Every US citizen and lawful permanent resident with gross income above the filing threshold for their status, wherever in the world they live and whatever other country already taxed that income. The obligation is decided by facts rather than by tax owing, which is why a nil position does not remove it.
Every US citizen and lawful permanent resident with gross income above the filing threshold for their status, wherever in the world they live and whatever other country already taxed that income.
Citizenship-based taxation is the whole problem: the US is one of a very small number of countries that taxes its citizens on worldwide income no matter where they live, so leaving the country ends neither the return nor the information reporting that travels with it.
| Item | Amount |
|---|---|
| Income taxed in both countries | C$62,000 |
| Tax paid abroad (assumed 22%) | C$13,640 |
| Home tax on the same income (assumed 29%) | C$17,980 |
| Credit available (lesser of the two) | C$13,640 |
| Home tax still payable | C$4,340 |
The credit absorbs C$13,640 and leaves C$4,340 payable at home, because the home rate on this income is the higher of the two. The balance is real cash and it is due on the home timetable, which is why instalments get raised in the first meeting.
The figures here are an illustration, not an engagement: amounts are picked so the mechanism is easy to follow, and every rate or threshold is an assumption of the example. Before anything is filed for you, each one is confirmed with the issuing authority for your own tax year.
The full treatment — who it binds, the deadline, the penalty and the fixed fee — is on 1040 — filing from abroad. We would rather scope it properly than quote it quickly.
Reviewed against current guidance for the 2025 and 2026 filing seasons by Udit Gupta, Cross-Border Tax Expert, Legal Quotient Consultants. General information, not advice for your circumstances — call our 24-hour helpline to discuss your own position.
Most readers of this page are looking for 1040 abroad. What follows sets out how it works for Form 1040: who is caught by it, what has to be filed, and what the work costs, agreed before it begins.
A man born in the United States to visiting parents, and living abroad since infancy, was asked by his bank to certify his tax status. The work was documentary rather than computational: establishing status from the birth record, confirming that nothing had since been done to give it up, and settling which years were still open. It produced a written status finding and a first filed year.
Read how this one runsA family had moved away years earlier and assumed the card had lapsed with the date printed on it. Permanent residence ends when the status is formally ended, not when the holder leaves, so returns had gone on falling due throughout. The card had also been held long enough for the expatriation tests to matter, so we built the status timeline first and sequenced the surrender against it. It produced a dated timeline and a filing order.
Read how this one runsA lawful permanent resident abroad had filed the non-resident return for years, on the view that the return follows where a person lives. Status decides which return is the right one, so those years were wrong on their face. Amending is not a reset: where income and accounts had gone unreported, the choice of route mattered more than the arithmetic, and it came before any figure. It produced one consistent residency position across the open years.
Read how this one runsA part-time consultant abroad sat below the income threshold and took that as the end of it. The account report has a test of its own — the aggregate high point of every account taken together, at any point in the calendar year — and several modest accounts crossed it between them. The work was reconstructing the highest balance each account reached in each year. It produced the reports filed for the open years and a schedule of accounts to run from.
Read how this one runsA citizen abroad married to a non-citizen wanted to know who in the house had to file. The real choice was whether to elect the spouse into the US system: joint filing status, in exchange for the spouse's worldwide income and foreign accounts becoming reportable. That election is easy to make and hard to revoke, so both positions were set out in full before anything was filed. It produced a written basis for the choice and the return that followed it.
Read how this one runsShe did have to file, and so did the company she had incorporated where she lives: to the IRS it is a foreign corporation with a US shareholder, carrying a reporting package of its own and schedules that need the local accounts restated to US principles. Classification came first, because corporation, partnership or disregarded changes what is reportable and when the profits are taxed. It produced that package and the personal return beside it.
Read how this one runsEmploying someone in the US creates federal and state obligations that begin with registration, not with the first return. Which states are engaged is decided by where the work happens rather than where the company is.
Read how this one runsResidence in India and citizenship in the United States produce two annual returns for one income. The order decides the credit, and the Indian financial year and the US calendar year have to be reconciled before either is prepared.
Read how this one runsAll case studies — every published engagement in one place.
Strategy and compliance for income, assets and families spread across borders.
Software revenue crosses borders by default — sourcing rules, withholding on licence-like payments and IP location decide the effective rate.
Software revenue is rarely taxed where the team sits. Licence, subscription and service income are characterised differently by each side, and the answer decides withholding at source, treaty relief and whether a foreign customer creates a taxable presence at all — questions that are cheap to settle before the contract and expensive afterwards.
Yes, if your gross income is above the threshold for your filing status — a test applied before any relief. The exclusion for foreign earned income, capped per qualifying person at US$130,000 for 2025 and US$132,900 for 2026, and the credit for foreign tax already paid are both claimed on the return itself. So the position that brings the bill to nil only exists once the return has been filed. See the exclusion.
Citizenship is the test. Not residence, not holding a US passport, not whether anyone ever told you. Years abroad do not wear it away; only formally giving it up ends it. Two things come before any tax figure: what the records show about status, and the identification number. A citizen cannot use a taxpayer identification number, because that route is for people who cannot obtain a social security number, and the number is the gate the rest waits on. See never having filed.
Not as a citizen. The split-year return belongs to people whose US tax residence genuinely begins or ends mid-year — a permanent resident who gives up the status, or a non-resident alien arriving or leaving. Citizenship does not end at the airport, so the year of the move is an ordinary full-year return with the foreign income on it. The state you left is a separate question, and domicile is stickier than residence. See state residency.
Possibly. The foreign account report is not part of the return at all: it goes to FinCEN on its own timetable, and its test is the aggregate high point of every account taken together at any time in the calendar year, rather than each account measured on its own. Form 8938 is a separate obligation again — different agency, form, threshold, asset list and due date — and it reaches assets an account report does not. See the two reports.
The test applies to each person on their own gross income and their own filing status, so a child files when their own income crosses the threshold, whatever the parents' answer is. Income in the child's name is what brings them in earlier than parents expect — an account opened for them, or investments transferred into it. And an account in a child's name that a parent operates can be reportable by the parent too, because signature authority counts even where none of the money is theirs. See the account report.
No. Almost every US treaty carries a saving clause, preserving each country's right to tax its own citizens and residents as though the treaty were not there, so no treaty switches the return off. It still does real work: it breaks a residence tie for the other country, it caps withholding at source, and a short list of named exceptions is where a treaty position for a citizen usually sits. But the relief that reduces a citizen's US bill comes from the credit and the exclusion instead. See saving clause.
They have to file, every year, on worldwide income — the United States taxes citizens wherever they live. Whether they end up owing is a different question: the Foreign Earned Income Exclusion, the foreign housing exclusion and the foreign tax credit frequently reduce the bill to nil while leaving the filing obligation fully intact. Foreign account and asset reports run separately and carry their own penalties. See US citizens living in Canada.
Yes. The filing obligation depends on income exceeding the threshold, not on tax being payable, and the reliefs that reduce the bill to nil — the exclusions and the foreign tax credit — are claimed *on* the return, so not filing forfeits them. Information reports about foreign accounts and assets are separate again and carry penalties even where no tax was ever owed. See US citizens abroad.
Where our partners studied — CPA Canada (In-Depth Tax Program), AICPA, the Institute of Chartered Accountants of India and the Malaysian Institute of Accountants.
