Answered September 2026

If no closer-connection exception applies, you must report the Croatian-paid wages as a U.S. tax resident, but Croatian tax generally cannot offset U.S. tax on work performed entirely in the United States because those wages are U.S.-source and treaty re-sourcing is not available.

“I am a Croatian citizen who will pass the Substantial Presence Test this year while working in the US, but I am paid entirely by my Croatian employer into a Croatian bank account. Since there is no US-Croatia tax treaty, how does the Foreign Tax Credit (Form 1116) work to offset US taxes with the taxes I already pay in Croatia? Also, what are the FBAR/FATCA reporting requirements for my foreign bank accounts, and how do state taxes apply to my situation?”

Summary

The absence of an effective treaty does not eliminate the ordinary statutory foreign tax credit. The hard part is the source rule: Croatian tax helps currently only to the extent Form 1116 has foreign-source income in the appropriate category, while the account-reporting tests are separate threshold calculations.

Your federal result turns on your actual 2026 U.S. day count and where you physically performed the work.

Qualify for the closer-connection exceptionunder 183 days

This narrow route can apply despite the only if you were physically present in the United States fewer than 183 days in 2026, maintained a Croatian tax home for the entire year, had the required closer connection, and had not taken steps toward lawful permanent residence. Claim the on Form 8840; your resident-alien consequences then change. (IRC 7701(b) Closer Connection Exception/Form 8840.)

Perform all services in the United Statesno current FTC

All of those wages are U.S.-source regardless of the Croatian payer and account. If you have no other in the same general category, the Form 1116 numerator contains no foreign-source wages, so Croatian tax on those wages generally produces no current FTC; any otherwise-creditable excess may potentially carry back 1 year and then forward 10 years. You may instead elect an itemized deduction for eligible foreign income tax, but generally cannot credit and deduct the same year's eligible tax. (26 CFR 1.861-4; IRC 904(a); Instructions for Form 1116.)

Perform some services in Croatiapartial FTC

Allocate compensation by workdays: U.S. workdays produce U.S.-source wages, while Croatian workdays produce foreign-source wages. On the general-category Form 1116, the current credit is generally the lower of qualifying Croatian tax allocated to that income or the U.S. tax allowed by the foreign tax credit limitation. (26 CFR 1.861-4; 26 CFR 1.862-1; Instructions for Form 1116.)

Use treaty re-sourcingnot in force

Form 1116 permits re-sourcing when an applicable income-tax treaty treats U.S.-source income as foreign-source. The official April 28, 2026 Treasury release says the U.S.–Croatia package still required domestic approval and later mutual notification before entry into force, so this route is not available on the official 2026 status found. (Treasury U.S.–Croatia Protocol Release; Instructions for Form 1116.)

Form 1116 applies the separately to each income category, and only final qualifying Croatian income tax enters the calculation.

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Watch out for

The bank account does not source the wagesPayment by a Croatian employer into a Croatian account does not make the wages foreign-source. Compensation for services physically performed in the United States is U.S.-source; for work in both countries, allocate it by workdays. (26 CFR 1.861-4.)
The signed treaty is not usable yetTreasury stated on April 28, 2026 that the protocol and 2022 treaty still required U.S. Senate advice and consent and would enter into force only after both countries completed and notified each other of their domestic procedures. Regular statutory FTC rules remain available, but treaty re-sourcing is not available for 2026 on the official material found. (Treasury U.S.–Croatia Protocol Release; Instructions for Form 1116.)
Only final, qualifying Croatian tax countsCroatian withholding is not automatically the credit amount. The tax must be imposed on you, paid or accrued, be your legal and actual liability, and be an income tax or tax in lieu of one; refunds reduce the qualifying amount. (IRS Foreign Tax Credit Qualification Rules.)
FBAR and Form 8938 are separateAttaching to your tax return does not replace a required . Apply both tests independently, even when they report the same Croatian account. (Form 8938 and FBAR Comparison.)
A September estimated-tax date is nearIf Croatian payroll is not withholding U.S. federal tax and the 2026 Form 1040-ES tests are met, the next listed installment date is September 15, 2026, followed by January 15, 2027. Pay through IRS Direct Pay at https://www.irs.gov/payments. (2026 Form 1040-ES.)
Your first resident year may be dual-statusUnless an exception applies, your SPT residency normally begins on your first U.S. day of 2026. If you were a nonresident before that date, you may be : worldwide income is reported for the resident period, generally only U.S.-source income for the nonresident period, and a dual-status taxpayer not filing jointly cannot take the standard deduction. (IRC 7701(b) Residency Starting Date; Instructions for Form 1040-NR.)
Wages and interest use different FTC categoriesCroatian wage tax is generally in the general category, while Croatian bank interest is generally passive-category income. Form 1116 applies its limit separately by category, so foreign interest normally cannot create credit capacity for Croatian tax on wages. (Instructions for Form 1116.)

