U.S. Federal Taxes: Getting Started

**Note: Because this guide is heavily based off of the Kumamoto Tax Guide, it has a similar format, and much of the same information. It would not have been made possible without the Kumamoto Guide. A special thanks to Kumamoto JET.** This is a guide for 2nd-5th year American ALTs and CIRs filing for U.S. income taxes. Included are explanations and example forms, but if you have any further questions, look at Publication 54 (Tax Guide for U.S. Citizens and Resident Aliens Abroad), which can be accessed online on the Internal Revenue Service (IRS) website (www.irs.gov) by searching for “Publication 54.” The IRS office for U.S. citizens living abroad is located in Austin, Texas. Send all tax forms to: Department of the Treasury Internal Revenue Service Austin, TX 73301-0215 U.S.A. The IRS website (www.irs.gov) has a lot of information for helping citizens living abroad with the tax filing process. Use the link below to find more information: http://www.irs.gov/Individuals/International-Taxpayers/U.S.-Citizens-and-Resident- Aliens-Abroad You can also mail questions to the IRS at the following address: Internal Revenue Service Philadelphia, PA 19255-0725 U.S.A. NOTE: This guide does NOT cover state taxes. Look at your state’s tax website for details.

The Forms

Form Number/Label Form Description File With/By

Foreign Earned Income Statement

Your income slip from your BOE/school/employer

File with Form 1040

2555-EZ Foreign Earned Income Exclusion File with Form 1040

8965 - Health Coverage Exemption File with Form 1040 if needed

Schedule 1 Additional Income and Adjustments to Income

File with Form 1040

Schedule 6 Foreign Address and Third Party Designee

File with Form 1040

1040 - Individual Income Tax Return File by June 15th

Schedule 4 Other Taxes File with Form 1040 if needed

Publication 970 File if you paid deductible interest on a student loan in the last year

File with Form 1040 if needed

FBAR If you have an equivalent of more than $10,000 USD in a foreign bank account, you must declare it to the IRS

File with Form 1040 if needed

* If your address in Japan has changed since you filed last year, you will need to re-file Form 8822 Change of Address as well (see the tax guide for first-years). * It is not necessary to request an extension to file, but you can do so if you choose by filing Form 4868 Extension of Time to File (see tax guide for first-years). Filing this form gives you until October 15th to send in your forms.

Foreign Earned Income Statement You should receive a form from your BOE, school, or employer showing how much you made in 2018. It is called the 源泉徴収票 (gensen chōshūhyō) in Japanese. If you have not yet received it, ask the accountant in your BOE/school/workplace for a copy. This form acts as your W-2 for your Japanese income. NOTE: If you are a 3rd year, you may have two parts to this form: one for your untaxed Japanese income, and one for your taxed Japanese income.

Make a photocopy, and indicate your name and gross income on the page. Write “Foreign Earned Income Statement” on the top. See the below for an example:

Translate the following items by writing their corresponding numbers on the photocopy: ① Address ② Name ③ Net salary from January to December ④ Amount remaining after deducting tax exemptions from 3 ⑤ Amount deducted based on Social Insurance and Life Insurance payments ⑥ Amount of income tax paid ⑦ Amount of social insurance paid

2555-EZ Foreign Earned Income Exclusion This form is used to exempt you from paying US income taxes on the money you earn in Japan. Part I You may qualify for the Bona Fide Residence Test, but the qualifications for this are vague. You will qualify for the Physical Presence Test and Tax Home Test like last year, so it is recommended that you use the same information as in your first year.

Part II Fill in your address and employment information: write N/A for your employer’s US address. Check your employer as “other,” and write something along the lines of: “Foreign Local Government Office.” If you submitted a 2555 or a 2555-EZ last tax year, put “2017” for 10a. For 11a, enter your address in Japan and the date (month and year) you began living there. If you moved in 2018, make sure to list your former address as well.

Part III Under Days Present in the U.S., fill in any time you spent in the U.S. during the 12-month period you specified under the Physical Presence Test in Part I. If you did not return to the U.S. in 2018, refer to the example below. If you returned to the U.S. during 2018, refer to the next page.

