A guide to reporting foreign income, bank accounts, and financial assets for US taxpayers, including FBAR filing, FATCA compliance, and the Foreign Earned Income Exclusion.
Confirm if you're a US person: citizen, green card holder, or resident alien
US citizens and green card holders must report worldwide income regardless of where they live. The substantial presence test counts days physically in the US: all days in the current year, plus 1/3 of days in the prior year, plus 1/6 of days two years prior. If the total is 183+, you're a resident alien.
Report all foreign income on your US tax return, regardless of where it was earned
The US taxes citizens on worldwide income. This includes foreign wages, self-employment income, rental income, interest, dividends, and capital gains earned abroad. Even if you paid tax to a foreign country, you must still report it to the IRS.
Determine if you need to file FBAR (FinCEN Form 114)
You must file an FBAR if the aggregate value of all your foreign financial accounts exceeded $10,000 at any point during the year. This includes bank accounts, securities accounts, and certain insurance policies. The threshold counts all accounts combined, not individually.
Determine if you need to file FATCA (Form 8938)
Form 8938 is required for specified foreign financial assets exceeding $50,000 at year-end or $75,000 at any point (double for joint filers). US taxpayers living abroad have higher thresholds: $200,000 at year-end or $300,000 during the year.
File the FBAR (FinCEN Form 114)
List every foreign bank account, investment account, and signatory account
Include accounts where you have signature authority even if you don't own them (like a corporate account). Joint accounts count at full value for each account holder. Don't forget foreign retirement accounts, pension accounts, and accounts held through foreign entities you control.
Report the maximum value of each account during the calendar year
Check monthly statements to find the highest balance for each account during the year. Convert foreign currency to USD using the Treasury's year-end exchange rate published at fiscaldata.treasury.gov. You don't need to report the year-end balance — it's the maximum at any point.
File electronically through the BSA E-Filing System by April 15 (auto-extended to October 15)
The FBAR is filed separately from your tax return — it goes to FinCEN, not the IRS. The system is at bsaefiling.fincen.treas.gov. There's an automatic extension to October 15, so no separate extension form is needed.
Understand the severe penalties for non-filing
Non-willful FBAR violations carry penalties up to $16,117 per account per year (2025, adjusted for inflation). Willful violations can reach $161,174 per account or 50% of the account balance, whichever is greater. Criminal penalties include up to $250,000 in fines and 5 years in prison.
File FATCA (Form 8938)
List all specified foreign financial assets: accounts, stocks, bonds, interests in foreign entities
Form 8938 is broader than the FBAR. It covers not just bank accounts but also foreign stocks not held in a US brokerage, interests in foreign partnerships or corporations, foreign mutual funds, and foreign-issued life insurance.
Report the maximum value and year-end value of each asset
Unlike the FBAR which only wants the max, Form 8938 requires both the maximum value during the year and the value at year-end. Use the Treasury exchange rate for December 31 for year-end values and the rate on the date of maximum value.
Attach Form 8938 to your income tax return
Form 8938 is filed with your Form 1040, not separately like the FBAR. If you file an extension for your tax return, Form 8938 is automatically extended too. Filing an FBAR does not exempt you from Form 8938 — you may need to file both.
Note that FBAR and FATCA have different thresholds and may overlap
Many taxpayers must file both. FBAR threshold is $10,000 aggregate in foreign accounts. FATCA threshold is $50,000 in specified foreign assets (higher for expats). An account worth $60,000 triggers both. The penalties for missing Form 8938 are $10,000 per form, plus an additional $10,000 for each 30 days of non-filing after IRS notice, up to $60,000.
Claim the Foreign Earned Income Exclusion (FEIE)
Determine if you meet the bona fide residence test or physical presence test
The bona fide residence test requires being a bona fide resident of a foreign country for an entire calendar year. The physical presence test requires being physically present in a foreign country for 330 full days during any 12-month period. Most expats use the physical presence test because it's objective.
File Form 2555 to exclude up to $130,000 of foreign earned income (2025)
The exclusion applies only to earned income (wages, self-employment). It does not apply to investment income, pensions, or Social Security. If both spouses work abroad, each can claim the full exclusion on a joint return.
Claim the foreign housing exclusion or deduction for excess housing costs
Housing costs above a base amount (roughly $18,200 for 2025) are excludable up to a cap that varies by location. High-cost cities like Tokyo, London, and Hong Kong have higher caps. The cap is generally 30% of the FEIE maximum ($39,000).
Alternatively, claim the Foreign Tax Credit (Form 1116) instead of the FEIE
You can't claim both the FEIE and the Foreign Tax Credit on the same income. If you live in a high-tax country (like most of Europe), the Foreign Tax Credit often saves more because it directly offsets your US tax dollar-for-dollar. Run the numbers both ways before choosing.
