What happens if you don’t file taxes while living abroad? Penalties & IRS rules explained
Most of the stories we hear every day are from Americans who moved abroad and never filed their US tax returns – some simply forgot, others didn’t realize they still had to, and a few chose to take their chances. But this is not the time to ignore it. Penalties can climb quickly, interest keeps growing, and the IRS can catch up even years later. This guide explains what happens when a US citizen living abroad misses returns, what the IRS rules mean, and how Streamlined Filing can help you make things right before problems escalate.
This article is brought to you by Taxes for Expats – the trusted team helping expats stay compliant with IRS requirements. Our team has deep experience assisting US citizens abroad who have never filed tax returns and guiding them toward a smooth, penalty-smart return to compliance – learn more about our services or contact us today to get started.
Why filing your US expat tax return matters
You can choose not to file your taxes, but beyond penalties waiting down the line, there are other powerful reasons why filing your US expat tax return is one of the smartest financial moves you can make.
- It keeps you on the right side of the law. Even if you pay taxes overseas, you’re still required to file a tax return each year. Staying compliant protects you from mounting penalties and future legal issues.
- Your citizenship keeps you connected to the system. The US taxes based on citizenship, so wherever you live, your obligations travel with you as a US citizen living abroad.
- It saves you from double taxation. Filing allows you to claim the foreign tax credit, reducing or even erasing taxes already paid to your host country.
- It opens the door to real cash refunds. Many expats qualify for the Child Tax Credit, worth up to $2,200 per child in 2025, with as much as $1,700 refundable even if you owe nothing.
- It can exclude a large portion of your income from US tax. With the Foreign Earned Income Exclusion, you can shield up to $130,000 of foreign income from taxation in 2025 – an enormous benefit that only comes with filing.
- It protects your future and starts the IRS clock. When you file a tax return, you trigger the statute of limitations that limits how long the IRS can audit or assess. For any US citizen abroad who has never filed a tax return, that protection simply doesn’t exist.
Filing isn’t just a rule – it’s a safeguard. It gives you peace of mind, keeps your finances in order, and ensures your life abroad stays free of tax surprises.
Know your tax filing duties while abroad
Think of an engineer in Spain earning both a salary and freelance pay. Even though that income comes from outside the United States, it still connects back to the IRS through a tax return. Every US citizen living abroad follows the same basic rules: filing depends on status, income level, and where the money comes from. Understanding how these pieces fit together makes staying compliant much easier.
Filing status is the starting point. For 2025 filings that cover 2024 income, the limits are $14,600 for single, $21,900 for head of household, and $29,200 for married filing jointly; for 2026 filings, they rise to $15,000, $22,500, and $30,000. Because married filing separately keeps the limit at only $5, many expats end up needing to file. These same thresholds apply everywhere, so a US citizen living abroad must include income from every source, not just what’s earned locally. The automatic two-month extension helps by adding time to send your forms, but interest still grows on any unpaid tax.
After filing status comes the actual income test. The IRS filing criteria require a return once total income meets the threshold or when net self-employment earnings exceed $400. Because these limits are strict, even modest earnings can mean you must file a tax return, especially for those married but filing separately. All types of income count toward the total wages, interest, dividends, pensions, and business profits, so knowing what triggers the requirement helps you plan ahead and stay compliant year after year.
IRS penalties for failing to file taxes
Here is what happens if you don't file your taxes while living abroad – once you fall behind, the IRS steps in with penalties that grow month after month, turning small mistakes into expensive lessons. In the 1985 case United States v. Boyle, the Supreme Court made it clear that even if a tax preparer misses your deadline, you’re still responsible for filing your own tax return.
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Failure to file penalty
This is a charge for not sending your tax return on time. The IRS adds 5 percent of the unpaid tax for each month your return is late, up to 25 percent total. When your return is over 60 days late, the smallest penalty is $510 or 100 percent of the unpaid tax, whichever is less.
