US Expat Taxes First Year Abroad: What Changes and What Stays the Same in 2026

Moving abroad for the first time brings excitement about new experiences, cultures, and opportunities. One reality remains unchanged, however—your US tax obligations. Unlike nearly every other country, the United States taxes citizens based on citizenship, not residency. Americans living in Tokyo, London, or Sydney must continue filing US tax returns and reporting worldwide income.

Your first year abroad brings significant US expat taxes changes and complexities. You'll navigate new filing deadlines, qualify for exclusions and credits you've never used before, and manage foreign bank reporting requirements that didn't apply when you lived stateside. Understanding what changes—and what stays the same—prevents costly mistakes and helps you minimize your tax burden legally. This guide explains how US expat taxes work in your first year abroad, what automatic extensions and special deadlines apply to Americans living overseas and how to qualify for the Foreign Earned Income Exclusion (FEIE) . We also explain when to choose the Foreign Tax Credit instead of the FEIE, what foreign account reporting requirements (FBAR and Form 8938) you must meet. 

What stays the same: Your basic US tax obligations

Despite living abroad, your core US tax obligations remain identical to when you lived in America.

Citizenship-based taxation

The United States is one of only three countries (along with Eritrea and North Korea) that taxes based on citizenship rather than residency. Whether you live in California or Cambodia, you must report your worldwide income to the IRS.

This citizenship-based tax system applies to US citizens regardless of where they live, green card holders (permanent residents) even when living outside the United States, and individuals who meet the substantial presence test even if they're not citizens or green card holders.

Filing requirements based on income

You must file a US tax return if your gross income exceeds certain thresholds. For 2026 (filing for the 2025 tax year), the filing thresholds are:

• Single: $16,100
• Married filing jointly: $32,200
• Head of household: $24,150
• Self-employment income: $400 or more (regardless of other income)

These thresholds apply whether you live in New York or New Zealand. Living abroad doesn't change when you're required to file—it only changes your deadlines and available tax benefits.

Worldwide income reporting

You must report all income from all sources worldwide on your US tax return. This includes US wages and salaries, foreign wages and salaries from employment abroad, self-employment income from foreign businesses or consulting, interest and dividends from US and foreign accounts, rental income from properties anywhere in the world, and capital gains from selling stocks, real estate, or other assets globally.

Many first-year expats mistakenly believe foreign income earned while living abroad isn't reportable. This is incorrect and can lead to substantial penalties. The IRS requires full worldwide income disclosure regardless of where you earn money or where it's paid.

What changes: Special expat benefits and deadlines

Your first year abroad introduces new benefits and deadlines designed specifically for Americans living overseas. Understanding these changes is critical for expat tax filing compliance.

Automatic two-month filing extension

Americans living abroad on the regular April 15 tax deadline automatically receive a two-month extension to June 15without filing any forms or requesting permission. This automatic extension applies if you live outside the United States and Puerto Rico on April 15.

The extension applies only to filing—any taxes owed are still due April 15 with interest accruing from that date on unpaid balances. No forms are required; the extension is automatic based on your residence abroad. You must attach a statement to your return explaining you qualified for the extension based on foreign residence.

If you need more time beyond June 15, you can extend it to October 15 by filing Form 4868 (Application for Automatic Extension of Time to File) before the June 15 deadline. This means you can have up to six months beyond the regular deadline to file your return—giving you substantial additional time to gather foreign income documents and navigate complex US expat taxes situations.

Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion is the most valuable tax benefit for Americans living abroad. For 2026 (filing for 2025 income), the FEIE allows you to exclude up to $130,000 of foreign earned income from US taxation.

2026 FEIE limits:

Tax Year	Filing Deadline	Maximum Exclusion (Single)	Married Filing Jointly (Both Qualify)
2025	April 15, 2026	$130,000	$260,000
2026	April 15, 2027	$132,900	$265,800

If you're married filing jointly and both spouses qualify, you can exclude up to $260,000 combined for the 2025 tax year—representing substantial tax savings at higher income levels.

The FEIE applies only to earned income—money you receive for personal services you perform. Qualifying income includes wages and salaries from foreign employers, self-employment income from services performed abroad, bonuses and commissions earned while living and working abroad, and professional fees and consulting income for work performed overseas.

The FEIE does not apply to investment income including interest, dividends, and capital gains, rental income from properties regardless of location, pension and Social Security benefits, or passive income from businesses where you don't actively work.

Two ways to qualify for the FEIE

To claim the FEIE in your first year abroad, you must meet one of two tests established by the IRS: the Physical Presence Test or the Bona Fide Residence Test.

Physical Presence Test

The Physical Presence Test is typically easier to meet in your first year abroad because it requires no formal establishment of residence. You must be physically present in a foreign country (or countries) for at least 330 full days during any 12-month period.

A full day runs from midnight to midnight in a foreign country—partial days don't count. The 12-month period doesn't need to align with the calendar year or tax year; you choose the most beneficial period. Any country except the United States qualifies; time in international waters or airspace doesn't count toward the 330 days.

Bona Fide Residence Test

The Bona Fide Residence Test requires you to be a bona fide resident of a foreign country for an entire tax year(January 1 to December 31). This test is rarely useful in your first year abroad because you won't have lived abroad for a complete calendar year.

If you move abroad in March 2025, you cannot use the Bona Fide Residence Test for 2025 because you weren't a bona fide resident for the entire calendar year. You must use the Physical Presence Test instead. Starting in 2026 (if you remain abroad the entire year and establish bona fide residence), you could qualify using either test.

