Victor Gersten, EA, CFP®, MS, MPAS™
American citizens and green card holders living abroad still file a US tax return every year.
That obligation does not depend on where you live. It does not depend on where you are paid. And it does not depend on whether you already paid tax to another country.
This article covers what applies to a US taxpayer overseas. The two reliefs against double taxation. The reporting forms alongside the return. The deadlines that differ from the domestic ones. And the figures currently in force.
It is general information, not advice about your own return.
Do Americans abroad have to file?
Yes, in almost all cases.
The United States taxes its citizens and permanent residents on worldwide income regardless of residence. Very few countries do that.
The filing thresholds are the same as for someone living in the United States. They are based on gross income rather than on what you end up owing. So it is entirely normal to file a return, claim relief, and owe nothing. The return is still required.
Two points catch people out.
Self-employment tax is not reduced by the exclusion described below. So a freelancer abroad can owe US self-employment tax on income that carries no US income tax at all.
A totalization agreement can remove that self-employment tax entirely, where one exists between the US and your country of residence. But only if you hold a certificate of coverage.
The Foreign Earned Income Exclusion
The exclusion lets you leave a limited amount of foreign earned income out of your US taxable income.
For tax year 2025 the maximum is $130,000 per qualifying person. For 2026 it rises to $132,900.
To qualify you need foreign earned income, a tax home in a foreign country, and one of two tests.
- The bona fide residence test. You are a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year.
- The physical presence test. You are physically present in a foreign country for at least 330 full days during any 12 consecutive months.
The word doing the work is earned
The exclusion covers wages, salaries and professional fees for personal services performed abroad.
It does not cover pensions. It does not cover Social Security, dividends, interest, capital gains, rental income or IRA distributions.
That is why it is often far less useful to a retiree than to someone still working. You claim it on Form 2555.
The Foreign Tax Credit
The credit works differently. Instead of removing income from the calculation, it reduces your US tax by the foreign income tax you actually paid or accrued on the same income.
You claim it on Form 1116.
The credit reaches a much wider range of income than the exclusion, including investment income and pensions. That is why it tends to be the more relevant tool for retirees.
You cannot claim the credit on income you have already excluded. So the two do not simply stack.
Choosing between them, or apportioning between them, is a real calculation rather than a preference. It depends on your income mix and on the tax rate where you live. In a high tax country the credit will often do more work.
Revoking an exclusion election also has consequences for future years. So it is not a decision to flip year to year without advice.
For Americans in Spain specifically, that comparison is worked through in FEIE or Foreign Tax Credit: Which One Should You Use?
The reporting forms alongside the return
These are informational filings. They generally create no tax liability. The penalties for missing them can still be significant.
| FBAR | FATCA reporting | |
|---|---|---|
| Form | FinCEN Form 114 | IRS Form 8938 |
| Agency | FinCEN, part of the Treasury | Internal Revenue Service |
| Filed | Separately, through the BSA E-Filing System | Attached to your tax return |
| Threshold | Foreign financial accounts over $10,000 in aggregate at any point in the year | Living abroad: over $200,000 at year end or $300,000 at any time (single); $400,000 or $600,000 (married filing jointly) |
| Deadline | April 15, with automatic extension to October 15 | The due date of the return, including extensions |
Filing one does not satisfy the other. The IRS says so plainly in its own comparison.
If you hold non-US mutual funds or ETFs, a third form is likely to apply. Those are generally passive foreign investment companies, each requiring its own Form 8621. The default tax treatment is materially worse than ordinary capital gains. The PFIC Trap covers it.
Deadlines for taxpayers abroad
The calendar differs from the domestic one, and the difference is easy to misread.
- April 15 is the ordinary due date. It is also the date from which interest runs on unpaid tax.
- June 15 is an automatic two month extension to file, for taxpayers whose tax home is outside the United States. It extends filing, not payment.
- October 15 is available by filing Form 4868.
- December 15 may be available by written request in limited circumstances.
The distinction between filing and paying is what costs money. An extension to file is not an extension to pay. Interest accrues from April 15 on anything owed, even where the return is legitimately filed later.
