American expats are living the dream: working remotely from Bali, reviewing restaurants in Barcelona, and building online businesses from beachside cafés in Mexico. The digital nomad lifestyle looks perfect on Instagram.
However, there’s a dark side that nobody talks about at networking events in Chiang Mai’s co-working spaces.
US taxes.
If you’re an American citizen living abroad – whether you’ve been gone three years, five years, or even a decade – and you haven’t filed taxes in years, rest assured that you’re not alone. Thousands of expats discover, often at the worst possible moment, that they are supposed to file US tax returns no matter where they live.
The good news? There’s a way to fix this without being hit with penalties. It’s called the Streamlined Procedure, and it could be the lifeline you need.
The wake-up call nobody wants
Imagine this: An American expat living in Portugal. Or Thailand. Or Mexico. They’ve built a life there. They might be running an online business, freelancing or working remotely for a US company.
They pay taxes wherever they live. They’re good citizens.
Then, one day, they try to open a bank account, renew their passport or receive an inheritance. Suddenly, someone asks: ‘When did you last file your US taxes?’
That’s when the panic sets in.
They realise that they haven’t filed taxes in years. Maybe they’ve never filed taxes before as an expat. They thought that paying taxes in their host country was enough.
It isn’t.
What happens if you never file taxes?
Let’s talk about the situation facing American expats. If they haven’t filed taxes for two years, five years, ten years or longer, the IRS will impose penalties.
The penalties breakdown
| Penalty type | Rate | Maximum | When it applies |
| Didn’t file a tax return | 5% per month of unpaid taxes | 25% | Often waived if you don’t owe after applying expat protections |
| Didn’t pay taxes owed | 0.5% per month of unpaid taxes | 25% | Plus interest from when the return was due |
| Missed FBAR (non-willful) | Up to $16,536 per form | Per report | If foreign accounts totalled over $10,000 aggregate |
| Missed FBAR (willful) | Up to $165,353 or 50% of the balance | Per report | If you intentionally concealed accounts |
The FBAR penalties
This is where it gets scary.
If the total value of all your foreign bank accounts exceeded $10,000 at any time during the year – even if only for a day – you were required to file an FBAR (Foreign Bank Account Report).
Most expats aren’t aware of this requirement.
For digital nomads who have built up savings abroad over the years, these penalties could wipe out their finances entirely. This is precisely why the federal tax amnesty programme exists.
Will you actually owe money?
Before you start to panic, here’s what most Americans living abroad discover:
They owe little or nothing.
The foreign tax credit
If you pay income tax in your host country, you may be eligible for the Foreign Tax Credit. Every dollar paid in foreign taxes counts as a credit against US taxes.
Real example: James runs a digital marketing agency in Spain. He earned $75,000 USD last year and paid approximately $18,000 to the Spanish tax authorities.
His US tax bill would have been around $11,000. The Foreign Tax Credit offset the full amount.
James hasn’t filed taxes in five years. When he finally caught up using the streamlined procedure, he owed nothing in back taxes.
The foreign earned income exclusion
Another option is the Foreign Earned Income Exclusion (FEIE). If you meet certain physical presence or residence requirements abroad, you can exclude up to $132,900 (£104,000) of foreign earned income from US taxation.
For most digital nomads, the Foreign Tax Credit is more beneficial as it addresses tax already paid. However, depending on your situation, you might be able to combine both protections strategically.
What is the streamlined procedure?
The IRS created the Streamlined Filing Compliance Procedures as a federal tax amnesty programme for individuals whose non-compliance was unintentional.
It is designed for expatriates who did not file because of:
- Confusion about the rules
- Not knowing that US citizens had to file from abroad
- Bad advice (or no advice)
- Simply putting it off due to complexity or life circumstances
What “non-willful” means
To qualify for the streamlined procedure, your failure to comply must be non-wilful, meaning that it resulted from negligence, inadvertence, a mistake, or a good-faith misunderstanding of the law.
Common qualifying situations:
- Didn’t know US citizens had to file from abroad
- Thought paying taxes in the host country was enough
- The accountant didn’t know expat tax rules
- “Accidental Americans” (born in the US but raised elsewhere)
- Intended to file but found the process overwhelming
Disqualifying situations:
- Deliberately hid income or accounts
- Lied to the IRS
- Knowingly chose not to comply after understanding the requirement
If you are unsure whether your situation qualifies as non-wilful, seek professional advice before submitting anything.