Next steps

These steps establish your residency period, calculate any usable Croatian tax credit, and complete the separate account reports in dependency order.

Before preparing the return

Count your 2026 U.S. days and set the residency start

If you were in the United States fewer than 183 actual days in 2026 and meet every tax-home, closer-connection, and immigration condition, claim the exception on Form 8840 with your 2026 Form 1040-NR by that return's due date, including extensions. Otherwise, your SPT residency normally starts on your first U.S. day in 2026; if that creates a status change, prepare the resident-year return as a dual-status Form 1040 with the required nonresident-period statement. (IRC 7701(b) Residency Starting Date; Form 8840; Instructions for Form 1040-NR.)

Requirements

2024–2026 travel-day calendar
Visa and immigration-status history
Croatian tax-home evidence
Any permanent-residence application history

Before calculating Form 1116

Build a workday, income, tax, and account ledger

Convert income and qualifying Croatian tax to U.S. dollars under the applicable return and FBAR conversion rules. Allocate wages by physical workdays: U.S. days are U.S.-source and Croatian days are foreign-source. Keep wage taxes in the general category and bank-interest items in the passive category. (26 CFR 1.861-4; 26 CFR 1.862-1; Instructions for Form 1116.)

Requirements

Gross Croatian wages and pay statements
Dates and countries where each workday occurred
Final Croatian income-tax assessment and withholding records
Expected Croatian refunds
Croatian bank interest
Highest value of every foreign account during 2026

Next installment: September 15, 2026

Make the 2026 estimated-tax payment if required

Use 2026 Form 1040-ES. Payment is generally required when you expect to owe at least $1,000 after withholding and refundable credits and those amounts are below the smaller of 90% of 2026 tax or 100% of 2025 tax, with the prior-year test available only when the 2025 return covered 12 months. Pay electronically without a separate filing fee at https://www.irs.gov/payments; the remaining listed installment date is January 15, 2027. (2026 Form 1040-ES.)

Requirements

Projected 2026 federal tax
Expected U.S. withholding and refundable credits
Tax shown on a full 12-month 2025 return, if any

With the 2026 income-tax return

Prepare Form 1116 and Form 8938 with the federal return

Attach a separate Form 1116 for each applicable category. The credit is the lower of qualifying foreign tax or that category's limitation; if all work was in the United States and there is no other foreign-source general-category income, the current wage-tax credit is generally zero. For Form 8938, domestic thresholds are over $50,000 at year-end or $75,000 anytime for unmarried or married-filing-separately taxpayers, and over $100,000 or $150,000 for joint filers. Higher living-abroad thresholds require a foreign tax home and the applicable overseas-presence test; that qualification is not established by the supplied facts. A partial-year specified individual's reporting period begins when that status begins. Form 8938 is attached to the return and shares its deadline, including extensions. (IRC 904; Instructions for Forms 1116 and 8938.)

Requirements

Completed source allocation
Final qualifying Croatian income tax
Filing status
Year-end and annual-maximum foreign-asset values

Due April 15, 2027; automatic extension to October 15

E-file the 2026 FBAR separately

If the aggregate foreign-account value exceeded $10,000 at any time during your resident period, file FinCEN Form 114 electronically at https://bsaefiling.fincen.gov/. Do not attach it to Form 1040, and no extension request is required for the automatic October 15, 2027 deadline. Keep the account records for five years. If the threshold was crossed only before residency began, that partial-year FBAR edge remains unresolved in the official material fetched. (FinCEN Form 114.)

