Who Needs Form 1040-C and How to File It Correctly?
Learn who must file Form 1040-C, how to report taxable income, required documentation, and key steps to ensure accurate and timely submission.
The IRS requires certain taxpayers to file Form 1040-C before leaving the United States. This form ensures outstanding tax obligations are settled before departure. While not everyone exiting the country must complete it, those who do must follow IRS guidelines to avoid penalties or travel delays.
Who Needs 1040-C
Form 1040-C applies primarily to resident and nonresident aliens with U.S.-sourced income who are permanently or temporarily leaving the country. This includes individuals on work visas such as H-1B or L-1 who have been earning wages in the U.S. and are now returning home or relocating.
U.S. citizens generally do not need to file unless expatriating and renouncing citizenship. However, lawful permanent residents surrendering their status or leaving for an extended period may be required to file, particularly if they have significant taxable income. The IRS uses this form to confirm tax liabilities are settled before departure.
Foreign students, scholars, and exchange visitors under F, J, M, or Q visas may also need to file if they earned taxable income beyond scholarships or stipends exempt under tax treaties. Those meeting the substantial presence test under IRS residency rules may be considered resident aliens and required to file if leaving permanently.
Key Taxable Income Under 1040-C
Taxable income includes wages, salaries, and tips from U.S. employment, with federal income tax withholding applied throughout the year. Bonuses and severance pay received before departure must also be reported.
Self-employment income is another key category. Independent contractors, freelancers, and business owners must report net earnings, which are subject to income tax and a 15.3% self-employment tax on amounts exceeding $400.
Investment income must also be accounted for. While interest from U.S. bank accounts is generally not taxable for nonresident aliens, dividends from U.S. corporations and capital gains on stocks or real estate may be. Short-term capital gains are taxed as ordinary income, while long-term gains are taxed at 0%, 15%, or 20% depending on income. Rental income from U.S. properties is typically taxed at a flat 30% unless the taxpayer opts to treat it as effectively connected income, allowing deductions and taxation at graduated rates.
Filing Timeline
Form 1040-C must be submitted before leaving the U.S. The IRS requires filing as close to the departure date as possible to ensure accurate income reporting. Since it serves as a tax clearance document, it is not tied to the traditional April 15 tax deadline.
Individuals should begin gathering financial records at least a month before departure, including pay stubs, investment statements, and pending income sources. Taxes owed must be paid at filing to avoid penalties, which can accrue at 0.5% per month, up to 25% of the balance.
Documentation to Attach
Supporting documents must verify reported earnings and tax payments.
Proof of employment income includes recent pay stubs and, if available, a year-to-date earnings statement. Those receiving stock-based compensation, such as restricted stock units (RSUs) or stock options, must include documentation detailing vesting schedules and taxable amounts. Independent contractors and business owners should provide invoices, payment records, and a summary of expenses.
Investment earnings require brokerage statements or Forms 1099-DIV and 1099-INT to confirm dividends and interest. Capital gains from asset sales must be supported by transaction records, including purchase and sale dates, cost basis calculations, and Form 8949. Rental property owners must attach records of rental income, depreciation schedules, and deductible expenses.
Handling Social Security Income
Tax obligations for Social Security benefits depend on residency status, tax treaties, and total earnings.
Nonresident aliens receiving Social Security benefits while outside the U.S. are generally taxed at 30% on 85% of their payments, effectively a 25.5% withholding rate. However, tax treaties with countries such as Canada, Germany, and the United Kingdom may reduce or eliminate this tax. Those relocating to a treaty country should review its provisions for potential reductions. If benefits are deposited in a foreign bank, taxpayers should consider currency exchange implications and possible foreign tax liabilities.
Where to Send the Return
Form 1040-C must be submitted in person at an IRS Taxpayer Assistance Center (TAC) before departure. The IRS requires in-person filing so an agent can review the return, verify documentation, and issue a departure permit if necessary. Appointments should be scheduled in advance to avoid delays, especially during peak travel seasons.
If taxes are owed, payment must be made at the time of submission via check, money order, or electronic transfer. Failure to pay in full may result in penalties or collection actions. After filing, individuals should retain a copy of the completed form and payment confirmation, as these may be needed when re-entering the U.S. or applying for future visas. Errors or omissions may require an amended return using Form 1040-X.