What Are the Tax Penalties for U.S. Expats?
The most common penalty for Americans abroad is the failure-to-file penalty, which is 5% of unpaid taxes per month, up to 25% of what you owe. But for most expats, the bigger risk is not income tax penalties. It is the FBAR penalty: up to $16,536 per report for non-willful failure to report foreign bank accounts, even if you owe $0 in taxes.
The good news: every penalty on this list is avoidable. Most Americans abroad owe no federal taxes after applying the FEIE and the Foreign Tax Credit. And if you are behind on filing, the IRS offers penalty-free catch-up programs specifically for expats.
Worried About IRS Penalties?
Here is every penalty you need to know about, what triggers it, and how to prevent it.
Expat Tax Penalty Quick Reference
| Penalty | Amount | What Triggers It |
|---|---|---|
| Failure to file (Form 1040) | 5% of unpaid tax per month, up to 25% | Not filing your return by the deadline (including extensions) |
| Failure to pay | 0.5% of unpaid tax per month, up to 25% | Filing on time, but not paying what you owe by April 15 |
| FBAR non-willful | Up to $16,536 per report per year | Not filing FinCEN Form 114 when foreign accounts exceed $10,000 |
| FBAR willful | $165,353 or 50% of account balance (whichever is greater) | Intentionally failing to report foreign accounts |
| FATCA (Form 8938) | $10,000 + up to $50,000 for continued failure | Not filing Form 8938 when foreign assets exceed thresholds |
| Form 5471 | $10,000 per form per year | Not reporting ownership in a foreign corporation |
| Form 3520 | Up to 25% of the transaction value | Not reporting foreign gifts or trusts exceeding $100,000 |
| Accuracy-related | 20% of the underpayment | Negligence or substantial understatement of income |
| Fraud | 75% of the underpayment | Intentional tax evasion |
How Does the Failure-to-File Penalty Work for Expats?
The IRS charges 5% of your unpaid tax balance for each month (or partial month) your return is late, up to a maximum of 25%. If you owe $0 after applying the FEIE or Foreign Tax Credit, the failure-to-file penalty is $0, because 5% of $0 is $0.
However, you must file to claim these benefits. The FEIE does not apply automatically. If you never file, the IRS has no record that you qualify, and they may assess taxes based on your gross income without any exclusions.
- The automatic expat extension: Americans living abroad receive a 2-month extension to June 15 (no form required). You can extend further to October 15 by filing Form 4868. These extensions apply to filing, not payment. If you owe taxes, interest begins accruing on April 15, regardless.
- Why you should file even if you owe $0: Filing establishes your compliance history, starts the statute of limitations clock (the IRS generally has three years to audit a filed return, but no limit on unfiled returns), and preserves your ability to claim refunds and credits.
What Are the FBAR Penalties?
The FBAR is the penalty that catches the most expats off guard. It is a separate filing from your tax return, due April 15 with an automatic extension to October 15, and it is required if the combined value of all your foreign financial accounts exceeds $10,000 at any point during the year.
- Non-willful penalty: Up to $16,536 per FBAR report per year. The Supreme Court’s 2023 Bittner v. United States decision confirmed that non-willful penalties apply per report, not per account. This is a significant distinction: if you have 10 foreign accounts and miss one FBAR, the maximum non-willful penalty is $16,536 for that year’s report, not $165,360.
- Willful penalty: The greater of $165,353 or 50% of the highest account balance. Willful violations can also carry criminal penalties, including fines up to $500,000 and up to 10 years in prison.
What counts as “willful”: The bar is lower than you might think. After the 2026 Reyes ruling, courts have held that “objective recklessness” (ignoring an obvious reporting obligation) can constitute willfulness. Checking “No” on Schedule B when asked about foreign accounts, despite having them, is a common fact pattern that courts have treated as willful. For more on how courts are interpreting willfulness, see: FBAR Willful Violation: What Reyes and Sagoo Mean for Expats
How to avoid FBAR penalties: File FinCEN Form 114 electronically through the BSA E-Filing System by the deadline. If you are behind, file through the Delinquent FBAR Submission Procedures or Streamlined Filing before the IRS contacts you.
What Are the FATCA Penalties?
FATCA (Form 8938) is required if your foreign financial assets exceed $200,000 at year-end or $300,000 at any point during the year (for single filers living abroad; thresholds double for married filing jointly).
The penalty for failure to file is $10,000, with an additional $10,000 for each 30 days of continued non-compliance after IRS notification, up to a maximum of $50,000. There is also a 40% penalty on any tax understatement related to undisclosed foreign assets.
