Expat Taxes: What Every American Living Abroad Needs to Know
Important Disclaimer: This article provides general tax information for educational purposes only as of early 2025. Tax laws, regulations, filing requirements, and exclusion amounts change frequently and vary based on individual circumstances. This is NOT tax advice. International Van Lines is a moving company, not a tax advisory service. We strongly recommend consulting with CPAs or tax attorneys who specialize in expat taxation for advice specific to your situation. The IRS and tax authorities in your host country are the authoritative sources for current requirements.
Here’s something that surprises nearly every American moving overseas: you still have to file US taxes. Yep, even if you’re living in Barcelona, working in Singapore, or retired in Costa Rica. The United States is one of only two countries in the world that taxes based on citizenship rather than residence. The other is Eritrea, if you’re curious.
This isn’t just a technicality that rarely gets enforced. The IRS takes expat tax filing seriously, and the penalties for not filing can be severe. We’re talking potential fines of $10,000 per unreported foreign bank account, per year. We’ve met expats who avoided filing for years thinking they were “under the radar,” only to face six-figure penalty assessments when they tried to come back into compliance.
The good news? Most Americans living abroad don’t actually owe US taxes, thanks to several provisions designed specifically for expats. But you still need to file. Let’s break down everything you need to know.
The Basic Filing Requirement
If you’re a US citizen or green card holder, you must file a US tax return if your income exceeds the standard filing threshold. For 2025, that’s $14,600 for single filers under 65, $29,200 for married couples filing jointly. These are the same thresholds as domestic filers.
“But I don’t make that much,” you might be thinking. Doesn’t matter if you have other filing requirements. Foreign bank accounts over $10,000 trigger reporting requirements even if you have zero income. Self-employment income over $400 requires filing. Investment income, rental income from US property, all of it counts.
Your filing deadline is automatically extended to June 15 if you’re living abroad on the regular April 15 deadline. You can extend further to October 15 if needed. But here’s the catch: any taxes owed are still due by April 15, even though your return isn’t due until June or October. If you owe money and don’t pay by April, you’ll face interest charges.
Foreign Earned Income Exclusion - Your Best Friend
This is the provision that keeps most expats from owing US taxes. For tax year 2025, the Foreign Earned Income Exclusion amount is approximately $126,500, though this amount is adjusted annually for inflation. Verify the current year’s exclusion amount with the IRS or your tax professional. That means if you’re working abroad and earning less than that amount, you likely won’t owe any US income tax.
But qualifying for the exclusion requires meeting one of two tests: the Physical Presence Test or the Bona Fide Residence Test.
Physical Presence Test
This test is straightforward. You must be physically present in a foreign country or countries for at least 330 full days during any 12-month period. Notice it says 330 days, not 330 days in a calendar year. You can choose any consecutive 12-month period that gives you the best tax result.
Those days need to be full days. A day when you fly from New York to London doesn’t count because you were in transit over international waters. Days spent in the US obviously don’t count. Even brief trips back to the States chip away at your 330-day total.
We know someone who carefully tracked his days and hit exactly 330 by December 30. Then a family emergency required him to fly home on December 28. That trip ruined his qualification for the entire year because he dropped below 330 days. He ended up owing about $11,000 in unexpected taxes.
Bona Fide Residence Test
This test is more subjective but can be better for people who travel frequently back to the US. You must establish bona fide residence in a foreign country for an uninterrupted period that includes a full tax year.
What counts as “bona fide residence?” The IRS looks at factors like: Did you intend to stay indefinitely or for an extended period? Did you establish a home? Did you get involved in local community life? What did you tell the local government about your residency status?
You can take trips back to the US while maintaining bona fide residence, which is the big advantage over the Physical Presence Test. The IRS doesn’t count days; they look at your overall situation. But you need to genuinely establish yourself as a resident of the foreign country, not just stay there temporarily.
Tax treaties can impact how you qualify. Some countries have provisions about residency that interact with US tax law in complex ways.
What Income Doesn’t Qualify for Exclusion
The Foreign Earned Income Exclusion only applies to earned income. That means wages, salary, self-employment income from personal services. It doesn’t apply to:
Passive income like interest, dividends, and capital gains gets taxed normally. If you’re living off investment income, the exclusion doesn’t help you.
Rental income from US property is taxable. Rental income from foreign property is also taxable, though you can often credit foreign taxes paid against your US liability.
Pensions and retirement account distributions don’t qualify for the exclusion. This surprises many retirees who move abroad. Your IRA distribution or pension gets taxed by the US regardless of where you live.
Social Security benefits follow complex rules. They’re generally taxable, but tax treaties might affect how they’re taxed. Some countries tax them, others don’t.
Foreign Tax Credit - Avoiding Double Taxation
Even with the Foreign Earned Income Exclusion, you might owe taxes to both countries. High-income earners often exceed the $126,500 exclusion. People living in high-tax countries might pay more in foreign taxes than they save through the exclusion.
That’s where the Foreign Tax Credit comes in. This lets you credit foreign income taxes paid against your US tax liability, dollar for dollar. If you paid $8,000 in French income tax, you can credit that $8,000 against your US tax bill.
