Posted by This article is designed for Americans who live abroad and work for small to moderate wages – say, $130,000 a year or less. There are certain hoops you have to jump through if you are a US citizen or green card holder and live abroad. These taxpayers produce very little tax for the IRS and cost the IRS far more to process than any revenue generated. Even the IRS wishes these rules could go away, or that one could file a one-page form with eight or ten boxes to tick and pay a $100 user fee. If DOGE was really about efficiency, this would have already happened in 2025.
Reporting taxable income and computing the tax
Not all people who live abroad are making the big bucks. One useless facet of US taxes is that citizens and green card holders are required to file a tax return even if no taxes are owed, if the income is above the standard deduction amount. For example, the standard deduction for a single person for 2026 is $16,100. If you have $16,000 of income, you aren’t required to file a return. If you have $16,200, you are.
There’s a strategy to filing even if you don’t have to. Suppose your wages are $16,000 and you forgot about that $1,000 of tips you received. If you just forgot, the statute of limitations starts running and three years later the year is closed. No tax can be assessed and no refunds can be paid.
The reason I say this is useless is because it generates a lot of paperwork and very little tax revenue. Let’s take that hypothetical $17,000 in total wages (paycheck and tips). Your US tax would be $90 ($17,000 minus $16,100 = $900 times 10% base rate.) If you’re in Europe, you probably pay more than $90 to the host country on that income. You use Form 1116 for this and Turbotax Deluxe supports this. Any excess carries forward for ten years. So the tax revenue generated, if any, doesn’t cover the cost of processing the return.
If you’re in the Middle East, there usually is no tax. This does not mean you fork over the $90 to the IRS. You can probably take advantage of the foreign earned income exclusion. You can exclude up to $132,900 of foreign income as long as you either have a tax home in a foreign country (i.e. really live there) for any period including one full calendar year or if you are out of the U.S. for at least 330 days in any rolling 365- or 366-day period. You use Form 2555 for this and, again, Turbotax Deluxe supports this.
The wages are normally mostly paid in foreign currency. You normally use the yearly average exchange rate. The easiest source to convert such currency is https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates. For example, suppose you made 50,000 euros during 2025. The yearly average exchange rate was 0.886 euros per dollar, so that translates to $56,433. This is what gets reported on Form 1040, line 1(h) putting it into income and on Form 2555 and Schedule 1, line 8(d) taking it back out.
Information returns
There are certain information returns that must be filed that do not affect taxable income.
1 FINCEN Form 114 – low to moderate income taxpayers
The threshold for this is $10,000 of foreign bank accounts or financial accounts. The accounting is tricky. For example, if the total amounts in foreign banks tops $10,000, you have to file an information return called the Foreign Bank Account Report, or FBAR (I usually remember it as FUBAR). For foreign currency, even if the accounts are all closed by year end, you use the year-end rate. This is at https://fiscaldata.treasury.gov/datasets/treasury-reporting-rates-exchange/treasury-reporting-rates-of-exchange.
This is the indirect result of the friends of Richard Nixon in the early 1970’s stashing their wealth abroad (usually in low-tax countries) and not paying tax on the income. Certain members of the Grand High and Exalted actually used such laundered funds to overthrow the Allende regime in Chile in 1971. Nowadays, you probably can’t even overthrow a city council seat in a town of 50 people for that amount of money, but there it is.
These rules are hairy. For example, if you have $5,001 in one account and move it to a second account, that’s two accounts with a total of $10,002, even though it’s the same money and never reaches a level of $10,000 on any given day. If you read the instructions and think it through, you can do it. Remember, when in doubt, over report balances.
You file the report online at BSA E-Filing System – Welcome to the BSA E-Filing System separately from your return.
2 – Form 8833 for claiming double tax treaty benefits – low to moderate income taxpayers
Certain assets are presumed to create taxable income, but there are provisions in tax treaties that mitigate this. For example, the default rule is that an employer’s contribution to a foreign pension fund is taxable and the income generated is taxable. Treaties can make most or all of these contributions non-taxable until you withdraw money from the pension in your old age. But you must actively claim the benefit on this form. You can download a fillable pdf from the IRS, print it and the return, and mail them, certified, to the IRS. Consider it a type of protest that they put you through this grief for nothing. Or hire a pro.
3. Form 3520 – moderate to high income taxpayers
If you receive gifts from foreign trusts, estates, or individuals, you must report those if the total exceeds $100,000. If you receive these from a corporation or a partnership, the threshold drops to $20,000. You’ve got the money – hire a pro.
4. Form 8938 – moderate to high income taxpayers
If your foreign bank accounts plus other foreign assets (stocks, bond, mutual funds, etc.) exceed $300,000 at any point or $200,000 at the end of the year, the assets must be reported on Form 8938. Just hire a pro, at least until you understand it. You’ve got the money – hire a pro.
Due dates
When living overseas, you get an automatic extension to file until June 15, and, if you request it on time (before June 15), you can request a further extension until October 15 using Form 4868. If you cannot meet the requirements of the foreign earned income exclusion by the time you file your return, you may file Form 2350 which extends the due date until 30 days after you meet the requirements for the foreign earned income exclusion. For example, you move abroad on April 1, 2027. On December 31, 2028, you meet the requirements for the bona fide residence exclusion. You file the Form 2350 by April 15, 2028 and have until January 30, 2029 to file your return.
Death and Taxes 