Example 1: NO time spent in the U.S. in 2018

Example 2: Time spent in the U.S. in 2018

Part IV Calculate your Foreign Earned Income Exclusion. Use the 12-month period from Part I to calculate the number of days in your qualifying period that fall within 2018, and enter the number on Line 14. Convert the amount listed on your Foreign Earned Income Statement to USD and enter that figure on Line 17. Use the Federal Reserve Bank’s average YEN/USD exchange rate to make the calculation. For 2018, the rate was $1 = ¥110.424. The IRS likes everything to be outlined explicitly, so draw an asterisk and write, “See Foreign Earned Income Statement” at the bottom of the page. Then write a signed statement along the lines of: I used the 2018 average YEN/USD exchange rate as reported by the Federal Reserve Bank to calculate the amount reported on Line 17. That rate was $1= ¥110.424. NOTE #1: The figures for Lines 17 and 18 are made up. Your numbers will be different! NOTE #2: If you returned to the U.S. anytime in 2018, you must indicate those dates in Part III and subtract them from the number of days in your qualifying period in Part IV on Line 14. See the examples below for how to complete Part IV.

Example 1: NO time spent in the U.S. in 2018

Example 2: Time spent in the U.S. in 2018

*Please be aware that if you returned to the U.S. for more than 35 days in 2018, you will have less than the 330 days necessary to pass the Physical Presence Test. Consider the situation where you made two 20-day trips to the U.S. in 2018: one in August and one in December. This means that in 2018, you spent only 325 days abroad (365-40=325), five short of the 330 total needed. In this case, you will need to adjust the 12-month period you entered for the Physical Presence Test in Part I to exclude enough days you were in the U.S. in order to bring your total of days abroad to 330. (This 12-month period does not have to be the 12-month period of 2018; it just has to start or end in 2018.) To exclude the December trip home, you could set the dates as December 1, 2017 – November 30, 2018. This would give you more than the 330 necessary days abroad and still give you enough days in your qualifying period (Part IV, Line 14) to exclude your foreign income.

8965 Health Coverage Exemptions As part of the Affordable Care Act, Americans are required to have health insurance or face a tax penalty if they do not have any. This is called the Shared Responsibility Payment. However, the IRS treats U.S. citizens living abroad for at least 330 full days in a 12-month period (the same conditions of the form 2555-EZ Physical Presence Test) as having minimum essential coverage. NOTE: Because of the recent tax reform you will most likely not need to fill out this form. In addition, the Shared Responsibility Payment will no longer be in effect for 2019 income, to be filed in 2020. If you A) were an ALT or CIR for the whole year of 2018 or B) had minimal essential coverage and/or valid exemptions for the whole year you just check the “full year health care coverage and exemptions” box on page 1 of the 1040. Even if you spent some time in the U.S. in 2018, as long as your 12-month period begins in January 2018, you can qualify for a full-year exemption. Having one day of minimum essential coverage in a given month is treated as having coverage for the entire month. For example, if your qualifying period from form 2555-EZ is from January 31, 2018 to January 30, 2019, you still are treated as having minimum essential coverage for January 2018 in addition to the rest of 2018 and can apply for the full-year exemption. If your 12-month period for some reason does not include any days for a given month or months in 2018, you may still qualify for a short coverage exemption to cover that time if the gap is less than 3 consecutive months. This will be noted on Part III as Exemption Type B. As with Exemption C, short term coverage Exemption B will be noted on Part III as Exemption Type B. For example, someone who has their 12-month period begin in January 2018, returned to the U.S. from September, and is claiming Exemption B for September-October would fill out their Part III as follows:

*Again, if you have a valid exemption for every month in 2018, you can check the “full year health care or exempt” box on the first page of the 1040 and DO NOT fill out this form. *Those who do not have minimum essential coverage or a valid exemption for a given month in 2018 may be subject to a tax penalty. In this case, you must still file form 8965 to indicate which months you do have a valid exemption for and fill out the Shared Responsibility Payment Worksheet (found in the instructions for form 8965) to figure out your penalty. However, we recommend you look at the instructions for form 8965 in full to see if there may be other exemptions not mentioned in this document that you may qualify for.

Schedule 1 This is one of the new forms for this year to supplement the Form 1040. You will put “zero’s” for most of the lines. Under the “Additional Income” section, you will need to fill in the information from the 2555-EZ. Write in “2555-EZ” on the line and then put in your total in parentheses. The parentheses tell the IRS that the income is subtracted from your total.

*If you need to make any adjustments to your income, i.e. educator expenses or claim any student loan interest deduction, do so in the Adjustments to Income section below. This information will be used in the Form 1040.

Schedule 6 This is another new form for 2018. This is to list your foreign address. Also, if you want the IRS to be able to discuss your tax return with a third party, put their information on this form.

Form 1040 This is the form most affected by the updated 2018 forms. You have already taken care of a good chunk of the information needed for it with Schedule 1 and Schedule 6. On the first page, select your filing status, fill in your name, and Social Security Number. Check the health care coverage box. NOTE: There is no personal deduction for year 2018.

