Citizenship-based taxation: What US expats must file in 2026
Citizenship-based taxation (CBT) means the US taxes citizens and many green card holders on worldwide income, even when they live abroad. In practice, most expats still must file a US tax return every year and may also have foreign account reporting.
Relief tools like the foreign earned income exclusion (FEIE) and foreign tax credit (FTC) can reduce double taxation, but they don’t remove the filing requirement.
If you’re filing your 2025 return in 2026, your checklist usually comes down to two buckets:
- Income tax return filings (Form 1040 plus schedules and attachments).
- Information reporting (especially FBAR and FATCA) based on account and asset thresholds.
If you’re a US citizen or resident alien and you meet the abroad criteria on the regular due date, you get an automatic 2-month extension to file (generally to June 15, 2026, for 2025 calendar-year returns). To use it, attach a short statement to your return explaining how you qualified.
If you still need more time, file Form 4868 by June 15 to extend the filing deadline to October 15. Interest generally starts on any unpaid tax from April 15, even with extensions.
Key forms and thresholds
| What it is | Form | Key threshold/trigger (common expat cases) | Typical due date for 2025 year filings |
|---|---|---|---|
| US income tax return | Form 1040 (and schedules) | File if you meet the normal filing requirement for your status (often tied to the standard deduction) | April 15, 2026 (often June 15 for qualifying expats; extensions available) |
| Exclude foreign earned income | Form 2555 (FEIE) | Qualify under bona fide residence or physical presence test; max FEIE for 2025 is $130,000 per person | With Form 1040 |
| Claim foreign tax credit | Form 1116 (FTC) | Paid/accrued eligible foreign income tax and need the credit (common with wages, dividends, and investment income) | With Form 1040 |
| Report foreign accounts | FinCEN Form 114 (FBAR) | >$10,000 aggregate foreign account balance at any time during 2025 | April 15, 2026 (automatic extension to Oct 15) |
| Report specified foreign financial assets | Form 8938 (FATCA) | Often triggers when living abroad and assets exceed $200,000 (single/MFS) at year-end or $300,000 any time (higher for MFJ) | With Form 1040 |
Citizenship-based taxation explained
Citizenship-based taxation typically refers to the notion that you can’t tax out of the US just by moving abroad. If you’re a US citizen (and many green card holders), you generally remain in the US tax system and must report worldwide income each year. Your final US tax bill may be reduced by exclusions or credits, but CBT keeps the annual reporting obligation in place.
CBT is why "I live abroad" and "I pay tax overseas" aren’t enough on their own. The IRS still expects a US return that reports income and claims the right relief, plus separate filings for certain foreign accounts and assets.
Worldwide income (what it includes)
For US tax purposes, worldwide income generally includes:
- Employment income: salary, bonuses, commissions, allowances, stock compensation
- Self-employment: freelancing, consulting, business profits (including gig work)
- Investment income: interest, dividends, capital gains, fund distributions
- Retirement and benefits: many pensions, annuities, IRA distributions (treaty rules can change how some items are taxed)
- Real estate income: foreign rental income, property sale gains
- Other income: foreign currency gains in certain cases, some crypto/digital asset transactions, prizes, and other reportable items
Who it applies to (US citizens and green card holders)
Citizenship based taxation typically applies to:
- US citizens, including dual citizens
- Lawful permanent residents (green card holders) – generally treated as US tax residents until they formally end that status
It can also apply to some non-citizens under US tax residency rules (for example, via substantial presence), but for most expats, the day-to-day driver is citizenship or green card status.
What US expats must file each year
Most expat compliance becomes easier when you follow a repeatable checklist. Use this as your annual sequence for the 2025 tax year return filed in 2026.
Step-by-step filing checklist
Step 1: Confirm whether you must file a US return (Form 1040).
- The filing requirement depends on filing status, age, and gross income.
- For many taxpayers, the threshold ties closely to the 2025 standard deduction.
Step 2: Report worldwide income on Form 1040 and schedules.
Typical expat add-ons include:
- Schedule B (often, when you have foreign interest/dividends, it also asks about foreign accounts)
- Schedule C (self-employment)
- Schedule D (capital gains)
Step 3: Choose your main double-tax relief tool (often FEIE, FTC, or a mix).
| If you want to | Usually involves | Notes |
|---|---|---|
| Exclude foreign-earned income | Form 2555 (FEIE) | Best for earned income when you qualify; doesn’t cover dividends/capital gains |
| Credit foreign income taxes | Form 1116 (FTC) | Often best for high-tax countries and for non-earned income |
Step 4: Check foreign account reporting (FBAR).
- File FinCEN Form 114 (FBAR) if the aggregate value of your non-US financial accounts exceeded $10,000 at any time in 2025.
