How do I report foreign income on my US tax return in 2025?

As a U.S. citizen or resident alien, the fundamental rule is that you are taxed on your worldwide income, regardless of where it is earned or where the income is located. Reporting foreign income correctly in 2025 requires determining the type of income and whether you qualify for any relief mechanisms like the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC).

### Step 1: Determine the Type of Foreign Income

Foreign income generally falls into two categories for U.S. tax purposes:

• Foreign Earned Income: Wages, salaries, professional service fees, and self-employment income earned while working abroad.
• Foreign Passive Income: Interest, dividends, rental income, capital gains, and pensions received from foreign sources.

### Step 2: Reporting on Form 1040

All income must first be reported on your standard Form 1040, U.S. Individual Income Tax Return, using U.S. dollars (converted using IRS acceptable exchange rates).

• Wages/Salary: Report foreign wages on Line 1a (Wages, salaries, tips, etc.) and enter the corresponding U.S. dollar amount on Line 1b. If you qualify for the FEIE, you will claim the exclusion via Form 2555.
• Investment Income: Report foreign interest and dividends on Schedule B, Interest and Ordinary Dividends, and foreign capital gains on Schedule D.

### Step 3: Claiming Relief (FEIE vs. FTC)

To avoid double taxation, you must choose the appropriate mechanism for foreign earned income:

Note: You generally cannot claim both the FEIE and the FTC on the same dollar of income. If your foreign tax rate is higher than your U.S. effective tax rate, the FTC is often better. If your foreign income is below the FEIE limit, the FEIE is usually simpler and more beneficial.

### Step 4: Reporting Foreign Tax Paid (If Using FTC)

If you pay income taxes to the foreign country and choose to claim the FTC, you must complete and attach Form 1116. This form calculates the allowable credit based on the lower of the foreign tax paid or the U.S. tax imposed on that foreign income.

### Mandatory Reporting Thresholds

Beyond income reporting, U.S. persons must also be aware of informational reporting requirements:

• Foreign Bank Account Reporting (FBAR): If the aggregate value of all foreign financial accounts exceeds USD 10,000 at any time during the year, you must file FinCEN Form 114 electronically with the Financial Crimes Enforcement Network (FinCEN). This is not filed with the IRS.
• Form 8938 (FATCA): If your specified foreign financial assets exceed higher thresholds (e.g., USD 50,000 for single filers living in the U.S.), you must report them on Form 8938, Statement of Specified Foreign Financial Assets, attached to your Form 1040.

Failure to comply with FBAR or Form 8938 reporting can result in severe civil and criminal penalties, separate from income tax penalties.