International Tax: A Guide to Foreign Income and Account Reporting

You must file an FBAR, filed electronically as FinCEN Form 114, if the combined high balance of all your foreign financial accounts went over $10,000 at any single moment during the calendar year. The test is the aggregate peak, not the year-end balance and not a per-account figure. If you held three accounts that each touched $4,000 on the same day, your combined high of $12,000 puts you over the line even though no individual account ever reached $10,000. The accounts that count are broad: checking and savings, brokerage and securities accounts, certain foreign pensions, and even accounts you do not own but have signature authority over, such as a foreign account belonging to an employer.

The filing is separate from your tax return. It goes to the Treasury’s Financial Crimes Enforcement Network through the BSA E-Filing System, with an annual due date of April 15 and an automatic extension to October 15. You do not have to request the extension; it is granted to everyone.

The penalties are what make the FBAR so serious. For non-willful violations, the penalty under 31 U.S.C. section 5321(a)(5)(B) runs roughly $10,000, adjusted for inflation. The Supreme Court settled a major fight over how to count that penalty in Bittner v. United States, 598 U.S. 122 (2023), holding that the non-willful penalty applies per annual report rather than per account. That ruling matters enormously: a filer with a dozen unreported accounts over five years faces a penalty measured against five reports, not sixty accounts. Willful violations are a different universe, reaching the greater of $100,000 or 50% of the account balance, per account, per year, and they can carry criminal exposure. If you have an honest reason for missing the deadline, document it; reasonable cause can defeat a non-willful penalty entirely.

They look like duplicates and they are not. The FBAR is a Treasury filing under the Bank Secrecy Act, submitted to FinCEN on Form 114, triggered by a $10,000 aggregate high balance in foreign accounts. FATCA reporting is an IRS filing under the Foreign Account Tax Compliance Act, submitted on Form 8938 as an attachment to your Form 1040, triggered by holding specified foreign financial assets above thresholds that depend on your situation.

The thresholds for Form 8938 are higher than the FBAR’s and they move. A single filer living in the US reports when specified foreign assets exceed $50,000 on the last day of the year or $75,000 at any point during it. A married couple filing jointly in the US uses $100,000 and $150,000. Filers living abroad get much higher thresholds, starting at $200,000 year-end for a single filer. The categories of assets also differ: Form 8938 reaches things an FBAR may not, such as a foreign stock certificate held outside any account, an interest in a foreign partnership, or a foreign-issued financial instrument.

Because the rules overlap rather than match, a typical account often appears on both forms in the same year, while some assets show up on only one. A foreign brokerage account lands on both. A direct holding of foreign stock not kept in any account lands on Form 8938 but not the FBAR. A foreign account where you only have signature authority but no financial interest lands on the FBAR but not Form 8938. The Form 8938 penalty starts at $10,000 for failure to file and climbs with continued non-compliance, and an unreported asset can keep the statute of limitations on your whole return open. The practical takeaway is to inventory every foreign asset once, then run it against both rule sets rather than assuming one filing covers the other.

You usually cannot make the income disappear entirely, but you can keep from being taxed twice on it. The two main tools are the Foreign Earned Income Exclusion and the Foreign Tax Credit, and choosing between them, or combining them, is where the savings live.

The Foreign Earned Income Exclusion under IRC section 911 lets you exclude a large amount of foreign earned income, claimed on Form 2555. To qualify, your tax home must be abroad and you must meet either the physical presence test, which requires 330 full days in a foreign country during a 12-month period, or the bona fide residence test, which looks at whether you have genuinely settled in another country for an uninterrupted tax year. The exclusion only covers earned income such as wages and self-employment profit; it does not cover passive income like dividends, interest, capital gains, or rent.

The Foreign Tax Credit under IRC section 901, figured on Form 1116, takes a different approach. Instead of removing income, it gives you a credit against your US tax for income tax you paid to a foreign government. Unused credit can carry back one year and forward ten. Here is a worked example. Suppose you live in Germany and earn $150,000 in wages, paying $40,000 in German income tax. If you exclude the first portion under section 911 and use the credit on the rest, you blend the two: the excluded income is set aside, and the German tax on the remaining income offsets your US tax on it. Because you cannot claim a credit for foreign tax paid on income you already excluded, a high-tax country often favors the credit alone, while a low-tax or no-tax country often favors the exclusion. The right answer depends on your income mix and the foreign rate, which is why both forms get run side by side.

The US has income tax treaties with dozens of countries, and they exist to divide up taxing rights so the same dollar is not fully taxed by two governments. A treaty can lower or eliminate withholding on dividends, interest, and royalties; it can assign the right to tax a pension or social security benefit to one country; and it can keep a short-term worker from being taxed by the country they are visiting. Each treaty is its own document with its own articles, so the benefit you can claim depends entirely on which country is involved.

A few patterns come up often. Withholding articles commonly cut the default 30% US withholding on payments to foreign persons down to 15%, 10%, or zero, depending on the income type and the ownership level. Pension articles decide whether your foreign retirement account is taxed as it grows or only when distributed, which can spare you from US tax on the inside buildup of a plan that the US would otherwise tax annually. Students, teachers, and researchers often get time-limited exemptions. Residency tie-breaker rules sort out which country treats you as a resident when both would.

Claiming a treaty benefit is not automatic. On a US return you generally disclose a treaty-based return position on Form 8833 when the benefit overrides the normal rule and exceeds a dollar threshold, and failing to file that form when required carries its own penalty. There is also a saving clause in most US treaties that lets the US continue to tax its own citizens and residents as if the treaty did not exist, with specific exceptions carved back in. That clause is why a US citizen abroad often gets less treaty relief than a non-citizen would in the same spot. Reading the specific treaty, and its technical explanation, is the only reliable way to know what you can claim.

Owning a piece of a foreign business or pooled investment pulls you into some of the most complex parts of the code, and several of these rules can tax you on money you have not actually received. Planning ahead is far cheaper than fixing the structure later.

If you own enough of a foreign corporation that US shareholders together control it, it is a controlled foreign corporation, and two regimes can reach its earnings before any dividend is paid. The older Subpart F rules pull certain passive and mobile income up to the US shareholder currently. The newer GILTI regime, added in the 2017 law, sweeps in most of the remaining active earnings above a routine return on tangible assets. Both are reported through Form 5471, a detailed information return whose late-filing penalty starts at $10,000 per form per year and can grow, even if no tax is ultimately due. The result is that a US owner of a profitable foreign company often owes US tax on its income annually, regardless of whether the cash ever leaves the company.

Foreign pooled investments carry a separate trap. A foreign mutual fund, ETF, or similar pooled vehicle is usually a passive foreign investment company, or PFIC, reported on Form 8621. The default PFIC tax treatment is deliberately harsh: gains and certain distributions are taxed at the highest ordinary rates with an interest charge layered on for the years you held the investment, which can push the effective rate very high. Two elections can soften this, a qualified electing fund election or a mark-to-market election, but each has conditions and the fund may not provide the information a QEF election needs. Because an ordinary foreign brokerage account can quietly hold several PFICs, many people are surprised to learn that the simple act of buying a local index fund abroad created a US filing and tax problem. The safest path is to identify these holdings early and decide on structure and elections before the positions grow.