Streamlined Filing Cost: The Tax, Interest and Penalties You Pay

Streamlined filing cost: an introduction

The streamlined filing cost is the money you pay the IRS to catch up: any US tax owed for three years, plus interest on it, plus a 5% penalty if you use the Domestic route. For most Americans living in the UK, the Foreign route carries no penalty at all. Furthermore, UK tax credits often bring the US tax itself close to nil.

This article looks only at what you pay the IRS, not at professional fees. For the full picture of the programme, read our guide to IRS Streamlined filing. Our Streamlined filing service page explains how we prepare the returns and FBARs.

What the streamlined filing cost is made of

The streamlined filing cost has three parts. The first is tax, which is the US income tax shown on the late or amended returns. The second is interest, which runs from each original due date until you pay. The third is a penalty, which applies on the Domestic route only. Each part depends on your facts, so two people with similar incomes can pay very different amounts.

The IRS describes the programme on its Streamlined Filing Compliance Procedures page. It is open to people whose failure to file or report was non-wilful. Non-wilful conduct is conduct due to negligence, inadvertence or mistake, or a good-faith misunderstanding of the law.

What you do not pay

Equally important is what drops away. On the Foreign route, the IRS does not assess failure-to-file, failure-to-pay or accuracy-related penalties. It also waives information return penalties and FBAR penalties. Consequently, the main costs of being late simply disappear for eligible filers. However, penalties the IRS assessed before you applied are not abated.

Do you pay a penalty under the Streamlined procedures?

You pay no penalty on the Foreign route and a 5% penalty on the Domestic route. Which route you use depends on where you lived, not on which you prefer.

The Foreign route: no penalty

The Streamlined Foreign Offshore Procedures are the route for people living abroad. According to the IRS page for US taxpayers residing outside the United States, you qualify if you meet the non-residency test in any one or more of the most recent three years. In short, that means at least 330 full days outside the US and no US abode in that year. You certify non-wilful conduct on Form 14653. Therefore, most Americans settled in the UK qualify for the Foreign route.

The Domestic route: 5%

The Streamlined Domestic Offshore Procedures are for people who do not meet the non-residency test. The IRS page for US taxpayers residing in the United States sets the penalty. It equals 5% of the highest aggregate balance or value of your foreign financial assets. The IRS measures that across the three return years and the six FBAR years. Additionally, you must have filed original returns for the three years, and you amend them on Form 1040-X.

Why the 5% can be large

The 5% applies to balances, not to tax. For example, a UK pension, ISA and savings worth $400,000 in the peak year would mean a $20,000 penalty. That is true even if the US tax owed is nil. Consequently, the Domestic streamlined filing cost is often far higher than the Foreign one. Our article on Streamlined Foreign versus Domestic explains the two tests side by side.

How much US tax will the returns show?

Many UK residents owe little or no US tax for the three years, because UK tax is usually higher. The foreign tax credit and the foreign earned income exclusion do most of the work.

The foreign tax credit

The foreign tax credit is a US credit for income tax paid to another country. You claim it on Form 1116. For example, UK income tax on your salary can offset the US tax on the same salary. Because UK rates are often higher, the credit frequently wipes out the US tax on earned income. However, the credit works in separate categories, so passive income can still leave a balance.

The foreign earned income exclusion

The foreign earned income exclusion lets you leave some foreign earnings out of US taxable income. The IRS page on figuring the foreign earned income exclusion gives the cap. It is $130,000 for 2025 and $132,900 for 2026. Generally, we model both the credit and the exclusion, then use whichever leaves less tax overall.

Where tax often remains

In our experience, US tax tends to remain in three places. The first is UK investment income where UK tax was low, such as ISA interest and dividends. The ISA is tax-free in the UK but taxable in the US. The second is UK funds treated as passive foreign investment companies. The third is gains on a UK home above the US exclusion. Therefore, your streamlined filing cost depends far more on your investments than on your salary.

UK funds deserve a special mention. A passive foreign investment company is a non-US company or fund whose income or assets are mostly passive. Most UK unit trusts and OEICs fall within that definition. Without an election, gains on them can be taxed at the highest US rate with an interest charge. Consequently, a large fund holding can raise the tax far more than a large salary.

Converting UK figures into dollars

US returns are prepared in US dollars. Therefore, every UK figure on them is converted, from salary and UK tax paid to interest and gains. The IRS accepts a yearly average rate for most income, while some items use the rate on the day. The choice of rate moves the US figures a little, so we apply one method consistently across all three years. In addition, the FBARs use their own year-end conversion rule, which we apply separately.

How is interest worked out?

Interest runs on any unpaid tax from the original due date of each return until you pay. The rate is set by the IRS every quarter and compounds daily.

The IRS rate

The IRS page on quarterly interest rates sets the individual underpayment rate. It is the federal short-term rate plus 3 percentage points, compounded daily. For the fourth quarter of 2026, the IRS announced in IR-2026-98 that the rate stays at 7% a year. However, the rate can change each quarter, so the figure for earlier years differs.

