Q: What are the penalties and do I need to pay taxes here in the US also or just declare the income?
I've worked for 4 months outside the US last year, but didn't declare that income on my U.S. taxes, since I was not aware I had to and because I had already paid taxes over there from that income. The amount is very small, around a few thousand dollars.
A:
Under federal law, you are required to report worldwide income. However, you may be able to take either a credit or a deduction for income taxes paid to a foreign country or a U.S. possession.
For example, the Foreign Tax Credit is used to lessen your tax burden when the US and the foreign country are taxing the foreign income. Once you apply all applicable foreign income and credits, you may not owe additional tax. Thus, you may avoid the assessment of additional interest and tax penalties.
I encourage you to gather all of your information regarding your 4 months outside the US and seek an attorney or CPA to move forward with preparing an amended tax return.
A: Also, remember you might have to file FBAR returns if you deposited more than $10,000 in a foreign bank account. It is fairly a simple return and you can get it on the IRS website. Otherwise, there can be a 50% penalty of the amount of your highest balance.
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