When filling out your address, ONLY put your city name in the “city, town or post office, state, and ZIP code” line. All the other information is included on the Schedule 6. Page 2 On Line 1, add your foreign income to any U.S. income (most 2nd to 5th years will not have U.S. income for 2018). The Taxable Interest on Line 2b includes all interest earned from savings accounts. If you have any Taxable Interest, your bank or financial institution will send you a 1099-INT that tells you how much it is. On Line 6, put the number from Schedule 1 Line 22, on the side, then add it to your income. If the number is in parentheses, subtract it from your total income. If you have any adjustments (Line 36 on Schedule 1), subtract the total from Line 6 and use the new number to fill in Line 7. If you have no adjustments to your income, just copy the number from Line 6. If the number is ever less than zero, just put zero. ***NOTE: These are made up numbers. Yours will be different!*** Once you have finished Line 7, the form is relatively straightforward. Most 2nd to 5th years will take the standard deduction on Line 8 ($12,000). Otherwise you can fill out Schedule A if you want to use itemized deductions. Subtract Lines 8 and Line 9 from Line 7 to determine your total taxable income on Line 10. In this example, that would be: 30 - 12,000= -11970, so we put 0 on Line 10.

From there, carefully fill out your information: most of it will be zero’s. If Line 18 is more than zero, you will have to pay taxes. Consult the 1040 instructions for details on where and how to pay your taxes. If you are due a refund, congratulations! Fill out your U.S. banking info and your refund will be deposited into your account. *Most likely you will neither have a refund nor have to pay taxes. In that case go ahead and sign and date in the box and you’re done!

Sign and date the forms and mail them all to the IRS office in Austin by June 15th. Your return will include at least: Form 1040, Schedule 1, Schedule 6, 2555-EZ, Form 8965, and the Foreign Earned Income Statement. ***NOTE: If you are taking the automatic extension be sure include a signed paper saying: “I am taking the automatic two month foreign resident extension for my tax return.”***

Links to Forms Form 8822 Change of Address (if necessary) https://www.irs.gov/pub/irs-pdf/f8822.pdf (form and instructions) Form 4868 Application for Extension of Time to File (if necessary) https://www.irs.gov/pub/irs-pdf/f4868.pdf (form and instructions) Form 2555-EZ Foreign Earned Income Exclusion https://www.irs.gov/pub/irs-pdf/f2555ez.pdf (form) https://www.irs.gov/pub/irs-pdf/i2555ez.pdf (instructions) Form 8965 Health Coverage Exemptions https://www.irs.gov/pub/irs-pdf/f8965.pdf (form) https://www.irs.gov/pub/irs-pdf/i8965.pdf (instructions) Form 1040 Individual Income Tax Return https://www.irs.gov/pub/irs-pdf/f1040.pdf (form) https://www.irs.gov/pub/irs-pdf/i1040gi.pdf (instructions) Schedule 1 Part of Form 1040 https://www.irs.gov/pub/irs-pdf/f1040s1.pdf (form, instructions are included in the 1040 instructions packet) Schedule 6 Part of Form 1040 https://www.irs.gov/pub/irs-pdf/f1040s6.pdf (form, instructions are included in the 1040 instructions packet) Publication 54 Tax Guide for U.S. Citizens and Resident Aliens Abroad https://www.irs.gov/pub/irs-pdf/p54.pdf Publication 970 Tax Benefits for Education http://www.irs.gov/pub/irs-pdf/p970.pdf FBAR: Report foreign bank accounts over 10,000 USD (used if your account hits that at any point during the tax year.) https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar

Notes and Resources • Other Resources:

The U.S. Embassy in Japan's Tax Page https://jp.usembassy.gov/u-s-citizen-services/internal-revenue-service-u-s-taxes/ IRS info for U.S. Citizens Living Abroad https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad

• Your tax situation may be different!! Additional procedures will be necessary if: -You are married and/or have dependents of your own -Someone else will claim you as a dependent for the 2018 tax year -You had over $10,000 in foreign bank accounts at any time during 2018. NOTE: You can file the FBAR electronically. For more information go to: https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar -You earn income from stocks, bonds, real estate or other investments -Any number of other circumstances

• This guide is not affiliated with the IRS or the U.S. Government. The IRS - not this guide - is the final authority on tax-related matters. This is just a rough, unofficial aid. Be sure to check with instructions from the IRS to file your documents as correctly as possible. It is up to you to file your taxes correctly.

• The Federal Reserve Bank average annual exchange rate figure of $1 = ¥110.424 can be found at http://www.federalreserve.gov/Releases/g5a/Current/

Special Thanks

• Kumamoto JET, for their years of helpful tax guides and inspiration. • Claire, an ALT and invaluable sempai in Asahi City.