Moving back to the U.S.? What changes for your taxes
Coming home after years abroad changes more on your tax return than people expect. The year you move is split between two lives, the reporting limits drop, and any years you missed are best fixed before the window for the no-penalty route closes.
The short version
- In the year you move, foreign wages from the months you qualified abroad can usually still be excluded.
- Foreign accounts, pensions and funds stay reportable after you move, and the Form 8938 limits get lower.
- Behind on filing? The Streamlined Foreign procedures, with no penalty, may still be open to you through an earlier year abroad.
- Your new state can tax you from the day you arrive.
1The year you move
Your U.S. return for the year you move covers the whole year, as always. Foreign wages you earned before the move can still be excluded if you meet the 330-day test for a 12-month period that includes them, or you were a bona fide resident abroad. The exclusion limit is cut to match the days you qualified in that year.
Foreign tax you paid on the same income can still be credited, so a year in both countries rarely means paying twice.
2What you bring with you
- Foreign bank accounts still go on your FBAR every year they total more than $10,000.
- Form 8938 limits drop. Living in the U.S., Form 8938 applies from $50,000 at year end or $75,000 at any time if you're single, instead of $200,000 or $300,000 abroad. Our Form 8938 checker works it out.
- Foreign pensions generally stay reportable, and payments from them are taxable when you receive them, with treaty rules for some countries.
- Foreign funds stay PFICs. Moving doesn't change their tax, but it's a natural time to decide whether to keep or sell, and selling can have tax in both countries.
- A home abroad: rent it out and the rent goes on your U.S. return. Sell it within three years of moving out and the $250,000 home exclusion may still apply. See property abroad.
3If you're behind
The Streamlined Foreign Offshore Procedures, with no penalty, need you to meet the non-residency test in one of the last three years. If you've just moved back, an earlier year abroad may still count. That window closes a year at a time. The other routes, including the domestic version, are compared in IRS tax amnesty options for expats.
Once no recent year qualifies, the Streamlined Domestic Offshore Procedures apply instead, with a 5% penalty.
Moved back recently? Check the no-penalty route before it closes.
4Your state
The state you settle in can tax you as a resident from the day you arrive, often on your worldwide income. Many states don't allow the foreign earned income exclusion or a credit for foreign taxes; California is one. So foreign income you bring with you, like a pension or investment income, can carry state tax even when the federal tax is covered.
Common questions
Do I need to close my foreign accounts?
No. Keep them if they're useful, and keep reporting them.
Can I move my foreign pension into a U.S. retirement account?
Usually not tax-free. Transfers from foreign plans into IRAs or 401(k)s generally don't count as rollovers.
Do my work years abroad count for U.S. Social Security?
With a social security agreement, your work credits from the other country can count toward a U.S. benefit. See U.S. Social Security abroad.
Moving back to the U.S.? Let's settle the years abroad first.
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Reviewed by Lewis Grunfeld, CPA. Based on IRS Publication 54 and the IRS's published Streamlined Filing Compliance Procedures. General information, not advice for your specific situation.