- FBAR is filed separately from your tax return (it’s not attached to Form 1040).
Step 5: Check FATCA reporting (Form 8938).
File Form 8938 with your Form 1040 if your specified foreign financial assets exceed the threshold for your filing status and where you live.
| Topic | FBAR (FinCEN Form 114) | FATCA (Form 8938) |
|---|---|---|
| What it reports | Foreign financial accounts | Foreign financial assets (accounts plus certain investments) |
| Common expat threshold | >$10,000 aggregate at any time | Often >$200,000 year-end / >$300,000 any time (single/MFS abroad) |
| Where filed | FinCEN’s e-filing system | Attached to Form 1040 |
| Due date | April 15 (auto extension to Oct 15) | Same as your Form 1040 due date |
Step 6: Run the additional forms checklist:
- If you own non-US pooled investments (often treated as PFICs, such as many foreign mutual funds) → Form 8621
- If you own part of a foreign corporation (often at or above 10% ownership, or you meet certain officer/director or control tests) → Form 5471
- If you received foreign gifts/bequests → Form 3520
- If you’re self-employed abroad → Schedule SE + totalization check
Residency-based vs citizenship-based taxation
Residence based taxation means a country taxes you primarily because you’re a resident there (often based on days, domicile, or permanent home). Citizenship-based taxation taxes you because you’re a citizen (or sometimes a long-term resident), even if you live elsewhere.
Most countries operate in a residence based taxation system; the US is notable for citizenship based taxation.
| Feature | Residency-based taxation | Citizenship based taxation |
|---|---|---|
| Trigger | Tax residency (days/domicile/center of life) | Citizenship (and many green card holders) |
| What’s taxed | Often, worldwide income for residents, limited local-source tax for nonresidents | Worldwide income, regardless of where you live |
| Common expat impact | Losing residency can reduce or end ongoing tax filing | US expats often file annually even after decades abroad |
| Typical compliance burden | One main system (where you live) plus exit/entry rules | Often two systems (US + country of residence), plus extra reporting |
Examples of residency based taxation systems (high level): Canada, the UK, Australia, Germany, and Singapore generally tax based on residency concepts (rules differ by country and can include deemed residency or tie-breakers).
How US expats reduce double taxation
Most US expats reduce double taxation by pairing CBT reporting with the right relief tools:
- FEIE (Form 2555) to exclude a portion of foreign earned income if you qualify.
- FTC (Form 1116) to credit eligible foreign income taxes against US tax.
In some cases, both are used in the same return, but not on the same amount of income.
FEIE vs FTC: when each tends to fit
| Situation | FEIE often fits when | FTC often fits when |
|---|---|---|
| High-tax country wages | You qualify, but FEIE may leave unused foreign taxes | Foreign tax rates are high, and credits can offset US tax across more income types |
| Low/no-tax country wages | FEIE is often the main tool to reduce US tax | FTC is limited if little/no foreign tax was paid |
| Wages + investments | FEIE may help wages, but doesn’t cover most investment income | FTC can help with foreign taxes on interest/dividends/capital gains (where eligible) |
| Self-employment abroad | FEIE can reduce income tax, but doesn’t automatically eliminate the US self-employment tax | FTC helps with income tax, but SE tax is a separate analysis |
NOTE! Tax treaties can change how specific income is sourced or taxed (for example, certain pensions, government service income, or residency tie-breakers). But treaties usually do not erase the US filing obligation for citizens living abroad.
In practice, treaties tend to help you avoid double taxation through rules and credits – not by letting you skip the US return.
Countries that tax citizens abroad
When people ask which countries have citizens based taxation, the current real-world answer is usually the United States and Eritrea. Eritrea is known for a diaspora tax model; the US system is much broader and ties into the full income tax return and information reporting rules.
This is rare because most countries rely on residency-based taxation, taxing residents on worldwide income and nonresidents mainly on local-source income. For US expats, the CBT mismatch is that you can become a tax resident where you live abroad, but US citizen based taxation can still keep you filing (and reporting worldwide income) with the IRS.
NOTE! A few countries have citizenship-based elements that can still tax citizens abroad in narrower ways:
- Hungary: domestic law treats Hungarian citizens as tax residents by default (with an exception for certain dual citizens), which can create a CBT-like result unless a tax treaty tie-breaker applies.
- Myanmar: since October 1, 2023, Myanmar began imposing income tax on salary income earned abroad by nonresident Myanmar citizens (and related foreign-currency income rules).
- Kyrgyz Republic (limited case): the tax code treats individuals in the Kyrgyz public service abroad as residents, which can keep worldwide taxation in play for that group.
This is still rare globally because most systems are residency based taxation – residents are taxed on worldwide income, while nonresidents are generally taxed mainly on local-source income.
