U.S. Taxes for Families with Children Studying Abroad 

When your child heads off to study at Oxford or the Sorbonne, U.S. tax rules don’t disappear at customs. Here’s the relief: according to IRS data, most American families can still claim the same education credits, dependency benefits, and tax savings they’d get if their child attended university domestically. 

At Greenback, we’ve helped over 23,000 expats file over 71,000 returns, and we see this misconception constantly. Families assume international education means losing valuable tax benefits. The truth? You can often claim up to $2,500 in education credits, maintain dependency status, and use 529 plans for qualified expenses abroad. 

The Foundation: Why U.S. Taxes Follow Your Child Abroad 

The U.S. uses citizenship-based taxation, meaning all worldwide income must be reported regardless of where it’s earned. This includes wages, scholarships, investments, and more for both you and your child. 

• Income reporting requirements apply worldwide – Any income your child earns while studying abroad must be reported on their U.S. tax return 
• Filing thresholds remain the same – For 2025, your child must file if earned income exceeds $14,600 or unearned income exceeds $1,300 
• Foreign bank accounts need disclosure – If your child’s foreign financial accounts exceed $10,000 at any point during the year, they must file an FBAR (Foreign Bank Account Report) 

Can My Child Still Qualify as My Dependent While Studying Overseas? 

Yes, and this might be the most important tax win for your family. The IRS treats time spent away at school as a temporary absence, regardless of whether your child attends college in Boston or Barcelona. 

If you provide more than half of your child’s support and they meet the age requirements, your child remains your dependent. This preserves your eligibility for the Child Tax Credit, which is worth up to $2,000 per qualifying child. 

Key dependency tests remain the same abroad: 

• Support test: You provide more than half of their total support 
• Age test: Under 19, or under 24 if a full-time student 
• Residency test: Temporary absence for education counts as living with you 
• Citizenship test: Must be a U.S. citizen, national, or resident alien 

Your family home remains their permanent residence even while they study internationally, satisfying the residency requirement that concerns many parents. 

Study Abroad and the “Residency” Test 

Time spent away at college—whether in another U.S. state or another country—is considered a temporary absence under IRS rules. That means your child is still treated as living with you for tax purposes during the school year, as long as your home remains their permanent residence and you continue providing primary support. 

So, attending a foreign university generally does not impact your ability to claim your child as a dependent, assuming the other rules are met. 

Will Education Tax Credits Work for Foreign Universities? 

Absolutely, and this often surprises families. The American Opportunity Tax Credit and Lifetime Learning Credit apply to many international universities that participate in U.S. federal student aid programs. 

Over 400 foreign institutions qualify for these credits. If your child’s university appears on the Federal School Code List (the same database used for FAFSA), you can claim up to $2,500 annually through the American Opportunity Tax Credit. 

American Opportunity Tax Credit (AOTC) 

The AOTC offers the most generous benefits for undergraduate students. 

• Up to $2,500 per student/year 
• 100% of first $2,000 + 25% of next $2,000 
• Up to $1,000 refundable 
• For undergraduates (first 4 years), half-time enrollment, with income phase-outs 

Key requirements: 

• The student must be pursuing a degree or a recognized credential 
• Enrolled at least half-time for at least one academic period 
• Available for the first four years of higher education only 
• Income limits: phases out between $80,000-$90,000 for single filers, $160,000-$180,000 for joint filers 

Lifetime Learning Credit (LLC) 

• Up to $2,000 per return (20% of the first $10,000) 
• Unlimited years, graduate/professional courses are okay 
• Non-refundable, same income limits 

What Counts as an Eligible Foreign Institution? 

To qualify for the AOTC or the LLC, your child must attend an “eligible educational institution.” This includes many international universities as long as they meet one key requirement: 

The school must be eligible to participate in a student aid program administered by the U.S. Department of Education. 

This means: 

• The institution offers postsecondary education beyond high school 
• It’s recognized under U.S. federal guidelines 
• It appears in the Federal School Code List used for FAFSA 

You can confirm eligibility by checking the Federal Student Aid database or the Department of Education’s downloadable school code list. 

What If the School Doesn’t Provide Form 1098-T? 

Most foreign universities do not issue IRS Form 1098-T, which is commonly used by U.S. institutions to report tuition. But this doesn’t disqualify you from claiming credits. 

Instead: 

• Keep proof of qualified expenses (tuition, enrollment fees, textbooks, etc.) 
• Maintain records showing enrollment status (such as course schedules or official letters) 
• Retain payment confirmations like bank statements, wire transfer records, or receipts 

The IRS does not require Form 1098-T if you can substantiate the expense and eligibility in other ways. 

