The income test measures tax, not income, and the IRS says to take total tax less the foreign tax credit. What the credits cannot reach is what catches people.
Yes — foreign tax credits reduce the figure the covered-expatriate income test looks at, and the IRS says so in one sentence of its own instructions: you take your total tax less any foreign tax credit. What the credits do not reduce is everything else carried into that total-tax line, which is why "my credits wipe out my US tax" is not the same statement as "my income-test figure is nil".
That distinction is the whole of this article. It matters most to the reader it was written for: a long-term American resident in Britain who has claimed foreign tax credits for UK tax every year, has rarely written a cheque to the IRS, and has concluded from that the income test cannot possibly reach them. Usually they are right. The reason they are right is not the reason they think, and the exception is specific.
This page is only about the income test. The net worth and certification tests are covered in the three covered-expatriate tests and which one catches UK residents, and the broader decision in our guide to renouncing US citizenship.
The test sits in section 877A(g)(1)(A), by cross-reference to section 877(a)(2)(A). The IRS states it as your "average annual net income tax for the 5 years ending before the date of expatriation or termination of residency" being more than a specified amount adjusted for inflation.
Three things in that sentence do the work, and all three are routinely mis-read.
The threshold is indexed, and the amount that applies is the one for your year of expatriation rather than the year you file. A 2025 expatriation is tested against more than $206,000; a 2026 expatriation against more than $211,000. The 2027 amount has not been released, and should not be guessed at from the step between the other two.
This is the question most people actually have, and the answer is not a matter of inference. The Instructions for Form 8854 tell the filer exactly how to build each year's figure for Part II, Section A, line 1:
> "For each of the 5 tax years ending before the date of your expatriation, determine your total tax less any foreign tax credit. For 2024, use the amount shown on the 2024 Form 1040, line 24, less any amount reported on the 2024 Schedule 3 (Form 1040), line 1."
Schedule 3, line 1 is the foreign tax credit — the Form 1040 instructions label it "Line 1 Foreign Tax Credit" and carry the Part I total through to the face of the return. So the construction the IRS asks for is a tax figure net of the credit, line-referenced, on a published form.
Two practical notes follow from that. The first is that the number has to come off the filed returns, year by year, rather than from memory or from an impression of how much tax you "usually" pay. The second is that the instruction is a mechanical shortcut, not a restatement of the statutory definition: section 877(a)(2)(A) defines the figure by cross-reference to section 38(c)(1), which is built from regular tax liability and the alternative minimum tax reduced by particular credits. On most facts the two routes land in the same place. Where they would not — a return with unusual components, or an average sitting within touching distance of the threshold — which construction governs is a question for the professional signing the form, not something to settle from a worksheet. We flag rather than resolve it, and we would rather a client knew the question existed.
Here is the part that no amount of foreign tax credit fixes, and the reason the first paragraph of this article is phrased the way it is.
The instruction starts you at total tax. That line is the bottom-line tax on the return, and it carries more than income tax. The net investment income tax is the clearest example for this reader: the IRS's own questions and answers state that "For individuals, the tax will be reported on, and paid with, the Form 1040" — and, on credits, that the foreign tax credit and similar credits are "allowed as credits only against the tax imposed by chapter 1 of the Code", so they do not reduce it. The IRS adds that taking foreign taxes as a deduction instead may reduce net investment income, which is a different lever with its own consequences.
Put those together and the shape of the problem appears. A UK-resident American with substantial investment income pays UK tax on it, credits that UK tax against the US income tax, and may still carry a US charge on the same income that the credit never touches. That charge is reported on, and paid with, the Form 1040 — which means it is inside the figure the Form 8854 instruction tells you to start from, before you subtract the credit.
For most people this is a rounding issue against a six-figure threshold. For a household with a large portfolio, a business sale, or several years of concentrated investment income, it is the difference between a figure near zero and a figure that is genuinely worth computing. The honest answer to "can my credits take the income test to nil?" is: they can take the income-tax component close to it, and they cannot take the rest of the line anywhere at all.
The window is more interesting than it looks, because for this reader it often spans a change of country.
It is worth saying plainly, because it is where this reader's real risk sits. Clearing the income test clears one test of three. The net worth test — $2 million, measured on the expatriation date, and not indexed — catches ordinary British households whose wealth is a home and a pension. The certification test, covering the 5 tax years preceding expatriation, has no threshold at all and is failed by paperwork rather than by wealth. Both are worked through in the three covered-expatriate tests, and the catch-up question in the five years of tax compliance you need before renouncing.
1. Fix the expatriation date you are modelling. Every count in the test runs from it.
2. Identify the 5 tax years ending before that date, and pull the filed return for each one.
3. For each year, take total tax and subtract the foreign tax credit claimed, as the Form 8854 instruction directs, using the line references for that year's form rather than the current year's.
4. Average the five figures, and compare the average with the threshold for your year of expatriation — not the year you file.
5. Have the result reviewed before it is relied on, particularly if the average is anywhere near the threshold or if the window contains joint returns, amended returns or a credit carried between years.
We build this figure from the filed returns rather than from estimates, test it against the threshold for the actual expatriation date, and say plainly when the answer is close enough that it needs a second look. Every return and every form is reviewed and signed off by a licensed professional — an IRS Enrolled Agent who is also ACCA-qualified — so the US computation and the UK position behind the credits are read by one person rather than two who never speak.
We do not advise anyone to renounce; that is a decision about citizenship and it belongs to the person making it. What we do is make sure the numbers in front of them are the real ones. You can see what this work costs, book a consultation, or model the figures yourself first with our calculators.
The indexed amounts above are tied to the year of expatriation, and the 2027 figures have not been released. Confirm the amount for your own year before acting on it.