How to File Taxes as a US Expat in 2026: FEIE, FTC, and Everything You Need to Know

US expat taxes stay mandatory regardless of where you live, because the US taxes citizens on worldwide income rather than residency — the tools that make this workable are specific, and using the wrong one costs real money.

The FEIE moved up for 2026, and it only shelters earned income

The Foreign Earned Income Exclusion (FEIE) lets qualifying expats exclude up to $132,900 of foreign-earned income from US federal tax for the 2026 tax year, up from $130,000 in 2025 under the IRS's annual inflation adjustment. Qualifying requires passing either the Physical Presence Test (330 full days outside the US in any 12-month period) or the Bona Fide Residence Test (established residency in a foreign country for a full tax year), and the exclusion only applies to earned income — wages, salary, and self-employment income from active work. It does not shelter investment income, rental income, pension distributions, or capital gains, which is where the Foreign Tax Credit (FTC) usually comes in instead: it credits US tax liability dollar-for-dollar against foreign income tax already paid, and unlike the FEIE it applies to a broader range of income types, making the two tools complementary rather than interchangeable — many filers use the FTC for passive income even while claiming FEIE on their salary.

FBAR and FATCA are separate filings with separate thresholds — and different agencies

The FBAR (FinCEN Form 114) triggers once the combined balance of all foreign financial accounts exceeds $10,000 at any point during the year, filed with the Treasury's FinCEN rather than the IRS, and it is purely an informational filing with no tax owed directly as a result. FATCA's Form 8938, filed with the IRS alongside the regular tax return, has its own separate and considerably higher thresholds for taxpayers living abroad: $200,000 (single or married filing separately) or $300,000 at any point during the year for individuals, and $400,000/$600,000 for married couples filing jointly — notably higher than the $50,000/$75,000 thresholds that apply to the same forms for taxpayers still living inside the US. Many expats mistakenly apply the domestic Form 8938 thresholds to themselves and either over-file unnecessarily or, more commonly, assume they are exempt entirely when they are in fact well below the FBAR's much lower $10,000 line and still required to file that one.

PFIC rules make "just buy a foreign index fund" genuinely bad advice

Passive Foreign Investment Company (PFIC) rules apply to most non-US mutual funds and ETFs held by US persons, and they are punitive by design — absent specific elections (like a timely Qualified Electing Fund election, which requires the fund to provide data most foreign funds don't), PFIC gains are taxed at the highest marginal rate plus an interest charge calculated as if the gain had accrued evenly since purchase, regardless of your actual tax bracket. This is precisely why US expats are consistently advised to keep investing through US-domiciled brokerages and US-listed ETFs rather than opening a local investment account and buying whatever index fund the local bank offers — a move that seems locally sensible but frequently triggers PFIC treatment on funds that would otherwise be simple, low-cost holdings.

Professional preparation costs reflect real complexity, not just paperwork volume

Expat-specific tax preparation, given the layered nature of FEIE/FTC elections, FBAR, potential Form 8938, and foreign account or entity structures, commonly costs $400–1,200 a year depending on complexity — self-employment income, foreign retirement accounts, or PFIC holdings push toward the higher end. That range reflects genuinely more return complexity than a standard domestic filing, and given the penalty exposure on FBAR and FATCA non-compliance specifically, it is one of the few line items where paying for a preparer who specializes in expat returns, rather than a generalist, is close to essential rather than a convenience.

Related guides

Continue with these closely related guides:

• How to Move to Lisbon as an American: Taxes, Banking, and Practical 2026 Guide — Overlapping theme (tax).
• How Australian Expats Handle Taxes Abroad in 2026: Foreign Income and Residency Rules — Overlapping theme (tax).
• How to Move to Paraguay in 2026: Residency, Low Taxes, and Expat Life — Overlapping theme (tax).
• Best Countries for Freelancers in 2026: Low Taxes, Easy Visas, Good Internet — Overlapping theme (tax).

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