Federal income tax return (Form 1040)

General overview

American citizens, residents and green card holders have to file annual U.S. income tax return if their gross income exceeds applicable threshold for their filing status. For 2024, income thresholds range from only $5 for married people filing separately from their spouses, to $32,300 for married filing jointly, if both spouses are 65 or older.

For tax year 2021, it may be beneficial to file a tax return even if tax return is not required due to low or no income. That may be the case if an eligible individual did not receive the economic impact payment that was sent out by the U.S. government in 2021 to help people during the coronavirus pandemic, or received less than a full amount. In that case, amounts that were not received may be claimed as refundable credit on the 2021 tax return. An “overpayment” of tax resulting from a credit can be directly deposit into the U.S. bank account, or sent to a recipient via a USD check, or applied towards future years tax liability.

Important! Deadline to submit 2021 tax return to claim the refund or credit is April 15, 2025.

Filing status

Filing status affects tax rates, deductions and available credits. The most commonly used filing statuses are:

Single: generally, a person files as single if he/she is unmarried as of end of the year, or legally separated.

Married filing separate: this status is used by a married person who decides to, or is required to file separate tax returns with their spouse.

Married filing jointly: this status may be chosen by spouses who are both U.S. persons (U.S. citizen or resident, or a green card holder), or if only one spouse is a US person and a special election was made to treat a foreign spouse as a U.S. resident for the purpose of filing a joint U.S. income tax return.

Head of household: this status may be used by a person who is unmarried or is considered unmarried, if he/she maintains a household for a qualified person, such as for a child or for certain other relatives.

There are a number of tests to determine if a person is a qualified person for head of household status, please contact us for further details.

Swiss 2nd pillar pension

In Switzerland, participation in the occupational pension scheme, the so-called 2nd pillar pension, is mandatory if an annual gross income of an employed person is at least 22,050 Swiss francs in 2024, and at least CHF 22,680 in 2025. 2nd pillar plans are funded by both employees and employers.

From the U.S. tax perspective, Swiss 2nd pillar pension plans are non qualified pension plans, that means they don’t get the same preferential tax treatment as occupational pension plans in the U.S., such as 401(k). For American citizens working in Switzerland, practically it means that their own contributions to the 2nd pillar pension are not deductible from wages, and employer’s contributions to both savings and risk part of the pension insurance are included in taxable income. Income earned in the pension plan may also have to be included in U.S. taxable income.

Treatment of 2nd pillar pension under the Swiss tax law is quite different. Taxable wages are reduced by employee’s contributions, and neither employer’s contributions, nor income accumulated in the plan, are taxable to an employee during the active working years. Such a disparity in taxation of contributions and earnings in pension plan by Switzerland and the United States may come at a considerable tax cost to an American participant in the 2nd pillar pension. The good news here is that the money paid as US tax on the 2nd pillar related income is not lost – all the 2nd pillar related income taxed on annual US tax returns build up a basis in the pension plan that will not be taxable in the U.S. when pension distributions start. If the 2nd pillar is distributed out as a lump-sum payment, only part of the distribution in excess of basis is taxable on the U.S. tax return.

Treatment of contributions to, and distributions from foreign pension plans under the U.S. tax law differs from country to country and may be affected by income tax treaties in place between the U.S. and a foreign country. Contact us if you have questions about your pension plan.

Swiss 3rd pillar pension

Another component of the Swiss pension system is the private retirement accounts, or 3rd pillar accounts. These are similar to the U.S. IRAs.

3rd pillar retirement plans come in a variety of forms such as a simple savings account, an investment account, or a life insurance policy. On the Swiss side, these accounts offer current tax savings, just like the IRA accounts in the U.S. do. Contributions to the 3rd pillar retirement plans are deductible in determining Swiss tax income.

For Americans, the 3rd pillar plans are treated just like a regular investment accounts and offer no tax benefits. In fact, these plans may be quite costly both in tax bills and in compliance costs. That is because 3rd pillar plans often hold investments in foreign mutual funds or other securities that are classified as passive foreign investment companies (PFIC) under the U.S. tax law. The taxation regime of PFICs can be quite punitive, with dividend income and capital gains on securities’ sales taxed at ordinary income, and imposition of significant additional taxes and interest if the securities are held for an extended period of time. For each PFIC, a separate form 8621 must be prepared annually, with very limited exceptions. Even if there was no reportable income from the fund, that involves additional compliance costs.

As such, U.S. citizens are highly recommended to avoid investments in 3rd pillar accounts. Contact us for more information on U.S. tax implications and reporting of 3rd pillar pension plans.