Example: Say you owe $10,000 and send your return four months late, that delay adds about $2,000 in penalties. The sooner you file a tax return, the faster this charge stops growing. -
Failure to pay penalty
This one starts when you don’t pay what you owe by the due date. The IRS adds 0.5 percent per month on the unpaid balance, and it can reach 25 percent. If the IRS has already sent a levy notice, the rate can rise to 1 percent, but it drops to 0.25 percent once you set up a payment plan. When both penalties apply in the same month, the total can’t be more than 5 percent. -
Interest charges
Interest is the extra cost for owing the government money over time. It’s added every day to your tax, penalties, and even to past interest. The rate changes each quarter; for October 2025, it’s 7 percent per year, based on the federal short-term rate plus 3 points. The longer you wait, the more it builds. Many expats use the streamlined filing compliance procedures to catch up, fix missed filings, and reduce the extra interest and stress.
What about FBAR and FATCA penalties
Aside from standard IRS penalties for missing deadlines, American citizens living abroad also face reporting rules for foreign accounts and assets. Both aim to ensure offshore transparency but apply in different ways, depending on what you hold and where.
FBAR is filed as FinCEN Form 114 when the total value of foreign financial accounts exceeds $10,000 at any time during the year. Nonwillful FBAR violations can bring penalties of up to $16,536 per report per year, while willful ones may reach $165,353 or 50 percent of the account balance, whichever is higher. This comes into play when an expat like Maya, for instance, keeps three overseas accounts totaling $12,500 for just one day, which makes an FBAR filing necessary.
The same concept of disclosure extends to FATCA, which uses Form 8938 attached to your tax return. When assets grow larger – such as another expat scenario with $250,000 in a foreign brokerage account at year-end – the reporting duty shifts to FATCA. Failing to file Form 8938 can lead to an initial $10,000 penalty, increasing by $10,000 every 30 days after IRS notice, up to $50,000, plus a potential 40 percent accuracy penalty on any understated income.
Getting back on track with streamlined filing reliefs
Missing a tax return while living abroad happens more often than you think. It can feel stressful, but the good news is that the IRS built a clear system to help taxpayers fix past mistakes without harsh penalties. Through the streamlined filing compliance procedures, American citizens living abroad can file a tax return, clear old balances, and restore good standing in a simple, structured way. This process has two versions based on where you live and your filing history, each offering a safe path back to compliance.
The streamlined filing compliance procedures are made for those whose non-filing was not willful. You submit the last three years of federal tax returns and six years of FBARs, pay any tax and interest owed, and sign a non-willfulness statement. Most participants see the failure-to-file and failure-to-pay penalties removed. This relief gives taxpayers peace of mind while allowing them to use deductions like the FEIE, which can be estimated quickly using our calculator or the FTC to lower what they owe.
Streamlined Foreign Offshore Procedures
This program is for nonresidents who qualify under the section 911 nonresidency rules. It does not apply a 5 percent miscellaneous offshore penalty. The submission includes Form 14653, three years of returns, six FBARs, and full payment of tax and interest. It offers a clean slate for Americans abroad who were unaware of their filing duties.
Streamlined Domestic Offshore Procedures
This SDOP option helps residents whose mistakes were also non-willful but who do not meet the non-residency test. It replaces multiple penalties with one 5 percent offshore penalty on the highest total value of foreign accounts during the covered years. The filing includes Form 14654, three amended returns, six FBARs, and any tax and interest due.
What should you do after missing a tax deadline
Falling behind on a tax deadline can feel overwhelming, but it’s not the end of the road. Late filings happen to many Americans abroad, and the key is to act quickly before penalties grow.
- File as soon as possible: Submitting your return right away stops additional failure-to-file charges from increasing and shows good faith to the IRS.
- Pay what you can: Even a partial payment reduces the balance to which interest and penalties apply to.
- Set up a payment plan: A formal installment agreement prevents the IRS from raising the rate to 1 percent per month after a final levy notice.
- Seek professional assistance: A trusted tax specialist can help organize your paperwork, claim eligible credits, and ensure your tax return is filed correctly.
