It may seem counterintuitive to a US citizen or permanent resident (i.e., green card holder) who has just taken a new international job, that most will still be required to file US federal income tax returns after relocating. In addition, these international mobile employees may have other filing obligations including estate or gift tax returns, estimated tax payments, and foreign bank account reports.
Although the US tax code provides credits and exclusions that allow international filers to minimize, or even eliminate their US federal tax obligations, that does not relieve most US citizens or green card holders of their filing requirements. Failing to file may lead to significant penalties and the loss of some of the benefits US taxpayers enjoy while employed internationally.
As a general rule, all US citizens and permanent residents must annually file US federal Form 1040, even if living outside of the United States. However, US taxpayers who do not meet the IRS annual gross income thresholds may not be required to file. For 2025, the threshold is $15,750 for a single taxpayer, and $31,500 for married taxpayers filing jointly. For 2026, the threshold increases to $16,100 for single and $32,200 for married filing jointly. The thresholds are slightly higher for US taxpayers over the age of 65.
Self-employed individuals do not receive the same benefit of the IRS filing thresholds and are required to file a return if their net earnings from self-employment total $400 or more.
As there can be other filings (e.g., forms related to ownership of a foreign corporation, foreign bank accounts, foreign mutual funds) or considerations related to filing an income tax return, taxpayers should consult a tax professional in determining their own requirements.
The IRS requires US citizens and permanent residents to report their gross worldwide income for the tax year, which includes all income received in the form of money, goods, property, and/or services. Payments in foreign currency need to be reported in US dollars.
Mobile employees must also remember that the rules for exempt income may be different in their Host country than they are in the United States, and some income which is not taxable in the Host country may still be taxable in the US. The end result may be that a taxpayer will need to report different amounts of taxable income for the United States and the Host country.
The US tax code features two primary mechanisms to help US taxpayers avoid paying income tax on income that has already been subject to taxes in the Host country.
The first mechanism is the foreign tax credit, which allows international taxpayers to apply income tax paid to their Host country against their US income tax obligation related to foreign source income.
The second mechanism is the foreign earned income exclusion, which allows qualifying taxpayers to exclude up to $130,000 of foreign earned income from US taxation for the 2025 tax year ($132,900 for the 2026 tax year). In addition, eligible taxpayers may also qualify for the foreign housing exclusion or deduction, which can provide further relief for certain housing costs incurred while living abroad.
Together, the provisions can significantly reduce or even eliminate double taxation for many mobile employees. For a more complete overview of available exclusions, deductions, and credits, see IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
In addition to reporting their income, US taxpayers working outside of the US may have other filing requirements related to their foreign financial accounts. These requirements are governed by the Foreign Account Tax Compliance Act (FATCA) and the Financial Crimes Enforcement Network (FinCEN). US taxpayers need to understand and comply with the rules outlined under FATCA, which require disclosure of certain foreign financial assets and accounts to FinCEN. Failing to comply with these obligations may result in significant penalties.
FATCA requires that taxpayers disclose foreign financial assets on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if the aggregate balance of all foreign bank and financial accounts exceeds $10,000 at any time during the calendar year. This form is filed separately from the individual income tax return and is submitted directly to the US Treasury Department through FinCEN.
In addition, an individual who is required to file under FATCA may also need to submit Form 8938, Statement of Specified Foreign Financial Assets, with their federal income tax return. The filing threshold for Form 8938 varies based on filing status and the total value of foreign financial assets, and is generally more generous than the FBAR. Failure to file either of these forms can result in significant penalties starting at $10,000.
To ensure compliance, FATCA also requires certain international financial institutions – including banks, brokers, insurance companies, and investment firms – to identify account holders who are US citizens, green card holders or US tax residents and report their account information to the IRS, including personal details, balances, and income earned.
Certain states may consider mobile employees working outside the US to be doing so on a temporary basis and therefore continue to treat them as tax residents, even when the individual has been living abroad for many years. In addition, many states may not offer the same exclusions that are available to mobile employees for US federal tax purposes. As a result, taxpayers need to make sure they are also complying with any state filing obligations while working internationally.
If an employee wants to terminate state tax residency, conscious steps must be taken to establish domicile outside of the US and sever ties with their prior state of residence.
Mobility tax service providers understand the federal and state filing requirements that may apply to cross-border mobile employees. They provide tax planning that helps the employees stay compliant with applicable laws while also mitigating double taxation on their income. Mobility tax service providers may also help mobile employees who have failed to keep current with their filing obligations by assisting them with back filings or amended returns. However, if a mobile employee is facing possible criminal charges for failing to report income to the IRS, or for not disclosing financial accounts, an attorney may be required to help resolve the issue.
The information provided in this article is for general guidance only and should not be utilized in lieu of obtaining professional tax and/or legal advice.