Requirements

Account number and type
Account owner's name
Croatian bank name and address
Maximum 2026 value of each account

After identifying the jurisdiction

Keep the state calculation separate

Federal resident-alien status does not decide state residency. Because no state or locality was supplied, an exact state return, wage-source rule, filing deadline, or Croatian-tax credit cannot responsibly be stated here; those items remain unresolved rather than guessed. (IRS Publication 4756.)

Requirements

Every state and city where you lived during 2026
Every state where services were physically performed
Move dates
Domicile and permanent-abode facts
State withholding records

Legal sources

This answer is grounded in the Internal Revenue Code, Treasury regulations, IRS and FinCEN instructions, and the U.S. Treasury's official Croatia-protocol release.

IRS Alien Taxation—Certain Essential Concepts

A resident alien reports worldwide wages, interest, and other income.

IRS Alien Taxation—Certain Essential Concepts

If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U.S. tax return. You must report these amounts whether from sources within or outside the United States.

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IRC 7701(b) Residency Starting Date

Passing the SPT generally starts residency on the first U.S. day of that calendar year.

IRC 7701(b) Residency Starting Date

Substantial Presence Test

If you meet the substantial presence test for a calendar year, your residency starting date is generally the first day you are present in the United States during that calendar year.

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26 CFR 1.861-4

The physical place of work, with time-based allocation for mixed workdays, determines wage source.

26 CFR 1.861-4

(a)(1), (b)(2)(ii)(E)

Generally, compensation for labor or personal services, including fees, commissions, fringe benefits, and similar items, performed wholly within the United States is gross income from sources within the United States. The amount of compensation for labor or personal services performed within the United States determined on a time basis is the amount that bears the same relation to the individual's total compensation as the number of days of performance of the labor or personal services by the individual within the United States bears to his or her total number of days of performance of labor or personal services.

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26 CFR 1.862-1

Services physically performed outside the United States produce foreign-source compensation.

26 CFR 1.862-1

(a)(1)(iii)

Compensation for labor or personal services performed without the United States;

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IRC 904(a)

The FTC cannot exceed the U.S. tax attributable to foreign-source taxable income.

IRC 904(a)

(a)

The total amount of the credit taken under section 901(a) shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer's taxable income from sources without the United States (but not in excess of the taxpayer's entire taxable income) bears to his entire taxable income for the same taxable year.

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Instructions for Form 1116 (2025)

The credit is the lower of qualifying tax or the limitation, with a 1-year carryback and 10-year carryforward for qualifying excess.

Instructions for Form 1116 (2025)

Foreign Tax Credit Limitation; Carryback and Carryover

The maximum foreign tax credit you can claim in the current year is generally limited to the allocated amount of U.S. tax imposed on the foreign income, or the actual amount of foreign tax paid or accrued on the foreign income (after reductions required on line 12), whichever is less. You can carry back 1 year and then forward 10 years any foreign tax you paid or accrued to any foreign country or U.S. territory (reduced as described under Line 12, later) on income in a separate category that is more than the limitation.

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Instructions for Form 1116 (2025)

A deduction is an alternative to the credit, while treaty re-sourcing requires an applicable treaty.

Instructions for Form 1116 (2025)

Credit or Deduction; Certain Income Re-Sourced by Treaty

Instead of claiming a credit for eligible foreign taxes, you can choose to deduct foreign income taxes. Generally, if you take the credit for any eligible foreign taxes, you can’t take any part of that year’s foreign taxes as a deduction. If a sourcing rule in an applicable income tax treaty treats U.S. source income as foreign source, and you elect to apply the treaty, the income will be treated as foreign source.

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Treasury U.S.–Croatia Protocol Release

As of the official April 28, 2026 release, the treaty package still required domestic procedures and mutual notification.

Treasury U.S.–Croatia Protocol Release

The protocol will be transmitted as a package with the 2022 tax treaty to the U.S. Senate for that body’s advice and consent to ratification. The protocol will enter into force after the United States and Croatia have notified each other that they have completed their requisite domestic procedures.

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IRS Foreign Tax Credit Qualification Rules

Only a qualifying, final foreign income-tax liability is creditable, after refunds.

