Overview

Living or earning across borders adds layers of tax rules you must follow. U.S. citizens and resident aliens generally must report worldwide income to the IRS, while non-U.S. persons may face U.S. source tax on certain U.S.-connected income (IRS, International Taxpayers). Beyond income tax, many countries require local reporting of foreign assets, and U.S. taxpayers may need to file information returns such as FBAR (FinCEN Form 114) and Form 8938 (FATCA). In my 15+ years advising expats and cross-border families as a CPA and financial planner, I’ve seen the most common issues arise from missed reporting and incorrectly applying exclusions or credits.

Core U.S. obligations for expats and cross-border families

  • Worldwide income reporting: U.S. citizens and resident aliens report global income on Form 1040 (see IRS guidance, Publication 54).
  • Foreign Earned Income Exclusion (FEIE): Eligible qualifying taxpayers can elect to exclude qualifying earned income from U.S. taxation using Form 2555. The exclusion amount is adjusted annually; check the current IRS limits before filing (IRS, Form 2555 instructions).
  • Foreign Tax Credit: If you pay foreign income taxes, you may be eligible for a dollar-for-dollar credit on your U.S. return using Form 1116, which can reduce double taxation when FEIE is not optimal (IRS, Form 1116).
  • Residency and physical presence tests: These rules (the bona fide residence test and the physical presence test) determine FEIE eligibility and can affect treaty residency determinations.

Reporting foreign financial accounts and assets

  • FBAR (FinCEN Form 114): U.S. persons with an aggregate foreign account balance over $10,000 at any time during the calendar year must file the FBAR electronically with FinCEN. FBAR is an information return separate from your tax return; it has its own filing process and deadline (FinCEN website). Refer to our detailed guide: Reporting Foreign Bank Accounts and FBAR Basics.
  • FATCA (Form 8938): Under FATCA, certain taxpayers must report specified foreign financial assets on Form 8938 with their tax return. The filing thresholds differ by filing status and whether you live abroad.
  • Overlap and differences: FBAR and Form 8938 have different definitions, thresholds, and filing mechanics. In many cases both are required. See our additional resource: FATCA and FBAR: Reporting Foreign Accounts and Compliance.

Tax treaties, residency and double taxation

  • Tax treaties: Treaties between countries allocate taxing rights and can reduce or eliminate double taxation for income, pensions, and certain types of investment income. Treaties vary widely; the specific treaty text matters. I always recommend reading the applicable treaty articles or consulting a specialist when treaty benefits are claimed.
  • Treaty tie-breakers and residency: When two countries claim you as a resident, treaty tie-breaker rules (based on permanent home, center of vital interests, habitual abode, nationality) decide residency for treaty purposes.

Retirement, pensions and social security issues

  • Pensions and distributions: How pensions, annuities and employer plans are taxed depends on local law, treaty rules and the U.S. rules. The tax treatment of foreign pensions may differ from domestic pensions and can be subject to withholding in the source country.
  • Social Security: U.S. Social Security totalization agreements with certain countries prevent dual social security taxation and protect benefits credits; check whether your host country has an agreement with the U.S.

International estate and gift tax considerations

  • U.S. citizens remain subject to U.S. estate and gift tax on worldwide assets; nonresident noncitizens generally face U.S. estate tax only on U.S.-situs assets. Cross-border family planning should account for treaty provisions, local inheritance rules and probate differences.

Common mistakes I see in practice

  • Missing FBAR or FATCA filings: Information returns are frequently overlooked, and failure to file can trigger substantial penalties and enforcement actions (FinCEN/IRS guidance).
  • Over-relying on FEIE: The FEIE only applies to earned income. Many expats still have U.S.-taxable investment income, capital gains, or pension distributions that the FEIE does not cover. A mix of FEIE and foreign tax credits or treaty claims is often necessary.
  • Forgetting state tax obligations: Some U.S. states continue to consider you a resident for tax purposes even when you live abroad. State rules differ—confirm your domicile and filing requirements.
  • Incorrectly assuming treaty benefits are automatic: You must claim treaty benefits correctly and often need to provide documentation or file disclosures.

Practical checklist and timeline

  • Immediately: Determine tax residency status both in the U.S. and your host country. Identify applicable tax treaties.
  • By tax season each year:
  • File U.S. Form 1040 (or Form 1040-NR if nonresident).
  • File Form 2555 to claim the FEIE (if eligible) or Form 1116 to claim foreign tax credits.
  • File Form 8938 with your tax return if your foreign asset values exceed the FATCA thresholds.
  • File FBAR (FinCEN Form 114) electronically by the FBAR deadline (normally April 15 with an automatic extension to October 15).
  • Ongoing: Maintain organized records of foreign income, taxes paid, account statements, and residency documents.

Real-world examples (anonymized)

  • Family relocating to the U.K.: The family had earned income taxed in the U.K. and were U.S. citizens. We evaluated FEIE vs. foreign tax credits and concluded that claiming the foreign tax credit on most income, while using FEIE for a portion of salary in a low-tax year, minimized total global tax and preserved treaty advantages.
  • Retiree receiving German pension: We reviewed the U.S.–Germany tax treaty and filing history to reduce withholding and ensure the client’s pension was taxed under the treaty terms rather than default withholding rules.

Professional planning tips

  1. Use a combination of FEIE and foreign tax credits where appropriate. The FEIE can be attractive, but credits often preserve deductions and carryovers better.
  2. Keep clear, dated residency evidence (lease, work contracts, utility bills) to support bona fide residence/physical presence tests and treaty claims.
  3. Track account balances monthly if you have many foreign accounts — FBAR is triggered by aggregate maximum balances.
  4. Review state domicile annually; changing state residency can eliminate unexpected state filings.

When to hire a cross-border tax professional

  • You have multiple foreign accounts, investments, or trusts.
  • You’re receiving foreign pensions, Social Security, or complex compensation (equity awards, stock options).
  • You face IRS inquiries, penalty notices, or need to make voluntary disclosures for past noncompliance.

Key forms and resources (U.S.-focused)

Internal resources on FinHelp

Frequently asked questions (short answers)

Q: Do I still file a U.S. tax return if I live abroad?
A: Yes—U.S. citizens and resident aliens generally file Form 1040 and report worldwide income. See IRS Publication 54 for details.

Q: What if I missed FBAR filings in prior years?
A: There are voluntary disclosure and penalty-mitigation programs but the correct option depends on facts (willfulness, years missed). Seek a specialist with cross-border compliance experience.

Q: Are tax treaties the same everywhere?
A: No. Each treaty is negotiated separately. Common treaty benefits include reduced withholding, residency tie-breakers, and relief from double taxation.

Authoritative sources and further reading

Professional disclaimer

This article is educational and general in nature and does not constitute tax, legal, or investment advice. International tax situations are fact-specific; consult a licensed tax professional or attorney who understands both your home and host country laws before acting on this material.

In my practice I regularly coordinate multi-jurisdiction filings and treaty analyses for clients; if you have a complex cross-border situation, consider engaging a CPA or tax attorney with expat and treaty experience.