Exchange Rates: How to Convert Korean Income Correctly
외화 환산 정확한 방법 — 2026

Overview — Three Rate Sources, Different Rules by Form 3가지 환율 출처, 양식별로 다른 규정

Converting Korean won to U.S. dollars correctly requires understanding that the IRS does not apply one uniform rule across all forms. Income reporting (Form 1040, Schedules) has more flexibility than foreign asset reporting (FBAR, FATCA), and FBAR and FATCA — despite both requiring "year-end" or "maximum value" concepts — apply the conversion rate differently from each other.

Income Reporting — IRS Yearly Average or Actual Rate 소득 신고 — IRS 연평균 또는 실제 환율

For income reported on Form 1040 and its schedules, the IRS provides meaningful flexibility in rate selection — more than the strict single-rate rules that apply to FBAR.

• IRS Yearly Average Exchange Rate: Published annually at irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates. The simplest method — apply one average rate to the full year's Korean salary, rental income, or other recurring income.
• Actual transaction-date rate: Acceptable for any income item if the taxpayer has documentation of the specific exchange rate on the date of that transaction (e.g., the rate used by the Korean bank when a severance payment was converted, or a documented spot rate on a specific payment date). This is often more accurate for large one-time payments like severance or a property sale, where the timing-specific rate may differ meaningfully from the annual average.
• Source flexibility: For income items (as opposed to FBAR), the IRS does not require Treasury rates specifically — a verifiable financial source (bank, Reuters, Bloomberg, Bank of Korea) is acceptable as long as it's consistently applied and documented.

FBAR — Treasury December 31 Rate Only FBAR — 12월 31일 Treasury 환율만 사용

FBAR has the strictest and least flexible exchange rate rule of any form discussed in this guide.

• Always use the Treasury Reporting Rate of Exchange for December 31 of the reporting year — regardless of which date during the year the account reached its maximum balance. A Korean account that peaked in March still uses the December 31 rate to convert that March peak balance to USD for FBAR purposes.
• The reporting year, not the filing date: A late 2023 FBAR filed in 2026 still uses the December 31, 2023 Treasury rate — not a current or filing-year rate.
• No substitution for convenience: Bank rates, IRS yearly average rates, and market rates are NOT accepted for FBAR. Only the Treasury Reporting Rate of Exchange (or, if unavailable for that currency, another verifiable documented source) is acceptable.
• Where to find it: Published by the U.S. Treasury's Bureau of the Fiscal Service (formerly Financial Management Service) — search "Treasury Reporting Rates of Exchange" for the specific reporting year.

FATCA — The Peak-Date Rule FATCA — 최고가액 발생일 환율 규정

Form 8938 requires reporting the maximum value of each specified foreign financial asset during the tax year. The conversion rate used depends on which of two distinct values is being reported.

FBAR vs. FATCA Rate Rules — Side by Side FBAR vs. FATCA 환율 규정 비교

Consistency Requirements 일관성 요건

• Within a single income category, use one method for the full year: If using the IRS yearly average rate for Korean salary, apply it to all Korean salary payments that year — do not switch to transaction-date rates for some months and average rates for others within the same category.
• Different categories may use different methods: It is acceptable to use the IRS yearly average for salary while using actual transaction-date rates for a one-time severance payment or property sale — these are different income categories, each independently choosing the most appropriate method.
• FBAR always uses Treasury December 31 — no exceptions for consistency with income reporting: Even if Korean salary was converted using the IRS yearly average rate, the FBAR maximum balance conversion still uses the Treasury December 31 rate. These are governed by separate rules and are not required to match each other.

Converting Korean Taxes for FTC FTC를 위한 한국 세금 환산

• Use the same method as the corresponding income: Korean tax withheld on salary should be converted using the same rate method applied to the salary itself (e.g., IRS yearly average for both, or actual rate for both).
• Actual payment date rate also acceptable if documented: If Korean tax was paid or withheld on a specific identifiable date (common for severance withholding or a final tax payment), the rate on that specific date may be used instead — provided it's consistently applied to both the income and the associated tax.
• Form 1116 entries should reflect the same conversion logic as the income reported on Form 1040/Schedules: Mismatched conversion methods between the income (numerator/denominator inputs) and the foreign tax paid (credit amount) can distort the FTC limitation calculation.

When Treasury Doesn't Publish a Rate Treasury가 환율을 공시하지 않는 경우

Step-by-Step Process 단계별 절차

6 Fully Computed Examples 실제 계산 사례 6개

Common Mistakes 자주 발생하는 오류

• 1 Using the December 31 Treasury rate for FATCA's maximum-value conversion. Form 8938's maximum value test requires the rate on the specific date the asset peaked — not the year-end rate. The year-end rate applies only to the separate "year-end value" test. Conflating these two produces an incorrect maximum value figure.
• 2 Using market or bank exchange rates for FBAR. FBAR strictly requires the Treasury Reporting Rate of Exchange for December 31 — commercial bank rates, currency converter app rates, and even the IRS yearly average rate are not acceptable substitutes for FBAR specifically.
• 3 Assuming FBAR and FATCA must show the same converted dollar amount for the same account. Because the two forms apply different rate rules (FBAR: always December 31; FATCA: peak-date for max value), the same underlying KRW peak can legitimately convert to two different USD figures across the two forms. This is not an error to "fix" — it's the correct result of two different rules.
• 4 Using a single exchange rate for both the purchase and sale legs of a capital gain calculation. Cost basis must be converted at the purchase-date rate; proceeds at the sale-date rate. Using one rate for both eliminates the currency component of the gain, producing an inaccurate result.
• 5 Switching rate methods mid-year within the same income category. If using the IRS yearly average for Korean salary, apply it to every salary payment in that category for the full year — don't switch to transaction-date rates partway through without a documented reason and consistent application going forward.
• 6 Not converting Korean withheld taxes using a method consistent with the related income. Mismatched conversion methods between the foreign income and the foreign tax paid on Form 1116 can distort the FTC limitation calculation, even if each amount is individually "correct" under some rate.
• 7 Not documenting the source and date of every exchange rate used. IRS may request the specific rate source during examination. Retain IRS yearly average table printouts, Treasury Reporting Rates of Exchange screenshots, and any bank conversion confirmations used for actual-rate conversions.
• 8 Not splitting income by residency period before applying any exchange rate. Only income earned/received during the U.S. residency period is reportable. Determine the correct USD-reportable amount (post-residency-period income only) before applying the conversion rate — converting full-year Korean income and then trying to subtract a USD pre-residency portion can introduce rounding and rate-mismatch errors.

Hanmi CPA Insight