IRS Foreign Tax Credit Qualification Rules

Generally, the following four tests must be met for any foreign tax to qualify for the credit: The tax must be imposed on you. You must have paid or accrued the tax. The tax must be the legal and actual foreign tax liability. The tax must be an income tax (or a tax in lieu of an income tax). The amount of the foreign tax that qualifies for the credit must be reduced by any refunds of foreign tax made by the government of the foreign country or the U.S. possession.

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FinCEN Form 114 (FBAR)

FBAR uses a $10,000 aggregate threshold and has an automatic extension.

FinCEN Form 114 (FBAR)

A U.S. person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, must file an FBAR to report: a financial interest in or signature or other authority over at least one financial account located outside the United States if the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported. The FBAR is an annual report, due April 15 following the calendar year reported. You're allowed an automatic extension to October 15 if you fail to meet the FBAR annual due date of April 15. You don't need to request an extension to file the FBAR.

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Form 8938 and FBAR Comparison

Form 8938 is separate from FBAR and has different domestic thresholds.

Form 8938 and FBAR Comparison

The Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file FinCEN Form 114 (Report of Foreign Bank and Financial Accounts). Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year. Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

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IRC 7701(b) Closer Connection Exception / Form 8840

The closer-connection exception has strict day-count, tax-home, connection, and immigration conditions and is claimed on Form 8840.

IRC 7701(b) Closer Connection Exception / Form 8840

Even if you met the substantial presence test, you can still be treated as a nonresident of the United States for U.S. tax purposes, within Internal Revenue Code Section 7701(b)(1)(B), if you: Were present in the United States less than 183 days during the year, and Had a closer connection during the year to one foreign country in which you had a tax home than to the United States (unless you had a closer connection to two foreign countries, discussed next), and Maintained a tax home in that foreign country during the entire year, and Had not taken steps toward, and did not have an application pending for, lawful permanent resident status (green card). You must file Form 8840, Closer Connection Exception Statement for Aliens, to claim the Closer Connection Exception.

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Instructions for Form 1040-NR (2025)

Dual-status taxpayers apply different source rules before and after residency and generally lose the standard deduction.

Instructions for Form 1040-NR (2025)

Dual-Status Taxpayers

A dual-status year is one in which you change status between nonresident and resident alien. As a dual-status taxpayer not filing a joint return, you’re taxed on income from all sources for the part of the year you were a resident alien. Generally, you’re taxed on income only from U.S. sources for the part of the year you were a nonresident alien. If you were a U.S. resident on the last day of the tax year, file Form 1040 or 1040-SR. Enter “Dual-Status Return” across the top and attach a statement showing your income for the part of the year you were a nonresident. You can’t take the standard deduction even for the part of the year you were a resident alien.

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2026 Form 1040-ES

Form 1040-ES supplies the estimated-tax trigger and the 2026 installment dates.

2026 Form 1040-ES

General Rule; Payment Due Dates

In most cases, you must pay estimated tax for 2026 if both of the following apply. You expect to owe at least $1,000 in tax for 2026, after subtracting your withholding and refundable credits. You expect your withholding and refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2026 tax return, or 100% of the tax shown on your 2025 tax return. Your 2025 tax return must cover all 12 months. You can pay all of your estimated tax by April 15, 2026, or in four equal amounts by the dates shown below. 3rd payment . . . Sept. 15, 2026. 4th payment . . . Jan. 15, 2027.

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Instructions for Form 8938 (2025)

For partial-year Form 8938 status, the reporting period starts when the person becomes a specified individual.

Instructions for Form 8938 (2025)

Reporting Period

Reporting Period If you are a specified individual for less than the entire tax year, the reporting period is the part of the year that you are a specified individual.

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IRS Publication 4756 (Rev. May 2025)

Federal tax residency and state tax residency are separate determinations.

IRS Publication 4756 (Rev. May 2025)

page 8

Do not confuse residency for federal tax purposes with: immigration residency; residency requirements for earning a degree, etc.; residency requirements for state taxes.

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These are the official rules as published on the cited dates; tax rules, forms, deadlines, and treaty status can change.

This is general information about official processes, not legal advice, and SettleKit is not a law firm.

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