NOTE! For US citizens living overseas, the IRS automatically provides a two-month extension to June 15. Taxes are still due by April 15 to avoid interest, but you can request more time until October 15 by filing Form 4868. Taxes for Expats makes this simple with two dedicated services – the free expat tax extension and the 2-month tax extension – helping Americans abroad who have never filed a tax return catch up without dealing with forms.
What happens if you ignore IRS notices abroad
Ignoring IRS letters can quickly escalate from automated bills to enforced collection and even travel limits.
Substitute for return
The IRS can create a return for you under IRC 6020(b) using third-party data, usually without credits or favorable elections, which often produces a higher bill. You may still submit your own original return to correct the assessment.
Wage garnishment or bank levies
An IRS levy is an administrative seizure that does not require a court order. Wages are subject to a continuing levy, with exempt amounts set using Publication 1494, and bank accounts face a 21-day hold before funds are sent to the IRS.
The IRS may also file a Notice of Federal Tax Lien. Tax liens are public records that can affect your ability to get credit, but since April 2018, they no longer appear on standard consumer credit reports.
Revocation of passport
A seriously delinquent tax debt of more than 64,000 dollars can be certified to the State Department, which may deny, revoke, or limit a US passport. The IRS issues Notice CP508C when it certifies the debt.
Criminal charges
In willful cases, the government can pursue criminal tax charges. Tax evasion carries up to five years in prison and fines that can reach 250,000 dollars for individuals under 18 U.S.C. 3571.
Common tax credits and deductions for expats
Living abroad doesn’t mean missing out on valuable US tax breaks. Several key exclusions and credits can significantly reduce what expats owe by preventing double taxation and recognizing foreign living costs.
- The foreign earned income exclusion
- The foreign tax credit
- The foreign housing exclusion or deduction
File your taxes from abroad with these easy steps
Handling taxes while living overseas is simpler than it seems when each stage is broken down clearly, helping you stay compliant and avoid penalties no matter where you live.
Step 1: Collect wage, bank, and foreign income records, then prepare your federal tax return for e-filing by June 15, if abroad.
Step 2: Choose benefits wisely by using Form 2555 for the Foreign Earned Income Exclusion or Form 1116 for the Foreign Tax Credit, and check FBAR filing when foreign accounts exceed $10,000 and Form 8938 when assets meet the $200,000 or $400,000 thresholds for those abroad.
Step 3: File or request Form 4868 by April 15 to extend to October 15, pay online with IRS Direct Pay, and remember interest on any unpaid amount runs from April 15.
Step 4: Americans abroad who have never filed a tax return may use the Streamlined Filing Compliance Procedures when the lapse was non-willful.
Also read. US expat taxes: A comprehensive guide
How can we help if you don’t file taxes while living abroad?
Missing a tax return abroad can quickly lead to IRS penalties, interest, and foreign reporting issues that grow more complicated the longer they go unaddressed. Filing on time, using the correct forms, and claiming every eligible credit are the keys to keeping your record clean and your stress low.
That’s where Taxes for Expats comes in – our team guides Americans abroad through every IRS rule and penalty relief option, from Streamlined Filing to FBAR and FATCA compliance, ensuring each return is accurate, timely, and penalty-smart.
FAQ
Use Form 2350 when you need extra time beyond October 15, specifically to meet the FEIE bona fide residence or physical presence test.
Yes – the collection statute is suspended while you’re outside the US for at least six continuous months.
Often, yes – after you file, you can request First–Time Abate or show reasonable cause to remove certain penalties.
Initial penalties are the greater of $10,000 or percentage–based amounts, including 35% of transfers/distributions (3520) and 5% of trust assets for owners (3520–A).
Typically $10,000 per failure for 5471/8865 with continuation penalties (caps apply), and $25,000 per failure for 5472 with continuation penalties and no statutory maximum.
Yes – refunds attributable to foreign taxes (foreign tax credit) can generally be claimed up to 10 years from the original due date.
