U.S. Taxes When Living in Ecuador: What You Still Owe

The Uncomfortable Truth: You Still Have to File

The United States is one of only two countries in the world (the other being Eritrea) that taxes its citizens on worldwide income, regardless of where they live. Moving to Ecuador does not change your obligation to file a U.S. tax return every year. It does not matter if you earn all your income in Ecuador, if you have not set foot in the U.S. in years, or if you pay taxes to Ecuador. The IRS expects to hear from you.

The good news is that several provisions in the U.S. tax code exist specifically to prevent double taxation for Americans living abroad. If you understand these tools and use them correctly, your actual U.S. tax bill may be zero or close to it. But you absolutely must file. The penalties for not filing are severe and compounding.

This guide covers everything you need to know about U.S. tax obligations while living in Ecuador in 2026.

Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion is the single most important tax provision for Americans abroad. For the 2025 tax year (filed in 2026), the FEIE allows you to exclude up to $130,000 of foreign earned income from U.S. taxation. This amount is adjusted annually for inflation.

How to Qualify

You must meet one of two tests:

Bona Fide Residence Test: You are a bona fide resident of Ecuador (or another foreign country) for an entire calendar year. This means you have established a genuine home in Ecuador, you intend to stay indefinitely, and you have a resident visa. The IRS looks at the totality of your circumstances — do you have a lease, local bank accounts, community ties?

Physical Presence Test: You are physically present in a foreign country (or countries) for at least 330 full days during any 12-month period. This is the easier test to meet and does not require residency. A "full day" means midnight to midnight. Days of international travel (when you are on a plane crossing borders) typically do not count.

What Counts as "Earned Income"

The FEIE only applies to earned income — money you receive for services you perform. This includes:

• Salary and wages
• Self-employment income
• Freelance and consulting income
• Business income where you are actively involved

The FEIE does not apply to:

• Social Security benefits
• Pension and retirement distributions (401k, IRA)
• Investment income (dividends, capital gains, interest)
• Rental income (generally considered passive)

Filing the FEIE

You claim the FEIE using IRS Form 2555, attached to your regular 1040 return. You must file this form every year you want the exclusion — it is not automatic, and if you fail to claim it, the IRS will not apply it for you.

Foreign Housing Exclusion

In addition to the FEIE, you can exclude certain housing expenses above a base amount using the Foreign Housing Exclusion (also on Form 2555). This covers rent, utilities, insurance, and other reasonable housing costs in Ecuador. The base amount for 2025 is approximately $19,500 (30% of the FEIE limit), and expenses above that threshold may be excludable up to a cap that varies by location.

Foreign Tax Credit (FTC)

If you pay income taxes to Ecuador on the same income that the U.S. wants to tax, you can claim a Foreign Tax Credit on IRS Form 1116. This provides a dollar-for-dollar credit against your U.S. tax liability for taxes paid to Ecuador.

You cannot use both the FEIE and the FTC on the same income. However, you can use the FEIE for earned income and the FTC for income not covered by the FEIE (such as investment income that is taxed by Ecuador).

For most expats in Ecuador earning under $130,000, the FEIE eliminates your U.S. tax on earned income, and the FTC handles any remaining overlap. The result is often zero U.S. tax owed.

FBAR: Report Your Foreign Bank Accounts

The Report of Foreign Bank and Financial Accounts (FBAR), officially known as FinCEN Form 114, is a separate filing requirement from your tax return. If the combined value of all your foreign financial accounts exceeds $10,000 at any point during the calendar year, you must file an FBAR.

Key Details

This Applies to Your Ecuador Accounts

Once you open a bank account at Banco Pichincha, Produbanco, or any Ecuadorian bank, and the balance of that account plus any other foreign accounts exceeds $10,000 at any point during the year, you must file an FBAR. This catches many expats off guard because they do not think of their everyday checking account as a "foreign financial account" — but it is.

FATCA: Form 8938

The Foreign Account Tax Compliance Act (FATCA) created an additional reporting requirement through Form 8938 (Statement of Specified Foreign Financial Assets). This is filed with your tax return, not separately like the FBAR.

Filing Thresholds for Americans Living Abroad

These thresholds are higher for expats than for U.S. residents. Form 8938 covers a broader range of assets than the FBAR, including foreign stocks, partnerships, and certain foreign retirement accounts. Yes, there is overlap between FBAR and FATCA, and yes, you may need to report the same accounts on both.

Ecuadorian Tax Obligations

Ecuador taxes residents on their worldwide income, similar to the U.S. However, Ecuador's tax system is more straightforward for most expats.

