a tax form unique to his status:
- Citizen or Green Card Holder – Form 1040
- Foreign Citizen – 1040NR
- Partnership – 1065
- Company – 1120
- Foreign Company – 1120F
The IRS form may include additional forms according to the personal circumstances of the applicant. Due to the existing sanctions for under reporting and due to the heavy tax liabilities, that may be imposed due to the uncalculated filling of the forms, we strongly recommend receiving advice and guidance before submitting the reports.
Other concepts that are important to know
The FBAR (Report of Foreign Bank and Financial Accounts) is an annual report required to be filed by US persons (e.g., US citizens, Green Card holders, corporations, partnerships and limited liability companies) who own or have signatory authority over foreign financial accounts with an aggregate value in excess of $10,000 at any time during the calendar year.
Foreign financial accounts required to be reported on the FBAR include, but are not limited to, bank accounts, securities accounts, brokerage accounts, pensions accounts, and shares in a mutual fund. The due date for filing the FBAR is April 15 of the year immediately following the calendar year being reported with an automatic extension to October 15.
The penalty for failing to properly file the FBAR generally is $10,000 per violation. However, if there is a willful failure to report an account, the penalty may be increased to the greater of $100,000 or half the balance in the account at the time of the violation.
The Foreign Account Tax Compliance Act (FATCA) is a 2010 US federal law that generally requires foreign financial institutions and certain other non-financial foreign entities to identify and report on the foreign assets held by their US account holders or have withholding imposed on certain payments made to them by US payors.
Foreign financial institutions and other foreign entities subject to FATCA generally attempt to identify their US account holders by asking those they suspect are US citizens or Green Card holders to complete and sign an IRS Form W-9.
FATCA also requires certain US citizens and Green Card holders holding financial assets outside the United States to report those assets to the IRS on IRS Form 8938, Statement of Specified Foreign Financial Assets.
A US citizen or Green Card holder living outside the United States is required to file IRS Form 8938 if (i) they are otherwise required to file a US federal income tax return and (ii) the total value of their foreign financial assets is more than $200,000 ($400,000 in the case of a married couple filing a joint return) on the last day of the tax year or more than $300,000 ($600,000 in the case of a married couple filing a joint return) at any time during the year. The penalty for failing to file IRS Form 8938 is $10,000, with additional penalties possible.
The requirement to file IRS Form 8938 is in addition to the requirement to file an FBAR.
IRS Form W-9, Request for Taxpayer Identification Number and Certification, is used by the signer to certify that he, she or it is a US person and to verify his, her or its US taxpayer identification number (e.g., social security number, individual taxpayer identification number (ITIN) or employer identification number (EIN)). A US person includes:
- An individual who is a US citizen, Green Card holder or US tax resident;
- A corporation or partnership created or organized in the United States or under the laws of the United States;
- A US domestic estate; and
- A US domestic trust.
US citizens and Green Card holders are required by US law to report, and possibly pay tax on, their worldwide income, including income from non-US sources, even if they have never lived in the United States. Such US taxpayers generally are also required to report their foreign financial assets on the FBAR or IRS Form 8938 (see FBAR and FATCA above).
Certain such US taxpayers may have failed to file US federal income tax returns and/or FBARs or filed US returns and/or FBARs that were not accurate or complete. The US voluntary disclosure program may allow those US taxpayers to regain compliance with their US tax obligations without being subject to penalties.
For additional information regarding the US voluntary disclosure program, please contact us.
An Individual Taxpayer Identification Number (ITIN) is a nine-digit tax processing number issued by the IRS to non-US citizens who are not eligible to obtain a US social security number.
A non-US citizen who is required to file a US federal tax return, must obtain an ITIN and include the ITIN on the return.
To obtain an ITIN, a non-US citizen must complete IRS Form W-7, IRS Application for Individual Taxpayer Identification Number, and either (i) mail the completed Form, together with documentation substantiating the non-US citizen’s identity and foreign status (for example, an original valid foreign passport or national identification care or a certified copy of such), to the IRS, (ii) present the completed Form and substantiating documentation at an IRS walk-in office or (iii) process the Form and substantiating documentation through an agent authorized by the IRS to accept ITIN applications.
Form 1040, US Individual Income Tax Return, is the US federal income tax return required to be filed by US citizens and Green Card holders.
Included on this return is income earned by the US citizen or Green Card holder from all sources, including non-US sources (for example, salary earned from a non-US employer for work performed outside the United States, interest paid by a non-US bank and dividends paid by a non-US corporation).
In addition, attached to this return may be schedules or forms reporting the taxpayer’s interest in foreign financial assets or foreign companies.
Form 1040-NR, US Nonresident Alien Income Tax Return, is the US federal income tax return required to be filed by a foreign individual (an individual who is not a US citizen, Green Card holder or US tax resident) who is engaged in a trade or business in the United States.
A foreign individual who owns US real estate (either directly or through a partnership or limited liability company treated as a partnership or disregarded entity for US tax purposes) generally will be considered engaged in a US trade or business and, therefore, will be required to file Form 1040-NR.