Do 529 Plans Cover International Education Costs? 

Your 529 college savings plan works at eligible foreign universities, potentially saving thousands in taxes on international education expenses. The same schools that qualify for education credits typically qualify for 529 distributions. 

What 529 Plans Cover for Study Abroad 

Qualified education expenses at eligible foreign schools generally include: 

• Tuition and mandatory fees 
• Required textbooks and academic supplies 
• Room and board (if your child is enrolled at least half-time) 
• Computers and internet access, if required for enrollment 

As with U.S. schools, the institution must be on the Federal School Code List maintained by the Department of Education. If the foreign school is listed, your 529 plan can be used there without triggering penalties. 

What’s Not Covered 

Equally important is knowing what 529 plans don’t cover when studying internationally. Non-qualified expenses include: 

• Travel costs to and from the foreign school 
• International health insurance premiums 
• Basic living expenses like groceries, clothing, and personal care 
• Cell phones and international data plans 

These expenses may make up a large portion of the total cost of studying abroad, so while your 529 can help, it won’t cover everything. 

The Hidden Cost Factor 

One of the most common surprises for families is just how much of the study abroad experience isn’t considered “qualified.” If you use 529 funds for non-qualified expenses, you’ll owe income tax on the earnings portion of the withdrawal plus a 10% federal penalty. That’s why it’s essential to budget for these out-of-pocket costs separately and use your 529 strategically. 

What Tax Obligations Apply If My Child Earns Income Abroad? 

Students working part-time abroad must report this income on their U.S. tax return, but several relief options prevent double taxation. 

Filing Requirements for Student Income 

Even though your child is abroad, the same U.S. filing thresholds apply. For tax year 2024, your child generally must file a federal tax return if: 

• Earned income (like wages): Over $14,600 
• Unearned income (like investment interest): Over $1,300 
• Combined income: Exceeds the larger of $1,300 or earned income + $450 

These numbers are for dependents under age 65 and are adjusted annually for inflation. If your child meets or exceeds these limits, they must file, even if foreign taxes were paid on the income or the job was short-term. 

Can Students Use the Foreign Earned Income Exclusion (FEIE)? 

Possibly. If your child is a U.S. citizen earning income abroad, they may qualify for the Foreign Earned Income Exclusion (FEIE), but only if they meet strict residency or presence tests. 

For tax year 2025, the maximum exclusion is $130,000. 

To qualify, they must meet one of the following: 

• Physical Presence Test: Be physically present in one or more foreign countries for at least 330 full days during any 12-month period 
• Bona Fide Residence Test: Be a bona fide resident of a foreign country for an entire calendar year with the intent to remain there long-term 

Most study abroad students do not meet these thresholds unless they intern or work abroad year-round, participate in multi-year programs without returning to the U.S., or establish long-term foreign residency. 

Even if eligible, FEIE must be actively elected using Form 2555 and requires detailed reporting. 

Foreign Tax Credit: Often a Better Fit for Students 

If your child pays income taxes to the foreign country where they study or work, they may instead be eligible for the Foreign Tax Credit (FTC). 

This credit can reduce or eliminate U.S. tax on the same income without needing to meet the residency or physical presence tests required for the Foreign Earned Income Exclusion (FEIE).

Benefits of using the Foreign Tax Credit: 

• Applies to both earned and unearned income 
• Often, a better option in high-tax countries where foreign tax exceeds U.S. liability 
• Uses Form 1116 for filing 

Unlike FEIE, the FTC allows your child to remain fully eligible for other tax credits and avoids the complexity of income exclusion rules. 

Do Foreign Bank Accounts Require Special Reports? 

Yes, and this surprises many families. Students opening foreign bank accounts for daily expenses may trigger FBAR reporting requirements. 

When Is FBAR Filing Required? 

The Foreign Bank Account Report (FBAR) must be filed if the total combined value of all foreign financial accounts your child owns or controls exceeds $10,000 USD at any point during the calendar year. 

This includes: 

• Checking or savings accounts opened abroad for daily use 
• Foreign investment accounts 
• Accounts where your child has signature authority (e.g., jointly held with a parent or host family) 
• Foreign accounts held through apps or digital banks based outside the U.S. 

It doesn’t matter if the account is short-lived, used for only part of the year, or has minimal average balances—if the account balance ever crosses $10,000, even for one day, the FBAR is required. 

How to File 

• The FBAR is filed separately from your child’s U.S. tax return 
• It must be submitted electronically through the BSA E-Filing System at FinCEN (the Financial Crimes Enforcement Network) 
• Deadline: April 15, with an automatic extension to October 15—no special request needed 

Why It Matters 

The IRS and FinCEN take foreign account reporting seriously—even for students. 

