Working abroad triggers key U.S. tax reporting obligations

A client lands a dream job in Lisbon, signs a lease in Singapore or finally takes that remote gig from a beach in Costa Rica. Exciting news, right up until they ask you the question every tax professional dreads: “I’m paying tax over there, so I don’t owe anything here, correct?” It’s a wrong answer waiting to happen. The United States taxes citizens and resident aliens on worldwide income no matter where they hang their hat, and an international move can quietly turn a one-page return into a multi-form compliance project.

Wait, they still owe the IRS?

Yes, and that surprise is exactly why this engagement deserves your full attention. Clients living overseas may still owe U.S. tax even after paying tax abroad, and the filing requirements often stretch well beyond Form 1040, U.S. Individual Income Tax Return. The good news is, Congress built in relief. The bad news is that relief only works if you apply it correctly.

The exclusion everyone wants, but not everyone gets

The foreign earned income exclusion (FEIE) lets qualifying taxpayers exclude up to $132,900 of foreign earned income for 2026. To qualify, a client needs a genuine foreign tax home and must pass either the bona fide residence test or the physical presence test, which requires 330 full days abroad within any 12-month period. Keep in mind that U.S. government wages and most U.S. territory income aren’t eligible for the exclusion. Claim it on Form 2555, Foreign Earned Income, and remember revoking the election can lock a client out for five years.

The housing perk everyone forgets

The rent in Tokyo or Zurich isn’t cheap, and the tax code knows it. Clients who qualify for the FEIE should also be evaluated for the foreign housing exclusion or deduction. It covers rent, utilities and insurance above a base amount, subject to a cap of 30% of the FEIE limit, with higher ceilings in designated high-cost cities. Mortgage payments, furniture and household help generally don’t make the cut, so read the fine print before promising savings.

Two roads to the same destination

The FEIE isn’t the only way to fight double taxation. The foreign tax credit (FTC), generally claimed on Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), can offset U.S. tax on foreign-source income, subject to applicable limits. It won’t apply to tax paid on income already excluded through the FEIE, although clients may use both for different income. Higher foreign tax rates often make the FTC the stronger play, while lower-tax jurisdictions tend to favor the exclusion. Running both scenarios before filing isn’t optional; it’s the job.

The two forms that sound the same but aren’t

Foreign bank accounts bring their own paperwork, and mixing up the rules is an easy way to trigger penalties. FinCEN Form 114, Report of Foreign Bank and Financial Accounts, is required once a client’s foreign accounts collectively top $10,000 at any point in the year, and it’s filed directly with FinCEN, not attached to the return. Form 8938, Statement of Specified Foreign Financial Assets, is a separate FATCA filing attached to Form 1040 that covers a broader range of foreign assets at different thresholds. One account can trigger both filings at once, so treat them as two distinct checklists, not interchangeable options.

Social Security without a passport stamp

Payroll taxes don’t automatically disappear just because a client left the country. Totalization agreements determine whether foreign wages or self-employment income stay subject to U.S. Social Security and Medicare tax, often based on the employer’s structure and the length of the assignment. A temporary posting for a U.S. employer may keep a client in the U.S. system, while long-term local employment usually shifts coverage abroad. Confirming the specific agreement and any certificate of coverage keeps clients from paying into two systems at once.

Bring every piece together

International returns reward practitioners who slow down, confirm the tax home, test FEIE and housing eligibility, compare FEIE against the FTC, then work through FBAR, FATCA and payroll-tax questions before filing. Skip a step, and the surprise won’t be pleasant for anyone.

Want a deeper walkthrough with real client scenarios? Join us for our live workshop on Tuesday, Sept. 29, 2026, at 9 a.m. CT, where we’ll break down FEIE, the FTC, foreign asset reporting and totalization agreements in detail. Save your seat and never let a client move abroad catch you off guard again.