US Tax Filing: Partial-Year Departure and Future Years with FBAR

Americans who move abroad this year face no special break on their federal filing. The Internal Revenue Service still expects a full-year return that reports worldwide income, even if the move happens mid-year. That means U.S. citizens and resident aliens must file a standard Form 1040 for the calendar year of departure and for every year after, and include income from all sources—U.S. and foreign—across the entire year.

For many new expats, the surprise is not the paperwork; it’s that the United States taxes citizens and green card holders on income earned anywhere in the world. The rules do not end when a person’s ZIP code changes.

Filing in the Year You Leave — the Big Picture

There is no “partial-year” filing status for federal purposes in the year you depart. You file the same annual U.S. tax return you filed before your move, list every source of income, and then decide which relief provisions apply.

• Report all income for the calendar year: U.S. salary earned before your move, foreign salary after the move, capital gains, dividends, interest, rental income, etc.
• Then claim available reliefs (see FEIE, Foreign Tax Credit) and meet account-reporting obligations (FBAR, FATCA).

The operating rule is simple in concept: report first, reduce tax second.

Main Relief Options for Expats

Foreign Earned Income Exclusion (FEIE)

• If you qualify, FEIE lets you exclude up to $130,000 (2025 limit) of foreign earned income (wages or self-employment income from work performed outside the U.S.) from U.S. tax.
• FEIE does not apply to pensions, interest, dividends, capital gains, or rental income.
• You claim FEIE on Form 2555; see the IRS page: About Form 2555.
• Under the same form you may be able to exclude or deduct part of foreign housing costs (housing exclusion), which helps in high-cost cities.

Foreign Tax Credit (FTC)

• If you pay tax to a foreign country on the same income, the FTC can offset your U.S. tax on that income.
• You claim it on Form 1116 (search “About Form 1116” on IRS.gov for official guidance).
• The credit can reduce or eliminate U.S. tax on non-U.S. wages, investment income, or business profits and can carry forward if unused.
• Choosing between FEIE and FTC requires care:
  • Wages are often a good fit for FEIE.
  • Investment income cannot use FEIE and may be better handled with FTC.
  • Many families blend both approaches in a single year.
  • Prior FEIE claims can affect FTC carryovers when you later move back to the U.S.

Qualifying for FEIE in the Year You Leave

You may still qualify for FEIE in a mid-year move if you meet one of these tests:

1. Physical Presence Test
   • Be outside the U.S. for 330 full days in any 12-month period that starts or ends in the tax year.
2. Bona Fide Residence Test
   • Establish a real, settled residence in a foreign country that includes the entire tax year.

In the year you leave, many expats rely on the Physical Presence Test because it can span two calendar years. If you qualify for only part of the year, the FEIE is prorated.

Choosing Between FEIE and FTC — A Practical Checklist

• Estimate total worldwide income for the year by category.
• Estimate foreign tax paid or due for that year.
• Run a FEIE scenario (Form 2555) and include housing exclusion if applicable.
• Run an FTC scenario (Form 1116).
• Compare bottom-line U.S. tax and the effect on refundable/non-refundable credits (e.g., child tax credit, education credits).

Note: FEIE can reduce the income that counts toward some refundable credits; FTC usually does not reduce adjusted gross income in the same way.

Deadlines and Extensions

• Standard tax deadline: April 15 (tax due).
• Automatic filing extension for expats: June 15 if your tax home is outside the U.S. on April 15.
• Further extension to October 15 available by filing Form 4868 (search “About Form 4868” on IRS.gov).
• Sometimes a later extension (e.g., until December) can be requested by writing the IRS with a clear reason (waiting for foreign tax assessment).
• Important: interest on any unpaid U.S. tax starts on April 15, regardless of extensions. Extensions extend filing time, not payment time.

Reporting Foreign Accounts and Assets: FBAR vs FATCA

Two regimes commonly confuse taxpayers: FBAR and FATCA. They differ by law, agency, form, thresholds, and purpose. You might need to file both.

FBAR (FinCEN Form 114)

• File if the total value of your foreign financial accounts exceeded $10,000 at any point in the year.
• Accounts to include: non-U.S. checking, savings, joint accounts, certain foreign pension accounts, some investment accounts, etc.
• File electronically through the Bank Secrecy Act e-filing system: Report Foreign Bank and Financial Accounts (FBAR).
• Due date: April 15, with an automatic extension to October 15.
• The FBAR is submitted to FinCEN, not the IRS.
• Penalties: Willful failure can carry fines up to $100,000 or 50% of the account balance, per year (whichever is higher). Non-willful failures can also incur penalties.

FATCA (Form 8938)

• File Form 8938 with your tax return if specified foreign financial assets exceed thresholds:
  • For expats living abroad: more than $200,000 on the last day of the year or more than $300,000 at any time during the year (single filers).
  • Married filing jointly: $400,000 on year-end or $600,000 at any time during the year.
  • Lower thresholds apply if you lived in the U.S. during the year.
• FATCA is asset-based and attached to your tax return. See About Form 8938.
• Form 8938 does not replace FBAR; many taxpayers must file both.

Important: Under FATCA, many foreign banks report account information to local tax authorities and ultimately the IRS. Attempting to hide accounts can carry civil and criminal risk.