Penalties for not filing an FBAR can be severe, especially if the IRS determines the failure was willful: 

• Up to $156,107 per violation (2025 max penalty) 
• Or 50% of the account’s highest value during the year 
• Even non-willful violations can result in a $10,000 penalty per account 

That’s why keeping records of all foreign financial accounts and filing on time, even for students with modest foreign balances, is critical. 

Should Parents Consider Moving Abroad Too? 

Many families eventually relocate to be closer to their child studying or for other opportunities. Moving abroad as a U.S. citizen doesn’t eliminate tax obligations but introduces powerful relief strategies. 

Ongoing U.S. Requirements for Expatriate Parents 

• Continue reporting worldwide income annually 
• File FBAR for foreign financial accounts exceeding $10,000 
• Establish a foreign tax home for potential FEIE benefits 

Key Tax Strategy Decisions 

• The Foreign Earned Income Exclusion allows you to exclude up to $130,000 of foreign income for 2025, but it may eliminate eligibility for the Additional Child Tax Credit. 
• The Foreign Tax Credit preserves family credit eligibility while providing dollar-for-dollar relief for foreign taxes paid. Parents should evaluate which approach provides better overall tax benefits. 

However, each strategy has rules, trade-offs, and long-term planning implications, especially if you’re also trying to claim family-based tax benefits. 

Record-Keeping: Your Best Defense 

U.S. citizens living abroad—or supporting a student who is—face greater scrutiny from the IRS, simply because international tax situations are more complex. That makes meticulous record-keeping your first and best line of defense in case of an audit. 

Essential Documents to Maintain 

Start a digital folder or binder with the following: 

• Tuition receipts and enrollment confirmations from the foreign school 
• Foreign bank statements, including any accounts subject to FBAR 
• Currency conversion records, noting both the source and date of the exchange rate used 
• Travel documentation to establish presence abroad (e.g., flight records, visa stamps) 
• Foreign tax returns and any documentation of taxes paid 
• Scholarship letters or employment contracts tied to student income 

These records support education tax credit claims and help substantiate dependency, FBAR filings, foreign income reporting, and treaty positions. 

Currency Conversion Requirements 

All income and expenses reported on a U.S. tax return must be expressed in U.S. dollars, even if the transaction occurred in another currency. 

Use the prevailing exchange rate on the date of each transaction. If you’re converting many small transactions, the IRS sometimes allows for annual average exchange rates, especially for wages or recurring expenses. 

Be consistent in your approach and always document the source of your rates (e.g., IRS annual average, OANDA, Treasury FX rates). 

Frequently Asked Questions 

Can I claim education tax credits if my child studies at a foreign school? 

 Yes, if the school is eligible under the Department of Education list. 

Can I use 529 funds for international schools? 

 Yes, for tuition and some qualified expenses. Not for travel, insurance, or daily living costs. 

Does my child need to file taxes if they study abroad? 

 Yes, if income exceeds the IRS threshold or they have a foreign account over $10K. 

Can I still claim my child as a dependent if they live abroad? 

 Usually, yes—time abroad for school often still counts as living with you. 

Next Steps for Your Family 

Start by confirming your child’s international university qualifies for U.S. education benefits through the Federal School Code database. Document all education expenses and foreign account balances, and maintain detailed records for potential IRS review. 

1. Start with verification: Confirm your child’s school qualifies for U.S. education benefits using the Federal School Code list. 
2. Organize your records: Create a clear system for tracking expenses, income, account balances, and currency conversion.s 
3. Plan strategically: Consider the downstream effects of tax elections like FEIE vs. FTC, and how they interact with credits like the ACTC. 
4. Get professional guidance: The intersection of education, international finance, and expat status is complex—working with a qualified expat tax advisor helps ensure you make the best choices for your family. 

At Greenback Expat Tax Services, we’ve helped over 23,000 expats navigate international tax compliance while maintaining family benefits. Our team of CPAs and Enrolled Agents lives in 14 time zones, and many are expats themselves who understand the challenges of supporting children’s international education. 

International tax compliance isn’t one-size-fits-all. With expert support and proactive planning, you can protect your finances and maximize every available benefit. 

Need Help? 

Greenback specializes in helping U.S. families navigate the complex tax rules that come with studying and living abroad. Whether you’re exploring 529 options or preparing for your child’s first FBAR filing, our expat tax experts are here to help. 

Contact us, and one of our customer champions will gladly help. If you need specific advice on your tax situation, click below to get a consultation with one of our expat tax experts. 

This article is for informational purposes only and should not be considered tax advice. Individual circumstances vary, and you should consult a qualified tax professional for specific advice.