US Tax Obligations for Expats: Complete Guide 2026

The United States is one of only two countries (with Eritrea) that taxes citizens on worldwide income regardless of residence. If you're a US citizen or green card holder living abroad, you have ongoing tax obligations to the IRS.

This guide covers everything US expats need to know about filing requirements, exclusions, credits, and reporting obligations in 2026.

Who Must File US Taxes Abroad

You Must File If:

• US Citizen: Regardless of where you live or were born
• Green Card Holder: Even if you've moved abroad
• Income exceeds threshold: $14,600 (single 2024), $29,200 (married filing jointly)

You May Not Need to File If:

• Income below filing threshold AND
• No self-employment income over $400 AND
• No special situations (selling property, etc.)

Common Misconceptions

• ❌ "I live abroad so I don't owe US taxes" — Wrong
• ❌ "I pay taxes here so I'm exempt" — Wrong (but may get credit)
• ❌ "I haven't filed in years, too late now" — Wrong (come into compliance)
• ❌ "Foreign income under $126,500 is tax-free" — Only EARNED income with proper forms

Filing Deadlines for Expats

• April 15: Standard deadline (still applies for payment)
• June 15: Automatic 2-month extension if abroad
• October 15: Extended deadline with Form 4868
• Tax due: Always April 15 (interest accrues after)

Foreign Earned Income Exclusion (FEIE)

What FEIE Does

Excludes up to $126,500 (2024, indexed annually) of foreign earned income from US taxation.

Requirements

• Tax home: Must be in foreign country
• Qualify via: Bona Fide Residence Test OR Physical Presence Test
• Earned income only: Wages, self-employment (NOT investment income)

Bona Fide Residence Test

• Resident of foreign country for entire tax year
• Intend to remain indefinitely
• Established home, family, social ties
• More subjective than Physical Presence

Physical Presence Test

• Present in foreign country 330 days in any 12-month period
• Days don't need to be consecutive
• 12-month period can straddle tax years
• Easier to prove than Bona Fide Residence

Housing Exclusion/Deduction

Additional exclusion for housing costs exceeding base amount (~$19,000):

• Employees: Housing exclusion (reduces income)
• Self-employed: Housing deduction (reduces taxable income)
• Limits: Varies by location (higher limits for expensive cities)

Filing: Form 2555

Must file Form 2555 to claim FEIE. Cannot be filed late for first-time use—file on time or request extension.

Foreign Tax Credit (FTC)

What FTC Does

Credits taxes paid to foreign governments against US tax liability, dollar-for-dollar (with limitations).

When to Use FTC vs FEIE

Example: $150,000 Income in UK

Option 1: FEIE

• Exclude $126,500
• Pay US tax on $23,500 at marginal rate
• Still pay full UK tax

Option 2: FTC

• Pay UK tax (~$45,000)
• Credit against US tax (~$30,000)
• Excess credit carries forward
• Total tax: just UK tax

Filing: Form 1116

Requires Form 1116 for each category of income. Can elect simplified method for under $300 creditable tax.

FBAR: Foreign Bank Account Reporting

Who Must File

Anyone with financial interest in or signature authority over foreign accounts exceeding $10,000 aggregate at any point during the year.

What Counts

• Bank accounts (checking, savings)
• Brokerage accounts
• Mutual funds held directly
• Some pension accounts
• Accounts you have signature authority over (employer accounts)

Filing Details

• Form: FinCEN 114 (FBAR)
• Where: BSA E-Filing System (not with tax return)
• Deadline: April 15, automatic extension to October 15
• Threshold: $10,000 aggregate (not per account)

Penalties

• Non-willful: Up to $10,000 per violation
• Willful: Greater of $100,000 or 50% of account balance
• Criminal: Up to $500,000 and/or 10 years imprisonment

Example

You have two accounts: £5,000 in UK, €4,000 in Germany. At any point during the year, if combined value exceeds $10,000, FBAR required.

FATCA: Form 8938

What FATCA Requires

Report specified foreign financial assets exceeding threshold on Form 8938 (filed with tax return).

Thresholds (Living Abroad)

What to Report

• Foreign financial accounts
• Foreign stocks and securities
• Foreign partnership/trust interests
• Foreign-issued life insurance
• Foreign pension plans (some)

FBAR vs Form 8938

Note: Many expats must file BOTH. They overlap but aren't identical.

Common Expat Tax Situations

Self-Employment Abroad

• FEIE: Can exclude self-employment income
• SE Tax: Still owe 15.3% self-employment tax (Social Security/Medicare)
• Exception: Totalization agreement countries may exempt SE tax
• Form: Schedule SE required

Investment Income

• FEIE: Does NOT apply to investment income
• FTC: Can credit foreign tax on investment income
• PFIC: Foreign mutual funds have punitive tax treatment
• Strategy: Use US-based investments when possible

Rental Income

• FEIE: Does NOT apply (not earned income)
• FTC: Can credit foreign property taxes
• Deductions: Depreciation, expenses still apply

Retirement Accounts

• US accounts (401k, IRA): Normal US rules apply
• Foreign pensions: Complex—may be taxable currently or deferred
• Treaty benefits: Some treaties protect pension taxation
• FBAR/FATCA: Foreign pensions often reportable

Selling Foreign Property

• Capital gains: Taxable in US (possibly also locally)
• FTC: Credit for foreign capital gains tax
• Exclusion: $250K/$500K primary residence exclusion may apply
• Currency: Calculate gain in USD (creates forex gain/loss)