How the streamlined procedure works
The streamlined procedure requires the filing of tax returns for the most recent three years, for which the US return due date (or properly extended due date) has already passed. It also requires the filing of FBARs for the most recent six years, for which the FBAR due date has passed.
What you file
| What you file | How many years | Why |
| Tax returns (Form 1040) | Most recent 3 years with passed due dates | Report income and claim tax protections |
| Foreign bank reports (FBAR) | Most recent 6 years with passed due dates | Disclose foreign accounts over $10,000 aggregate |
| Non-willful certification (Form 14653) | Once | Explain why failure to comply was unintentional |
| Tax payment (if owed) | As applicable | Pay any taxes plus interest (often $0) |
Step-by-step process
Step 1: Gather your records
You need the required years:
- Income statements (freelance invoices, employment contracts, business records)
- Bank statements showing maximum account balances
- Foreign tax returns and payment receipts
- Any US income documentation
If you don’t have perfect records, use the best information available and document how you calculated the figures.
Step 2: Prepare your tax returns
File Form 1040 for each required year. Most expats also need:
- Form 1116 for Foreign Tax Credit
- Form 2555 for Foreign Earned Income Exclusion (if applicable)
- Schedule C if self-employed or running an online business
- Form 8938 if foreign assets exceeded thresholds:
- Single: $200,000 at year-end or $300,000 anytime
- Married filing jointly: $400,000 at year-end or $600,000 anytime
Step 3: File your FBARs
Report every foreign financial account when the aggregate value exceeded $10,000 at any point during the year.
This includes:
- Business bank accounts
- Personal checking and savings
- Investment accounts
- Payment platforms (PayPal, Wise, Revolut), if they meet thresholds
- Sometimes, cryptocurrency exchange accounts
File through the FinCEN BSA E-Filing System, reporting the highest balance each account reached during the year in US dollars.
Step 4: Write your Form 14653 statement
This written explanation is crucial. It must clearly demonstrate why the filing did not happen, emphasising that the mistakes arose from confusion, a lack of knowledge or inadvertent error rather than intentional fraud.
Many people work with professionals on this statement, as eligibility for the programme is directly determined by it.
Step 5: Mail your submission
Streamlined submissions must be sent to the IRS in paper form; electronic submissions are not accepted. FBARs must be filed online separately through FinCEN.
Processing time: Typically 6–12 months. If no taxes are owed, the IRS will not usually send confirmation. In this case, no news is good news.
Why act now
Too many digital nomads keep putting this off. “I’ll deal with it next year,” they say.
Here’s why that’s risky:
- The streamlined procedures won’t be around forever (the IRS has closed similar programs with little warning)
- Banks worldwide now report US citizen accounts to the IRS under FATCA
- If the IRS contacts you first, you lose streamlined eligibility
- Penalties and interest keep growing
- You can only claim refunds for the past three years
What if you don’t qualify?
If your situation doesn’t qualify for the streamlined tax amnesty program, other options exist:
- Delinquent FBAR Submission Procedures: You reported all income but missed FBARs
- Delinquent International Information Return Submission: You missed forms like 5471 or 8938
- Voluntary Disclosure Practice: For willful cases (higher penalties apply)
Should you hire help?
Filing unfiled tax returns gets complicated quickly with:
- Self-employment or online business income
- Multiple bank accounts across countries
- Rental properties
- Investment portfolios
- Any uncertainty about na on-willful qualification
A qualified professional ensures:
- Every available tax break gets claimed
- Form 14653 is completed properly
- No disqualifying mistakes get made
Bottom Line
Most Americans living abroad who haven’t filed tax returns for years find that, once the Foreign Tax Credit or Foreign Earned Income Exclusion has been applied, they owe very little – or nothing.
The real risk isn’t the tax bill.
It’s the FBAR penalties for unreported accounts. There’s also the constant stress of non-compliance while trying to live the digital nomad dream abroad.
The streamlined procedure solves both these problems.
Expats who have completed this process describe the sense of relief as life-changing – finally being in the clear with the IRS and able to focus on developing their international lifestyle without fear.
If you’ve been putting this off, now’s the time. The digital nomad lifestyle is incredible. Don’t let unfiled taxes ruin it.
