How to File U.S. Taxes From Abroad

The U.S. tax system operates on a principle of citizenship-based taxation, meaning U.S. citizens and green card holders are subject to U.S. income tax on their worldwide income, regardless of where they live. This applies even if an individual resides permanently outside the United States and earns all income from foreign sources. This guide clarifies the essential steps and considerations for U.S. citizens and resident aliens fulfilling their U.S. tax obligations while living overseas.

Determining Your Filing Requirement

A “U.S. person” for tax purposes includes U.S. citizens and green card holders. These individuals are generally subject to U.S. tax on their worldwide income, irrespective of their country of residence.

The obligation to file a U.S. tax return (Form 1040) is triggered by income thresholds that vary based on filing status and age. If net earnings from self-employment reach $400 or more, a return must be filed regardless of gross income.

For individuals who are not U.S. citizens or green card holders, their filing obligations depend on their residency status for U.S. tax purposes. A “resident alien” is generally taxed on worldwide income, similar to a U.S. citizen. A “non-resident alien” is typically only taxed on income from U.S. sources. Determining this status often involves the “substantial presence test” or holding a green card.

Key Exclusions and Credits for Expats

U.S. taxpayers living abroad can utilize specific provisions to reduce or eliminate potential double taxation. The Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC) are the primary tools available.

The Foreign Earned Income Exclusion (FEIE), claimed on Form 2555, allows eligible individuals to exclude a certain amount of their foreign earned income from U.S. taxation. To qualify, a taxpayer must meet either the Bona Fide Residence Test or the Physical Presence Test. The maximum exclusion amount is adjusted annually.

The Bona Fide Residence Test requires the taxpayer to be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year. The Physical Presence Test requires physical presence in a foreign country for at least 330 full days during any 12-month period. The FEIE applies only to earned income, such as wages, salaries, and self-employment income, and not to passive income like dividends or interest.

Alternatively, the Foreign Tax Credit (FTC), claimed on Form 1116, provides a dollar-for-dollar credit against U.S. tax liability for income taxes paid or accrued to a foreign country. The FTC can be beneficial if the foreign tax rate is higher than the U.S. rate, potentially reducing U.S. tax liability to zero.

If foreign taxes exceed the U.S. tax liability on that income, unused credits may be carried back one year and forward for up to ten years. A related benefit is the Foreign Housing Exclusion or Deduction, which allows taxpayers to exclude or deduct certain housing expenses paid in a foreign country, subject to limitations. Taxpayers generally choose between claiming the FEIE or the FTC for the same income, as using both for the same income is not permissible.

Reporting Foreign Assets and Accounts

Beyond income tax, U.S. persons abroad have distinct reporting obligations for foreign financial assets and accounts. Two primary forms govern this reporting: FinCEN Form 114, known as the FBAR, and Form 8938, related to FATCA.

The Report of Foreign Bank and Financial Accounts (FBAR), filed electronically with the Financial Crimes Enforcement Network (FinCEN) using FinCEN Form 114, is required if the aggregate value of all foreign financial accounts exceeds $10,000 at any point during the calendar year. This includes bank accounts, securities accounts, mutual funds, and certain insurance policies with cash value. The FBAR is due by April 15th, with an automatic extension to October 15th, and is filed with FinCEN, not the IRS.

The Foreign Account Tax Compliance Act (FATCA) mandates reporting of specified foreign financial assets on Form 8938, which is filed with the annual tax return. The filing thresholds for Form 8938 are significantly higher than for the FBAR and vary based on filing status and whether the taxpayer lives abroad.

While both the FBAR and Form 8938 require reporting of foreign financial assets, they are distinct requirements with different thresholds, agencies, and types of assets covered. Some assets may need to be reported on both forms. For instance, foreign bank accounts are typically reported on both, whereas an interest in a foreign partnership might only be reported on Form 8938.

Preparing and Submitting Your Return

Once all necessary financial information is gathered and the applicable exclusions or credits are determined, the next step involves preparing and submitting the U.S. tax return. An expatriate tax return package typically includes Form 1040, along with various schedules like Schedule 1 (Additional Income and Adjustments to Income) and Schedule B (Interest and Ordinary Dividends). Forms 2555 (Foreign Earned Income) and 1116 (Foreign Tax Credit) are also included if those benefits are claimed. Form 8938 is attached if required.

Taxpayers have several options for filing their return. Electronic filing is widely available through commercial tax software that supports expat-specific forms, or through IRS Free File if eligible. Electronic filing generally provides faster processing and confirmation of receipt. Alternatively, paper filing is an option, with specific mailing addresses designated for taxpayers living abroad.

For those residing in a foreign country, including those with an APO or FPO address, or who file Form 2555, the return without a payment is sent to Department of the Treasury, Internal Revenue Service, Austin, TX 73301-0215 USA. If enclosing a payment, the address is Internal Revenue Service, P.O. Box 1303, Charlotte, NC 28201-1303 USA.

U.S. citizens and resident aliens residing abroad receive an automatic two-month extension to file their tax returns, moving the deadline from April 15th to June 15th. This extension is automatic and does not require a separate request, although interest may still accrue on any tax owed from the original April 15th due date. An additional extension to October 15th can be requested by filing Form 4868 by the June 15th deadline. Taxpayers anticipating a tax liability should make estimated tax payments using Form 1040-ES throughout the year to avoid penalties.

Catching Up on Unfiled Returns

Discovering an unfulfilled U.S. tax obligation while living abroad is a common situation, but the Internal Revenue Service (IRS) offers specific programs to help individuals become compliant. The Streamlined Filing Compliance Procedures are designed for non-willful taxpayers who were unaware of their filing requirements. These procedures offer a penalty-free pathway to catch up on delinquent tax and information returns.

To qualify for the Streamlined Foreign Offshore Procedures, individuals must generally certify that their failure to file was due to non-willful conduct, meaning it was not intentional or reckless. They must also not be currently under IRS examination or investigation. The program requires the submission of delinquent tax returns for the most recent three years for which the due date has passed.

Along with the tax returns, individuals must also file any delinquent FinCEN Form 114 (FBARs) for the most recent six years. A crucial component of the streamlined submission is Form 14653, where the taxpayer attests to their non-willfulness. Any unpaid taxes and interest from those years must also be paid.

For situations where only FBARs were unfiled and no income tax returns are outstanding, the Delinquent FBAR Submission Procedures can be used. Similarly, for other delinquent international information returns, such as Form 8938, the Delinquent International Information Return Submission Procedures may apply. Due to the complexities involved in assessing non-willfulness and navigating the specific requirements of these programs, consulting with a tax professional specializing in international tax matters is highly advisable for individuals considering these compliance pathways.