Common FBAR/FATCA Errors to Avoid

• Not adding up all accounts to check FBAR threshold.
• Forgetting joint accounts or accounts where you have signature authority.
• Assuming Form 8938 replaces FBAR (it does not).
• Failing to include foreign pensions or assets that meet FATCA reporting rules.

When in doubt: think of FBAR as account-based (FinCEN) and FATCA Form 8938 as asset-based (IRS).

Planning for Subsequent Years

After the year you leave, the routine repeats: file a U.S. return, report worldwide income, and file FBAR/Form 8938 if thresholds are met. A few planning tips:

• Pick a primary method (FEIE or FTC) for wage income and be consistent when possible to ease carryovers.
• Keep written proof for tests:
  • Physical Presence Test: flight records, entry/exit stamps, employer letters.
  • Bona Fide Residence Test: local tax returns, residence permits, school records, long-term leases.
• If you change countries, review effects on FEIE housing limits and FTC baskets.
• Check FBAR and Form 8938 thresholds yearly—new accounts or employer plans can push you over the line.
• Remember U.S.-source income (rental from U.S. property, U.S. dividends, gains from U.S. asset sales) remains taxable in the U.S.; FEIE does not apply to U.S.-source income.
• Watch out for PFIC rules on foreign funds; they can create complex reporting and high tax. Consider U.S.-based ETFs or U.S. brokers for investments while abroad.

Social Taxes and Self-Employment

• U.S. Social Security and Medicare taxes are separate from income tax. Totalization agreements determine which country’s social taxes apply in some cases.
• Self-employed Americans may owe U.S. self-employment tax even if FEIE removes income tax. Where a totalization agreement applies and you remain covered by the foreign system, you might avoid U.S. self-employment tax.

Practical Filing and Banking Tips

• E-filing is routine; set up IRS Online Account and EFTPS before you move to simplify payments.
• Some foreign banks won’t accept U.S. wires or block U.S. services—plan banking logistics early.
• If you need more time, submit Form 4868, but pay any tax by April 15 to avoid interest.
• Keep copies of FBAR submission receipts and e-file acknowledgments for Form 1040 and Form 8938.

Special Household Considerations

• Students or family members with accounts can push household FBAR thresholds.
• Foreign pensions can trigger Form 8938 even if not taxable yet (Form 8938 looks at asset values).
• Small joint accounts may push totals past FBAR limits due to exchange-rate moves.

Yearly checklist suggestion:
– Estimate the highest total value of all non-U.S. accounts during the year.
– Include accounts where you have signature authority.
– Review Form 8938 thresholds using year-end and in-year maximums.
– Confirm FEIE eligibility and which test applies.
– Calculate foreign tax paid for Form 1116 if needed.
– Calendar deadlines: April 15 (tax due), automatic June 15 extension for expats, optional extension to October 15 with Form 4868, and FBAR automatic extension to October 15.

Penalties, Corrections, and State Taxes

• FBAR and Form 8938 carry meaningful penalties for non-filing or misstatements.
• If you missed a filing, fix it quickly—file late FBARs, amend returns, and pay any tax due. Quick action often improves outcomes.
• State tax: your last state of residence may still claim you as a resident for the departure year. States vary widely (e.g., California may continue to assert residency). Consider state rules when planning your departure year.

Final Practical Steps Before and After Moving

• Two months before moving: open a folder for foreign pay stubs, rental contracts, and bank statements.
• One month before: set up IRS Online Account and confirm you can receive security codes while abroad.
• Soon after arrival: note your first full day outside the U.S. for Physical Presence Test counting.
• Year-end: ask your employer for a letter confirming foreign work dates if pay slips don’t show location.
• Spring following the move: prepare Form 1040 with Form 2555 and/or Form 1116, and review FBAR/Form 8938 thresholds before submission.

When You’ve Already Missed Forms

• Don’t panic. File the late FBAR (FinCEN) and provide an explanation if requested.
• File an amended return and include Form 8938 if required.
• If multiple years or large amounts are involved, consider professional help—but don’t wait for a notice to act.

Key takeaway: The U.S. tax system expects full reporting of worldwide income every year you remain a U.S. citizen or resident alien, no matter where you live. Relief tools (FEIE, FTC, housing exclusion) can reduce or eliminate tax for many, but account reporting (FBAR, Form 8938) follows its own rules and can carry steep penalties if missed.

Official forms and resources mentioned:
– Form 2555 Foreign Earned Income Exclusion: About Form 2555
– Form 1116 Foreign Tax Credit: IRS form page (search “About Form 1116” on IRS.gov)
– Form 8938 FATCA reporting: About Form 8938
– FinCEN Form 114 FBAR filing and guidance: Report Foreign Bank and Financial Accounts (FBAR)
– Filing extensions with Form 4868: IRS form page (search “About Form 4868” on IRS.gov)
– U.S. Citizens and Resident Aliens Abroad (IRS guidance): U.S. Citizens and Resident Aliens Abroad

If you’re leaving later this year, start a timeline now: gather proof, prepare accounts, decide on FEIE vs FTC strategy, and calendar the filing and payment dates. With good records and timely filings, moving abroad can be a life change—not a tax shock.