Foreign Tax Credit: An alternative to the FEIE

The Foreign Tax Credit (FTC) is an alternative to the FEIE that many first-year expats overlook. Instead of excluding income from taxation, the FTC allows you to claim a dollar-for-dollar credit for foreign income taxes paid to another country.

The Foreign Tax Credit works better when you earn more than $130,000 and cannot exclude all your foreign income with the FEIE, you live in a high-tax country (UK, France, Germany, Scandinavia) where your foreign tax rate exceeds the US tax rate, you want to contribute to IRAs or Roth IRAs (income excluded by the FEIE doesn't count as earned income for IRA purposes), or you're self-employed and want to preserve Social Security credits (FEIE-excluded income doesn't count toward Social Security earnings).

Example: You move to the UK and earn £100,000 ($125,000) in 2025. You pay approximately £28,000 ($35,000) in UK income tax.

Using the FEIE, you exclude $125,000 from US taxation. Your US tax is $0, but you cannot contribute to an IRA and you don't earn Social Security credits on excluded income.

Using the Foreign Tax Credit, you report $125,000 as taxable US income. Your US tax is approximately $23,000. You claim $23,000 Foreign Tax Credit for UK taxes paid. Your net US tax is $0. You can contribute to an IRA and earn Social Security credits on your $125,000 income.

Both approaches result in zero net US tax, but the FTC preserves retirement benefits and Social Security credits—making it significantly better for long-term expats in high-tax countries.

Foreign account reporting requirements (FBAR)

Your first year abroad likely means opening foreign bank accounts to manage daily expenses and receive salary payments. When your foreign accounts exceed certain thresholds, you must report them to the US government—separately from your tax return.

FBAR (FinCEN Form 114)

The Report of Foreign Bank and Financial Accounts (FBAR) is required if the aggregate maximum value of all your foreign financial accounts exceeds $10,000 at any time during the calendar year.

The $10,000 threshold applies to the combined total of all foreign accounts. Even brief spikes above $10,000 during the year trigger the filing requirement. FBAR is filed separately from your tax return through the FinCEN BSA E-Filing System at fincen.gov. The deadline is April 15, 2026, with automatic extension to October 15, 2026.

Example: You move to Australia in March 2025 and open an Australian bank account. You deposit $15,000 initially. By December 31, your balance drops to $8,000. Because your account exceeded $10,000 at one point during 2025, you must file an FBAR for 2025 reporting this account.

Penalties for FBAR non-compliance are severe—starting at $16,536 per violation for non-willful failures and reaching $165,353 or 50% of the account balance per violation for willful failures.

Form 8938 (Statement of Specified Foreign Financial Assets)

Form 8938 serves a similar purpose to FBAR but has higher thresholds and is filed with your tax return. For 2026, the Form 8938 thresholds for taxpayers living abroad are:

Single or married filing separately:

• $200,000 on the last day of the tax year, or $300,000 at any time during the tax year

Married filing jointly:

• $400,000 on the last day of the tax year, or $600,000 at any time during the tax year

Key differences between FBAR and Form 8938:

Feature	FBAR	Form 8938
Threshold	$10,000	$200,000-$600,000 (expats)
Where filed	FinCEN website	With tax return
Assets reported	Financial accounts only	Broader: stocks, partnerships, pensions
Deadline	April 15 (auto Oct 15)	Tax return deadline

Many expats must file both FBAR and Form 8938 because they have different thresholds and cover different types of assets.

Handling your transition year

Your first year abroad is typically a transition year where you earn income both in the United States and abroad. This creates unique expat tax filing challenges that require careful income allocation.

You must separate your income by source. The location where you physically perform services determines the source. US-source income includes wages earned while physically working in the United States, rental income from US properties, and interest from US bank accounts. Foreign-source income includes wages earned while physically working abroad and income from foreign properties or accounts.

Example: You worked in New York from January 1 to April 30, 2025, earning $40,000. You moved to Spain on May 1 and worked there from May 1 to December 31, 2025, earning $80,000. Your US-source income is $40,000 (not eligible for FEIE). Your foreign-source income is $80,000 (potentially eligible for FEIE if you meet the Physical Presence Test).

State tax considerations when moving abroad

Moving abroad doesn't automatically terminate your state tax obligations. Many states require formal steps to end residency and stop state tax filings. California, Virginia, New Mexico, and South Carolina have particularly aggressive residency rules.

Steps to properly terminate state residency include obtaining a driver's license in your new country, surrendering your US state driver's license, updating or canceling voter registration, selling your primary residence or converting it to a rental property, and filing a final part-year state tax return showing your departure date.

How NSKT Global helps with first-year US expat taxes

NSKT Global specializes in expat tax services for Americans in their first year abroad and throughout their expatriate journey. Our experienced team understands the unique challenges first-year expats face and helps you navigate complex US expat taxes rules while legally minimizing your tax burden.

Our comprehensive expat tax services include first-year expat tax filing with both US federal returns and all required foreign account reporting (FBAR and Form 8938), Physical Presence Test tracking and calculation helping you determine the optimal 12-month qualifying period and calculating prorated FEIE amounts for partial years, FEIE versus FTC analysis determining which tax benefit provides the best financial outcome for your specific situation, and state residency termination assistance helping you properly exit your US state tax obligations.

Whether you're moving abroad for the first time, already living overseas but behind on required filings, or managing complex multi-country income situations, NSKT Global ensures you stay fully compliant with US expat taxes requirements while legally minimizing what you owe.