How FATCA differs from FBAR: FBAR is filed separately with FinCEN and covers all foreign accounts over $10,000. FATCA is filed with your tax return and covers a broader range of foreign assets at higher thresholds. Many expats need to file both. See: FBAR vs. FATCA: Which Do I Need?
What About Self-Employment Tax?
This is not technically a penalty, but it is the most common “surprise tax” for expats. The FEIE eliminates income tax on the first $130,000 (2025) of foreign earned income, but it does not eliminate self-employment tax (15.3% for Social Security and Medicare).
If you are a freelancer, contractor, or business owner earning $80,000 abroad, your income tax may be $0 after the FEIE, but you still owe approximately $12,240 in self-employment tax. Failing to pay this results in failure-to-pay penalties plus interest.
How to reduce it: If your country has a totalization agreement with the U.S. and you are paying into that country’s social security system, you may be exempt from U.S. self-employment tax on the Social Security portion. Currently, 30 countries have totalization agreements with the U.S.
What If I Am Already Behind on Filing?
If you have unfiled tax returns or FBARs, the worst thing you can do is continue not filing. The IRS offers specific programs for expats who come forward voluntarily:
- Streamlined Filing Compliance Procedures: File three years of tax returns and six years of FBARs. For Americans living abroad (330+ days outside the U.S. in the past 3 years), the penalty is 0%. You must certify on Form 14653 that your failure was non-willful.
- Delinquent FBAR Submission Procedures: If your tax returns are current but you missed FBARs, file up to six years of delinquent FBARs with a reasonable cause statement. The IRS typically waives all penalties.
Key requirement: You must come forward before the IRS contacts you. Once they reach out first, you lose eligibility for penalty relief under these programs.
Most expats who catch up through Streamlined Filing discover they owed $0 all along after applying the FEIE and Foreign Tax Credit.
Frequently Asked Questions
If you owe taxes, the IRS assesses failure-to-file (5% per month, up to 25%) and failure-to-pay (0.5% per month, up to 25%) penalties, plus interest. If you owe $0, there is no financial penalty for late filing, but the IRS has no statute of limitations on unfiled returns, meaning they can assess taxes at any time. Filing also preserves your ability to claim refunds and credits. If you are behind, the Streamlined Filing Procedures offer a penalty-free path back to compliance.
Yes, for information returns. FBAR, FATCA, Form 5471, and Form 3520 are reporting requirements, not tax payments. The penalties for these forms apply regardless of whether you owe income tax. You can owe $0 in taxes and still face a $16,536 FBAR penalty for failing to report your foreign accounts.
For filed returns, the IRS generally has three years to assess additional tax. For unfiled returns, there is no statute of limitations. For FBAR penalties, the IRS has six years from the FBAR due date. Filing on time starts the clock. Not filing keeps it open indefinitely.
Potentially. Some states (California, New York, Virginia, South Carolina) continue to assert tax obligations on former residents who move abroad. State penalties vary but typically include failure-to-file and failure-to-pay penalties similar to those of the IRS. Properly terminating state residency before you move is the best way to prevent it.
If you receive a gift or inheritance from a foreign person exceeding $100,000, you must report it on Form 3520. The penalty for failure to file is 5% of the gift amount for each month it is late, up to 25% of the total gift. On a $200,000 inheritance, that is up to $50,000 in penalties for a purely informational form.
Greenback’s Streamlined Filing Package is $1,750 flat and includes three years of federal returns, six years of FBARs, and preparation of Form 14653. Compare that to the cost of a single FBAR penalty ($16,536) or to doing nothing and hoping the IRS does not notice.
Prevent Penalties Before They Start
The cost of professional expat tax preparation is a fraction of a single penalty. An FBAR penalty alone can cost more than a decade of professional filing fees.
If you are ready to be matched with a Greenback accountant, get started here. For general questions, contact our Customer Champions.
Avoid Costly Expat Tax Penalties
This article is for informational purposes only and does not constitute tax or legal advice. Penalty amounts are adjusted annually for inflation; amounts shown are current as of March 2026. Always consult with a qualified tax professional regarding your specific situation.
Related Resources
- FBAR Penalties: What Happens If You Do Not File
- FBAR Willful Violation: What Reyes and Sagoo Mean
- Streamlined Filing for U.S. Expats
- How to File U.S. Taxes From Abroad
- How to Choose the Best Expat Tax Service Provider
- What Are Expat Tax Services?
- FBAR vs. FATCA: Which Do I Need?
- Tax Deadlines for U.S. Expats
- Self-Employment Tax for Expats
- U.S. Expat Taxes: The Complete Guide