Why interest is usually modest

Interest only runs on tax actually owed. Therefore, if credits bring the tax to nil, there is no interest either. Interest also cannot be waived under the programme, unlike penalties. Even so, for most UK filers it is a small part of the total.

The returns that carry interest

Only the three return years carry interest. The FBARs are reports, not tax returns, so they create no tax and no interest. In short, interest follows tax, and tax follows the three returns.

What does doing nothing cost instead?

Doing nothing can cost far more, because penalties grow over time and can be assessed per form. The Streamlined procedures exist to replace those penalties for non-wilful filers.

Late filing and late payment penalties

Outside the programme, the failure to file penalty is 5% of unpaid tax for each month or part month, up to 25%. For returns due after 31 December 2025, a minimum penalty applies when a return is over 60 days late. Additionally, the failure to pay penalty is 0.5% a month, also capped at 25%. Both rules come from section 6651 of the Internal Revenue Code.

Information return penalties

Information returns are forms that report assets rather than calculate tax. For example, section 6038D sets a $10,000 penalty for failing to file Form 8938. Similarly, section 6038 sets $10,000 for a missing Form 5471 on a foreign company. Continuing failures can add up to $50,000 more under each.

The cost of waiting

Waiting rarely lowers the bill. Each year you wait, another return and another FBAR fall due. Meanwhile, UK banks continue to report US account holders under FATCA. If the IRS contacts you first, you may no longer be able to use the Streamlined procedures at all. In other words, the programme rewards people who come forward before the IRS asks.

FBAR penalties

The FBAR is the annual report of foreign accounts filed with FinCEN. You file one when your accounts together exceed $10,000 at any time in the year, as the IRS FBAR page explains. The current non-wilful maximum in 31 CFR 1010.821 is $16,536 per violation. That figure applies to penalties assessed on or after 17 January 2025. Notably, the IRS removed its Delinquent FBAR Submission Procedures page in July 2026. Late FBARs on their own are therefore not a penalty-free route.

How do you pay the streamlined filing cost?

You pay the full tax and interest with the submission, and on the Domestic route the 5% penalty too. The IRS expects payment when you file, not later.

Paying the IRS from the UK

The Foreign route submission goes to the IRS by post, not electronically. The IRS says the full tax and interest due must be remitted with it. If you have a US bank account, the IRS page on Direct Pay payment types lists a reason code for offshore streamlined filing compliance. Otherwise, we explain the international payment options that suit you.

Working out the figure before you file

Because payment goes with the submission, you need the figure first. Therefore, we prepare the three returns, total the tax, and compute interest to the expected payment date. Consequently, you know your streamlined filing cost before anything is posted.

After you file

The IRS does not sign a closing agreement for a Streamlined submission. Instead, returns may be selected for audit like any other return. Moreover, if the IRS later finds the conduct wilful, the penalty protection falls away. Accurate, complete returns are the best protection.

A worked example of the streamlined filing cost

Consider a typical case. Hannah is 38, a US citizen who has lived in Bristol for nine years. She earns a UK salary, holds a cash ISA and a workplace pension, and has never filed US returns. Her accounts peaked at about $90,000.

First, Hannah qualifies for the Foreign route, because she spent far more than 330 days a year in the UK. Next, the foreign tax credit covers the US tax on her salary. However, her ISA interest is taxable in the US, leaving a few hundred dollars of tax across three years. Interest adds a small amount on top. As a result, her streamlined filing cost is only that tax and interest, with no penalty at all. On the Domestic route, the same balances would have meant a penalty of about $4,500. This is an illustrative example, not a real client.

What Hannah sends the IRS

Hannah posts three Form 1040 returns, each with Form 1116 for her UK tax. She also signs Form 14653, which sets out why her failure to file was non-wilful. Separately, she files six FBARs online through the FinCEN system. Finally, she pays the tax and interest on the day she posts the returns. She then keeps filing each year, so her position stays clean from then on.

How US UK Tax Experts can help

US UK Tax Experts prepares the three US returns and six FBARs that the Streamlined procedures need, from one file with your UK figures. We check which route you qualify for, then model the credit and the exclusion to keep the US tax as low as the rules allow. Additionally, we compute interest so you know the full streamlined filing cost before you post anything. If you have not filed for years, our article on what to do if you have not filed US taxes is a good next read.

Conclusion

The streamlined filing cost is usually smaller than people fear. On the Foreign route, you pay only tax and interest, and UK credits often reduce the tax to little or nothing. On the Domestic route, the 5% penalty on balances is the main expense. Either way, it is normally far less than the penalties the programme replaces.

Contact us

If you want to know your likely streamlined filing cost before you start, email hello@usuktaxexperts.com or use our contact form. Tell us how long you have lived in the UK and roughly what accounts you hold. We reply within one working day.