What are US tax penalties for Americans abroad?

Americans living abroad may have US tax and reporting obligations even when they pay taxes in their country of residence. Failing to file a required tax return, pay US tax due or report foreign financial accounts can result in penalties.

However, not every late or missed filing automatically results in a penalty. The consequences depend on the type of obligation, whether tax is actually owed and the circumstances that caused the non-compliance.

Do Americans abroad actually owe US tax?

The United States generally taxes US citizens and other US tax residents on their worldwide income, including when they live abroad. You can read more about this in our explanation of US tax liability for Americans abroad.

Whether you actually have to pay US tax is a different question. Foreign tax credits, exclusions and tax treaties can affect the amount ultimately due. Many Americans living abroad therefore have a US filing obligation without necessarily owing additional US income tax.

Even when no US income tax is due, separate reporting requirements such as FBAR or Form 8938 may still apply.

What happens if you file or pay US taxes late?

The IRS has different penalties for different types of non-compliance. An important distinction is between filing a required tax return late and failing to pay tax that is due.

Failure to File Penalty

If you file a required federal income tax return after the deadline and have unpaid tax, the IRS can impose a Failure to File Penalty.

Generally, this penalty is 5% of the unpaid tax for each month or part of a month that the return is late, up to a maximum of 25%.

If both a Failure to File and Failure to Pay penalty apply during the same month, special rules apply to the combined penalties.

If you are unfamiliar with the standard US individual income tax return, see our explanation of Form 1040.

Failure to Pay Penalty

A Failure to Pay Penalty can apply when you do not pay the tax reported on your return by the applicable deadline.

Generally, the penalty is 0.5% of the unpaid tax for each month or part of a month that the tax remains unpaid, up to a maximum of 25%.

Interest can also accrue on unpaid tax.

What about FBAR penalties?

FBAR stands for Foreign Bank Account Report. US persons may need to file an FBAR if the aggregate value of their foreign financial accounts exceeds $10,000 at any point during the calendar year. For more information about who needs to report foreign accounts, see What is FBAR?.

FBAR is separate from your federal income tax return.

Failure to file a required FBAR can result in significant penalties. An important consideration is whether a violation is considered willful or non-willful. Willful violations can have substantially more serious consequences than non-willful violations.

Because FBAR penalty rules are complex and penalty amounts can change, your individual circumstances should be assessed before determining your potential exposure.

What is the difference between willful and non-willful?

This distinction is particularly important for Americans abroad who have not previously complied with their US tax obligations. Americans Overseas explains the distinction in more detail in What is the difference between willful and non-willful violations?.

For purposes of the IRS Streamlined Filing Compliance Procedures, non-willful conduct is conduct resulting from negligence, inadvertence, mistake or a good-faith misunderstanding of the requirements of the law.

Someone who genuinely did not know about their US filing obligations may therefore be in a very different position from someone who was aware of those obligations and deliberately chose not to comply.

Whether conduct is ultimately considered willful or non-willful depends on the individual facts and circumstances.

Are there penalties for not filing Form 8938?

There can be.

Form 8938 is used by certain taxpayers to report specified foreign financial assets when the applicable reporting thresholds are exceeded. You can find an explanation of the form and when it may be required in What is Form 8938?.

According to the IRS, failure to file a complete and correct Form 8938 by the due date can result in an initial penalty of $10,000.

If the IRS sends a notice and the taxpayer continues not to file the required Form 8938, additional penalties can apply. These continuation penalties can reach a maximum of $50,000, in addition to the initial penalty.

There is a reasonable-cause exception in certain circumstances.

I didn’t know I had to file US taxes. Will I be fined?

Not necessarily.

Many Americans living abroad discover their US tax obligations only after they have lived outside the United States for many years. This can include dual citizens, Accidental Americans and people who left the US as children.

The IRS has procedures that allow certain taxpayers to correct previous non-compliance. For qualifying Americans living outside the United States, one important option is the Streamlined Procedure.

Can the Streamlined Procedure help avoid penalties?

Yes, for taxpayers who meet the requirements.

The Streamlined Foreign Offshore Procedures are intended for qualifying taxpayers living outside the United States whose failure to report income, pay tax and submit required information returns resulted from non-willful conduct. You can also read our Knowledge Center explanation of what the Streamlined Procedure is.

Generally, an eligible taxpayer submits:

• the most recent 3 years of required US tax returns for which the due date has passed;
• the most recent 6 years of required FBARs for which the due date has passed;
• all required information returns associated with the covered tax years;
• a certification explaining that the previous non-compliance was non-willful; and
• the tax and interest due.

According to the IRS, taxpayers who qualify and correctly complete the Streamlined Foreign Offshore Procedures will not be subject to Failure to File, Failure to Pay, accuracy-related, information-return or FBAR penalties for the covered filings.

Eligibility should therefore be established before simply filing several years of overdue returns.

Can US tax penalties be reduced or removed?

In some circumstances, yes.

The IRS provides penalty relief in certain situations. For example, reasonable-cause relief may be available for some penalties if you can demonstrate that you exercised ordinary care and prudence but were nevertheless unable to meet your tax obligations.

Whether relief is available depends on the particular penalty and the facts and circumstances.

For Americans abroad who have never filed because they were unaware of their obligations, it is particularly important to establish whether the Streamlined Procedure is appropriate before submitting overdue returns.

What should I do if I have never filed US taxes?

If you discover that you have missed US tax returns, FBARs or other reporting obligations, first establish exactly which obligations apply to you.

Simply filing several years of old returns without considering the available compliance procedures is not always the appropriate approach.

Your residence, filing history, foreign financial accounts, unpaid tax and the reason for your previous non-compliance can all affect which route is appropriate.

Americans Overseas helps Americans living abroad understand their US tax obligations and, where necessary, connects them with US tax professionals who can assess their individual situation.

Do you have unfiled US tax returns or are you concerned about possible penalties? Contact Americans Overseasfor a free and no-obligation assessment.

Get Informed with Americans Overseas

We, the founders of Americans Overseas, were born in the Netherlands and received our American citizenship through our (American) mother.

When we first learned about the U.S.–Netherlands tax treaty around 2013, we felt disbelief (“this can’t be true”), anger (“how can they do this?”), fear (“will I get fined or have problems?”), and panic (“what should I do?”).

Unfortunately, it is true that there is a U.S. tax obligation for Dutch citizens who acquired American nationality by birth. There was no information from local authorities, the U.S. consulate referred us to the IRS, and the IRS itself was impenetrable.

That is why we started this initiative: to help others with reliable information, to prevent unnecessary panic, and to offer free, no‑obligation assistance. When needed, we can connect you with a network of affordable professionals (accountants) who can help you meet your U.S. tax obligations.

Contact us for more information