Current figures worth knowing
These are the 2026 amounts from the IRS annual inflation adjustments. Figures change every year. Treat any article that does not name a tax year with suspicion, including older versions of this one.
| Item | 2026 |
|---|---|
| Foreign earned income exclusion | $132,900 |
| Standard deduction, single | $16,100 |
| Standard deduction, married filing jointly | $32,200 |
| Standard deduction, head of household | $24,150 |
| Top marginal rate | 37%, from $640,600 (single) and $768,700 (married filing jointly) |
| 401(k) elective deferral limit | $24,500, plus $8,000 catch-up at 50 and over |
| IRA contribution limit | $7,500, plus $1,100 catch-up |
One note for anyone aged 60 to 63. SECURE 2.0 provides an enhanced catch-up of $11,250 for that age band in employer plans, in place of the ordinary $8,000. It is new enough to be missed.
What changes if you live in Spain
Everything above applies to any American abroad. Spain adds its own layer, and the interaction is where most of the planning value sits.
A Spanish tax resident pays tax in Spain on worldwide income. Investment income falls into the savings base, at rates currently running from 19% to 30%.
Spain also has its own reporting regime. Modelo 720 carries a separate €50,000 threshold for each of three asset categories. And the wealth tax has a state exempt minimum of €700,000 per taxpayer, varying considerably by region.
The two systems also disagree about certain accounts. A Roth IRA is the clearest example. The US treats a qualified distribution as not income at all. Spain is not bound by that characterization.
If you are behind on filings
This is a very common situation for people who relocate internationally. There are well established procedures to correct it properly.
The Streamlined Filing Compliance Procedures exist for taxpayers whose failure to file or report was not willful. There is also a narrower program for certain former citizens.
Which route fits depends on the facts. The analysis of willfulness is not something to reason through alone.
The practical advice is to come forward before the IRS contacts you. The available options narrow considerably afterward.
Working with a cross-border adviser
The work here is specific.
We run the exclusion and the credit side by side on your actual numbers, rather than defaulting to whichever one your preparer used last year. We confirm which information returns apply to your balances. We identify any holdings that trigger PFIC treatment. And we coordinate the US return with the return you file where you live, so both are built on the same assumptions.
Cross Border Wealth Advisors is a fee-only fiduciary firm serving US citizens living in or moving to Spain. I hold both the CFP® certification and an Enrolled Agent license, which lets the return and the plan get decided in one conversation.
We do not prepare returns in house. We work out the position and coordinate with the preparers on each side.
Everything above is general information, not advice about your return.
To talk it through, book an introductory conversation at cbwealthadvisors.com or email info@cbwealthadvisors.com.
Frequently Asked Questions
Do I file if I already paid tax in another country?
Yes. The US filing obligation is independent of what you paid elsewhere. The foreign tax credit prevents the same income being taxed twice in full, and you claim it on the return you are required to file.
Can I use both the exclusion and the credit?
Not on the same income. You may use both in the same year on different income. You cannot claim a credit for foreign tax paid on income you already excluded.
Does the exclusion cover my pension or Social Security?
No. It applies only to foreign earned income, meaning compensation for services performed abroad.
What if I have never filed while living abroad?
The Streamlined Filing Compliance Procedures are designed for taxpayers whose failure to file was not willful. Coming forward voluntarily generally preserves options that are lost afterward.
Sources
- IRS, Foreign earned income exclusion
- IRS, Foreign tax credit
- IRS, Comparison of Form 8938 and FBAR requirements
- IRS, US citizens and resident aliens abroad
- IRS, Tax inflation adjustments for tax year 2026
- IRS, Streamlined filing compliance procedures
Related reading: Five Financial Mistakes Americans Make Before Moving to Spain · Modelo 720
Disclosures
This article is general educational information published by Cross Border Wealth Advisors, a company of Gersten Financial Planning Inc., an investment adviser registered with the State of California (CRD 309890). It is not investment, tax, legal or immigration advice.
Rules and figures change. The ones here are stated as of the date above. Cross Border Wealth Advisors is fee-only and receives no commissions. Registration does not imply a certain level of skill or training.
Please read the full article disclosures, which apply to everything published here.
