Foreign Currency: Taxes for Americans Abroad (2025 IRS Guide)

This guide covers “Foreign Currency” within taxes for americans abroad. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 54 (12/2025), Tax Guide for U.S. Citizens and Resident Aliens Abroad, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and for paying estimated tax are generally the same whether you are living in the United States or abroad.

Your income, filing status, and age generally determine whether you must file an income tax return. Generally, you must file an income tax return for any year in which your worldwide gross income is at least the amount shown for your filing status in Charts A through C under Filing Requirements in the Instructions for Form 1040 and 1040-SR.

Foreign Currency

You must express the amounts you report on your U.S. tax return in U.S. dollars. If you receive all or part of your income, or pay some or all of your expenses, in foreign currency, you must translate the foreign currency into U.S. dollars. How you do this depends on your functional currency. Your functional currency is generally the U.S. dollar unless you are required to use the currency of a foreign country.

You must make all federal income tax determinations in your functional currency. The U.S. dollar is the functional currency for all taxpayers except some qualified business units (QBUs). A QBU is a separate and clearly identified unit of a trade or business that maintains separate books and records.

For additional information on foreign currency, currency exchange rates, qualified business units, and links to currency exchange rates and resources, see IRS.gov/Individuals/International-Taxpayers/Foreign-Currency-And-Currency-Exchange-Rates, and IRS.gov/Individuals/International-Taxpayers/Yearly-Average-Currency-Exchange-Rates.

Blocked Income

You must generally report your foreign income in terms of U.S. dollars and, with one exception (see Fulbright Grant, later), you must pay taxes due on it in U.S. dollars.

If, because of restrictions in a foreign country, your income is not readily convertible into U.S. dollars or into other money or property that is readily convertible into U.S. dollars, your income is “blocked” or “deferrable” income. You can report this income in one of the following two ways.

• Report the income and pay your federal income tax with U.S. dollars that you have in the United States or in some other country.

• Postpone the reporting of the income until it becomes unblocked.

If you choose to postpone the reporting of the income, you must file an information return with your tax return. For this information return, you should use another Form 1040 or 1040-SR labeled “Report of Deferrable Foreign Income, pursuant to Rev. Rul. 74-351.” You must declare on the information return that you will include the deferrable income in your taxable income for the year that it becomes unblocked. You must also state that you waive any right to claim that the deferrable income was includible in your income for any earlier year. For detailed information, see Revenue Ruling 74-351, 1974-2 C.B. 144.

You must report your income on your information return using the foreign currency in which you received that income. If you have blocked income from more than one foreign country, include a separate information return for each country.

Income becomes unblocked and reportable for tax purposes when it becomes convertible, or when it is converted, into U.S. dollars or into other money or property that is convertible into U.S. currency. Also, if you use blocked income for your personal expenses or dispose of it by gift, bequest, or devise, you must treat it as unblocked and reportable.

If you have received blocked income on which you have not paid tax, you should check to see whether that income is still blocked. If it is not, you should take immediate steps to pay tax on it, file a declaration or amended declaration of estimated tax, and include the income on your tax return for the year in which the income became unblocked.

If you choose to postpone reporting blocked income and in a later tax year you wish to begin including it in gross income although it is still blocked, you must obtain the permission of the IRS to do so. To apply for permission, file Form 3115, Application for Change in Accounting Method, available at IRS.gov/Form3115. You must also request permission from the IRS on Form 3115 if you have not chosen to defer the reporting of blocked income in the past, but now wish to begin reporting blocked income under the deferred method. See the Instructions for Form 3115 for information on changing your accounting method.

Fulbright Grant

All income must be reported in U.S. dollars. In most cases, the tax must also be paid in U.S. dollars. If, however, at least 70% of your Fulbright grant has been paid in nonconvertible foreign currency (blocked income), you can use the currency of the host country to pay the part of the U.S. tax that is based on the blocked income.

Paying U.S. tax in foreign currency.

To qualify for this method of payment, you must prepare a statement that shows the following information.

• You were a Fulbright grantee and were paid in nonconvertible foreign currency.

• The total grant you received during the year and the amount you received in nonconvertible foreign currency.

• At least 70% of the grant was paid in nonconvertible foreign currency.

The statement must be certified by the U.S. educational foundation or commission paying the grant or other person having control of grant payments to you.

You should prepare at least two copies of this statement. Attach one copy to your Form 1040 or 1040-SR and keep the other copy for identification purposes when you make a tax deposit of nonconvertible foreign currency.

Figuring actual tax.

When you prepare your income tax return, you may owe tax or the entire liability may have been satisfied with your estimated tax payments. If you owe tax, figure the part due to (and payable in) the nonconvertible foreign currency by using the following formula.

You must attach all of the following to the return.

• A copy of the certified statement discussed earlier.

• A detailed statement showing the allocation of tax from amounts received in foreign currency and the rates of exchange used in determining your tax liability in U.S. dollars.

• The original deposit receipt for any balance of tax due that you paid in nonconvertible foreign currency.

Figuring estimated tax on nonconvertible foreign currency.

If you are liable for Estimated Tax Payments (discussed later), figure the amount you can pay to the IRS in nonconvertible foreign currency using the following formula.

If you must pay your host country income tax on your grant, subtract any estimated foreign tax credit that applies to your grant from the estimated tax on the blocked income.

Deposit of foreign currency with disbursing officer.

Once you have determined the amount of the actual tax or estimated tax that you can pay in nonconvertible foreign currency, deposit that amount with the disbursing officer of the Department of State in the foreign country in which the foundation or commission paying the grant is located.

Estimated tax installments.

You can either deposit the full estimated tax amount before the first installment due date or make four equal payments before the installment due dates. See Estimated Tax Payments, later.

Deposit receipt.

Upon accepting the foreign currency, the disbursing officer will give you a receipt in duplicate. The original of this receipt (showing the amount of foreign currency deposited and its equivalent in U.S. dollars) should be attached to your Form 1040 or 1040-SR or payment voucher from Form 1040-ES, Estimated Tax for Individuals, available at IRS.gov/Form1040ES. Keep the copy for your records.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 54 (12/2025), Tax Guide for U.S. Citizens and Resident Aliens Abroad: Filing Information — Filing Requirements — Foreign Currency — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.