Common expat scenarios
Scenario A: High-tax country wages
You live in a high-tax country (for example, a large part of Western Europe) and earn a salary. You still file Form 1040 under citizenship based taxation, but you often owe little or no additional US income tax after claiming the foreign tax credit (and sometimes FEIE for part of the wages).
You’ll still check FBAR and Form 8938 thresholds if you keep local accounts.
Scenario B: Low/no-tax country wages
You work in a low-tax or no-tax country. Under citizenship based taxation, you still report worldwide income on Form 1040. Because there may be little foreign tax to credit, FEIE (Form 2555) often becomes the primary way to reduce US income tax.
Planning the qualifying period and documenting your tax home becomes critical.
Scenario C: Wages + investments
You have a salary plus brokerage income (dividends, interest, capital gains). FEIE may help with earned income, but it generally doesn’t touch investment income.
Many expats in this situation use FTC (Form 1116) for taxes paid on investment income where eligible, and may also have extra reporting depending on the investment structure.
Scenario D: Foreign accounts over $10k
You keep multiple foreign bank accounts, and the combined balance exceeds $10,000 at some point during the year. That typically triggers FBAR. Depending on where you live and the value of your assets, Form 8938 may also apply.
The key is the thresholds and what counts as a reportable account or asset – not whether the accounts earned interest.
Conclusion
- Citizenship based taxation means US citizens (and many green card holders) report worldwide income even while living abroad.
- Most expats still file Form 1040 every year – even if they owe $0 after exclusions/credits.
- For 2025, the FEIE maximum is $130,000 per qualifying person.
- The foreign tax credit often fits best in high-tax countries and for investment income.
- FBAR commonly triggers at >$10,000 aggregate foreign accounts.
- FATCA (Form 8938) often triggers at higher thresholds (commonly $200,000/$300,000 for single/MFS abroad).
- Extensions can help with timing, but they don’t remove reporting duties.
If you want a clear, personalized filing map (which forms you need, what relief is most likely to fit, and what to watch for with foreign accounts), Taxes for Expats can help you get it right for the 2025 tax year filing.
FAQ
Citizenship based taxation is a system where your tax obligation follows your citizenship. For US expats, it generally means you must file a US tax return and report worldwide income even while living abroad. Exclusions and credits may reduce the tax due, but not the filing obligation.
Residency-based taxation usually depends on where you live and meet residency rules (days, domicile, permanent home). Citizenship based taxation depends on citizenship (and often green card status). The practical difference for US expats is ongoing US filing even after long-term relocation.
In most practical discussions, the main countries cited for citizenship taxation are the United States and Eritrea. Eritrea uses a diaspora tax approach, while the US requires full income tax reporting and, for many expats, additional foreign account and asset disclosures.
Very few. Most countries focus on residency based taxation rather than citizenship taxation. The commonly cited examples of ongoing taxation of citizens abroad are the US and Eritrea. In rare cases, other jurisdictions may have limited or historical provisions, but they’re not the global norm.
Often, yes. Under citizenship taxation, a US citizen or many green card holders generally file Form 1040 if they meet the normal filing requirements. Living abroad doesn’t remove the requirement; instead, it changes which relief tools (FEIE/FTC) and disclosures (FBAR/Form 8938) apply.
Many still do. It’s common to owe $0 after using the foreign earned income exclusion or foreign tax credits, but you may still need to file Form 1040 to claim those benefits. You may also have separate reporting obligations for foreign accounts or assets.
Worldwide income generally includes wages, self-employment earnings, interest, dividends, capital gains, rental income, many pension distributions, and other reportable items – regardless of where paid or where the account is located. Some items get special treatment, but they’re usually still reportable.
Yes, in many cases. Lawful permanent residents are generally treated as US tax residents and report worldwide income while that status is in effect. Ending green card status can require formal steps, and long-term residents may face additional rules when they terminate residency.
Common options include the foreign earned income exclusion (Form 2555) for qualifying earned income, and the foreign tax credit (Form 1116) for eligible foreign income taxes. Some expats use both in the same return for different income types, but you can’t double-dip on the same income.
You generally file an FBAR if the combined value of your foreign financial accounts exceeded $10,000 at any time during the calendar year. It can apply even if the accounts earned no income, and it’s filed separately from your tax return through FinCEN’s system.
Form 8938 is a tax return attachment that reports specified foreign financial assets when you exceed certain thresholds. FBAR is a separate FinCEN filing focused on foreign accounts with a $10,000 aggregate threshold. Many expats file one, the other, or both, depending on facts.
Usually not. Treaties can affect how certain income is taxed and how residency is determined for specific provisions, but citizenship based taxation generally keeps the US filing obligation in place. In most cases, treaties help reduce double taxation through rules and credits rather than removing filing.
