Leaving the US: Bank accounts

[britishrob]

I left the US permanently at the end of 2020, I was a non-resident alien on an L1 visa:

a) Does retaining a US bank account require me to complete a tax return if no money (income or otherwise) is paid into it?

b) If I close the account, how do I pay the IRS for any shortfall, or receive a tax refund?

[slaudenslag]

I hope you are enjoying your new residency!  To answer your questions, generally, once you have established a bank account in the U.S., you may continue to use it even if you are outside the U.S.  The only income associated with the bank account will be interest which is considered unearned income.  A US tax return is required if unearned income exceeds $1,100.  If your interest is less than $1,100, then a US return will not be required.  Closing the account will not have any impact on your taxes.  Any taxes associated with the funds in the US bank account have already been paid.  You are welcome to withdrawal the funds without tax consequence as long as your interest income is less than $1,100.

[dclick]

Hello Rob, and thanks for reaching out!

A US tax return is used to report income, the mere presence of a US bank account does not require the filing of a tax return.

However, if you have US Citizenship, the United States does tax on worldwide income and you would be required to file a tax return, declare foreign bank accounts, and file a FinCEN Form 114 on amounts over $10,000. 

You have noted you were on an L1 Visa however (a temporary worker visa) so this shouldn't be of great concern to you.

You will still want to make sure to file any needed returns that cover the period you earned US income though.

The IRS has a handy guide on this, sorted by status:

https://www.irs.gov/individuals/international-taxpayers/aliens-which-income-to-report

Even better, based on your status, you may be exempt from reporting interest earned on your US Bank Account as well:

• Nonresident aliens who receive interest income from deposits with a U.S. bank, savings & loan institution, credit union, or insurance company, or who receive portfolio interest (described in Publication 519, U.S. Tax Guide for Aliens) are exempt from taxation on such interest income as long as such interest income is not effectively connected with a U.S. trade or business.
  
  

I hope that helps!

-Dennis

[britishrob]

Thanks so much!

Would a tax refund count as income? If so, would the refund for 2021 paid out in 2022, mean that I need to file again in 2022 - catch 22!

[dclick]

My pleasure Rob!

So the short answer is... sometimes.

No - If it's the federal refund, you do not report that as income. 

Yes - If it's the state refund and you itemized deductions last year.

No - If it's the state refund and you took the standard deduction last year (did not itemize).

The federal refund would be the net overpayment of taxes due on your income, funds which are deservedly yours after total tax liability has already been determined.