Key Points

• Ecuador's income tax rates for 2026 range from 0% to 37% on a progressive scale
• The first ~$11,902 of income is exempt from Ecuadorian income tax
• Social Security income, pension income, and retirement distributions received from the U.S. are generally taxable in Ecuador unless a specific exemption applies
• Ecuador requires an annual tax declaration (formulario) filed through the SRI (Servicio de Rentas Internas)
• The fiscal year in Ecuador runs January 1 to December 31
• Filing deadline for individuals is typically in March (exact date depends on your cedula number)

Double Taxation Concern

There is no tax treaty between the United States and Ecuador. This means there is no bilateral agreement to prevent double taxation. However, the combination of the FEIE, the Foreign Tax Credit, and Ecuador's own exemptions usually eliminates or minimizes actual double taxation in practice. It takes careful planning, which is why working with a tax professional familiar with both systems is highly recommended.

Social Security from Ecuador

If you receive U.S. Social Security benefits while living in Ecuador:

• The U.S. will continue to pay your Social Security benefits. Living in Ecuador does not affect your eligibility or payment amount.
• Social Security payments can be deposited into a U.S. bank account or sent internationally via Direct Express.
• Social Security income is generally not subject to Ecuadorian income tax for residents over 65, as Ecuador exempts a significant portion of retirement income for seniors.
• However, Social Security income is potentially subject to U.S. taxation depending on your total income. Up to 85% of your benefits may be taxable if your combined income exceeds certain thresholds.

Filing Deadlines for Americans Abroad

The automatic extension to June 15 is a common benefit that many expats overlook. If you live and work outside the U.S. on April 15, you automatically get until June 15 to file without requesting an extension. Attach a statement to your return explaining that you qualify. Note that this does not extend the payment deadline — if you owe taxes, interest starts accruing from April 15.

Choosing an Expat Tax Professional vs. DIY

When to Hire a Professional

You should strongly consider an expat-specialized CPA or tax preparer if:

• This is your first year filing from abroad
• You have self-employment income
• You have rental properties in the U.S.
• You have complex investment portfolios
• You need to file back returns or use the Streamlined Filing Compliance Program
• You have both FEIE and FTC situations
• You want peace of mind that your FBAR and FATCA filings are correct

What to Look For

• Experience specifically with U.S. expat taxation (not just a regular CPA)
• Familiarity with Ecuador's tax system
• Ability to prepare both U.S. and Ecuadorian returns or coordinate with a local accountant
• Fees typically range from $500-2,000 for a straightforward expat return, $1,500-4,000 for complex situations

DIY Options

If your situation is straightforward (W-2 income or simple self-employment, standard FEIE, basic FBAR), you may be able to handle your own filing using:

• TurboTax — supports Form 2555 and basic expat situations
• H&R Block Expat Tax Services — online service designed for Americans abroad
• FileAbroad — built specifically for U.S. expats, streamlined interface for FEIE, FBAR, and FATCA filings

Common Mistakes Expats Make

1. Not filing at all. The penalties for non-filing are far worse than any tax you might owe. Even if you owe nothing, file the return.

2. Forgetting the FBAR. This is a separate filing from your tax return, and the penalties are disproportionately harsh. Set a calendar reminder.

3. Mixing up FEIE and FTC. You cannot apply both to the same income. Choose the one that benefits you more, and apply the other to different income streams.

4. Ignoring Ecuadorian filing obligations. Just because you filed in the U.S. does not mean you are compliant in Ecuador. You may need to file with the SRI as well.

5. Not reporting all foreign accounts. Joint accounts, business accounts where you have signature authority, and even some mobile payment accounts may need to be reported on the FBAR.

6. Assuming the FEIE is automatic. You must actively claim it every year by filing Form 2555. If you miss a year, you may need to request IRS permission to claim it again.

7. Paying estimated taxes when you don't owe. If the FEIE covers all your earned income, you likely do not need to make quarterly estimated payments. But confirm this with a professional.

The Streamlined Filing Compliance Program

If you are already living abroad and realize you have not been filing, do not panic. The IRS offers the Streamlined Filing Compliance Procedures for non-willful non-filers. This program allows you to:

• File the last 3 years of tax returns
• File the last 6 years of FBARs
• Pay any taxes owed (with interest)
• Avoid most penalties

The key word is "non-willful." If you simply did not know about the requirement, this program is designed for you. If you deliberately hid income, this program does not apply and you need a tax attorney.

Final Thoughts

U.S. tax compliance while living in Ecuador is not optional, but it is manageable. The FEIE, Foreign Tax Credit, and proper FBAR/FATCA filings keep most expats on the right side of the IRS with a tax bill of zero or near zero. The investment in understanding these requirements — or hiring someone who does — pays for itself many times over in avoided penalties and peace of mind.

Start your planning before you move. Gather your financial documents, research expat tax professionals, and understand which provisions apply to your specific income sources. Your future self, sitting in a cafe in Cuenca with zero tax stress, will thank you.