American tax non-filers in Japan: Reason #2 to worry.

It has to do with something being kicked around on Capitol Hill, called the Wyden-Coats plan for tax reform.

What the executive summary of Wyden-Coats is telling you, is that someone in the Senate is proposing that they get rid of the ability to exclude your $95,100 of Foreign Earned Income. This means you owe on the difference between what Uncle Sam would charge, and what the Japanese tax you.

This would be a disaster for most Japan-side expats.

The reason that certain senators can even float the proposal to get rid of the Foreign Earned Income Exclusion (FEIE) is that not enough people file what they should to claim it. I feel it’s also the reason that it was easy for the IRS to deny the Making Work Pay Credit in the years 2009 and 2010 to people who had foreign earned income. People who should have been filing did not. So they didn’t know what it was that they weren’t getting!

The problem is, of course, if you don’t file and claim FEIE, and then the government gets rid it of it in 2014, you’ll be stuck with a huge bill backward and forward. Especially, if–as proposed–the US starts to tie passport issuance to filing federal tax returns . . .