Report Foreign Entities and Trusts
File Form 5471 if you own 10% or more of a foreign corporation
Form 5471 is one of the most complex international forms and often requires professional help. Penalties for failure to file are $10,000 per form per year. The form is required even if the corporation had no income.
File Form 8865 if you have an interest in a foreign partnership
Filing requirements depend on your percentage of ownership and type of transactions. Category 1 filers (50%+ interest) have the most extensive reporting. Penalties mirror Form 5471 at $10,000 per form per year.
File Form 3520 if you received gifts or inheritances from foreign persons exceeding $100,000
Gifts from foreign individuals over $100,000 in a year must be reported on Form 3520. Gifts from foreign corporations or partnerships over $18,567 (2025) also require reporting. The gift itself isn't taxable, but failing to report it carries a 25% penalty on the unreported amount.
File Form 3520-A if you're the grantor or beneficiary of a foreign trust
Form 3520-A is an annual information return filed by foreign trusts with US owners. It's due March 15. US beneficiaries who receive distributions from foreign trusts report on Form 3520 with their personal return.
Catch Up If You're Behind
Consider the Streamlined Filing Compliance Procedures if non-willful
The Streamlined program lets you catch up by filing 3 years of tax returns and 6 years of FBARs. US residents pay a 5% penalty on the highest aggregate foreign account balance. Taxpayers living abroad pay zero penalty. You must certify the non-compliance was non-willful.
Consider the IRS Voluntary Disclosure Practice for willful violations
If your non-compliance was willful, the Streamlined program isn't available. The Voluntary Disclosure Practice involves working directly with IRS Criminal Investigation. Penalties are higher but you avoid criminal prosecution. Consult a tax attorney before disclosing.
File delinquent FBARs with a reasonable cause statement if needed
If you only missed FBARs (not income tax returns), you can file late FBARs through the BSA E-Filing System with a reasonable cause explanation. Include a statement explaining why you didn't file on time. The IRS will consider whether penalties apply based on facts and circumstances.
Frequently Asked Questions
Do US citizens living abroad still have to file US taxes?
Yes. The United States taxes its citizens and permanent residents on worldwide income regardless of where they live. If you are a US citizen or green card holder, you must file a federal tax return reporting all income earned anywhere in the world. The filing thresholds are the same as for domestic residents. You may also owe FBAR and FATCA filings if you have foreign financial accounts. The Foreign Earned Income Exclusion and Foreign Tax Credit can reduce or eliminate double taxation.
What is the difference between the FBAR and FATCA?
The FBAR (FinCEN Form 114) is filed with the Treasury Department and reports foreign financial accounts with an aggregate value exceeding $10,000 at any point during the year. FATCA (Form 8938) is filed with your tax return and reports specified foreign financial assets exceeding $50,000 on the last day of the year or $75,000 at any time (higher thresholds for married filing jointly and US persons abroad). They overlap but cover different assets — FBAR focuses on bank accounts, while FATCA also includes foreign securities, partnership interests, and insurance policies.
What are the penalties for not reporting foreign accounts?
FBAR penalties are severe. A non-willful violation carries a penalty of up to $10,000 per account per year. A willful violation can result in the greater of $100,000 or 50% of the account balance per year, plus potential criminal prosecution. FATCA Form 8938 penalties start at $10,000 for failure to file, with an additional $10,000 for each 30 days of non-filing after IRS notice, up to $50,000. The IRS Streamlined Filing Compliance program offers reduced penalties for taxpayers who were non-willfully non-compliant.
How much foreign income is excluded from US taxes?
The Foreign Earned Income Exclusion (FEIE) for 2024 allows you to exclude up to $126,500 of foreign earned income from US taxation. To qualify, you must meet either the bona fide residence test (tax resident of a foreign country for a full calendar year) or the physical presence test (present in a foreign country for 330 full days in any 12-month period). The FEIE applies only to earned income — wages, salaries, self-employment income. Investment income, pensions, and Social Security are not eligible. Tax laws change frequently — verify current rules with the IRS or a tax professional.
Can I claim a credit for taxes paid to a foreign government?
Yes. The Foreign Tax Credit (Form 1116) lets you credit income taxes paid to foreign governments against your US tax liability, dollar-for-dollar up to the US tax rate on that same income. If you paid $15,000 in UK income tax and your US tax on the same income would be $20,000, you get a $15,000 credit and owe only $5,000 to the IRS. Excess credits carry back 1 year or forward 10 years. You can elect to take foreign taxes as an itemized deduction instead, but the credit is almost always more beneficial.