The Foreign Tax Credit has complex rules about what taxes qualify. Generally, income taxes paid to a foreign national or local government qualify. Social security taxes usually don’t qualify. Property taxes don’t count. Sales taxes definitely don’t count.
You can’t double-dip. If you exclude $126,500 through the Foreign Earned Income Exclusion, you can’t also claim a Foreign Tax Credit on the foreign taxes you paid on that excluded income. You need to choose which provision saves you more money, or use a combination of both for different income sources.
Unused Foreign Tax Credits can be carried back one year or forward ten years. If you pay $15,000 in foreign taxes but only owe $10,000 to the US, that $5,000 excess credit doesn’t disappear. It carries forward to future years when you might have US tax liability without offsetting foreign taxes.
FBAR - The $10,000 Reporting Threshold
FBAR stands for Foreign Bank Account Report, and it’s filed separately from your tax return through the Treasury Department’s FinCEN system. If the aggregate total of your foreign financial accounts exceeded $10,000 at any point during the calendar year, you must file an FBAR.
That $10,000 is combined across all accounts. If you have $7,000 in one account and $4,000 in another, you’ve crossed the threshold. If your account briefly hit $10,001 for a single day in July before you paid rent, you need to file.
What counts as a foreign financial account? Bank accounts obviously, but also brokerage accounts, pension accounts, life insurance policies with cash value, and any account held at a non-US financial institution. Even accounts you have signature authority over but don’t own might need to be reported.
The FBAR deadline is April 15, with an automatic extension to October 15. Unlike tax returns, no extension request is needed. The October date is automatic.
Penalties for not filing FBAR are severe. Willful failure to file carries penalties up to $100,000 or 50 percent of the account balance per violation, per year. Even non-willful violations carry penalties of $10,000 per year. The IRS has been aggressive about enforcing FBAR requirements.
One expat we heard about moved to Switzerland in 2015 and never filed FBARs. He had around $80,000 in a Swiss bank account. When he tried to renew his US passport in 2023, the State Department flagged that he wasn’t tax compliant. He entered the Streamlined Filing Compliance Procedures (more on that later) and ended up owing about $30,000 in penalties for non-willful violations, plus several years of back taxes and interest. Expensive lesson.
FATCA - When Foreign Banks Report You
The Foreign Account Tax Compliance Act requires foreign financial institutions to report American account holders to the IRS. This was the law that finally gave the IRS teeth in tracking down Americans with unreported foreign accounts.
For individuals, FATCA creates Form 8938 reporting requirements. This form is filed with your tax return and has higher thresholds than FBAR. Single filers living abroad must file if foreign financial assets exceed $200,000 on the last day of the year or $300,000 at any point during the year. Married couples filing jointly have even higher thresholds.
Form 8938 and FBAR overlap significantly but aren’t identical. Some accounts need to be reported on both. The forms ask for different information and go to different government agencies. Yes, it’s redundant and annoying. Welcome to expat tax compliance.
FATCA has a side effect nobody expected: banks around the world now refuse American customers. The reporting requirements are so burdensome that small and medium-sized banks in many countries simply deny accounts to US citizens. We’ve heard stories of expats struggling to open basic checking accounts because banks don’t want to deal with FATCA compliance.
Self-Employment Abroad
Working for yourself while living abroad creates additional complications. You’re still subject to US self-employment tax (Social Security and Medicare) on your self-employment income, even if that income is excluded from income tax through the Foreign Earned Income Exclusion.
The self-employment tax rate is 15.3 percent on the first $168,600 of self-employment income (2025 limit). That’s 12.4 percent for Social Security and 2.9 percent for Medicare. Unlike income tax, there’s no foreign tax credit for self-employment tax. You pay it regardless of foreign taxes paid.
Some countries have totalization agreements with the US. These agreements prevent double payment of social security taxes. If you’re covered by the foreign country’s social security system, you might be exempt from US self-employment tax. But not all countries have these agreements, and the rules are specific to each treaty.
Filing self-employment taxes while abroad requires Schedule SE and usually Schedule C. You report your business income and expenses like any US self-employed person. The Foreign Earned Income Exclusion can eliminate the income tax on your profits, but that self-employment tax still applies.
State Taxes - Cutting Ties Properly
Moving abroad doesn’t automatically end your state tax obligations. Some states are particularly aggressive about claiming you’re still a resident and taxing your worldwide income.
California, Virginia, New Mexico, and South Carolina are notorious for this. They use various tests to determine if you’ve truly severed residency. Common factors include: Do you maintain a driver’s license? Is there a home you could return to? Do you have strong family ties in the state? Did you file a declaration of non-residency?
To properly sever state tax residency, take clear steps: Change your driver’s license to your new country or a no-income-tax state before moving. Register to vote abroad. File a final part-year resident return. Don’t maintain a permanent home available for your use. Update mailing addresses with banks and institutions.
Some people establish residency in a no-income-tax state like Florida, Texas, or South Dakota before moving abroad. This creates a clear severance with their previous state and establishes a US tax home that won’t tax their income.
The IRS considers you a tax resident of your foreign country once you meet the Physical Presence or Bona Fide Residence test. But states don’t care about IRS definitions. They use their own residency rules.
Compliance Programs for Late Filers
Fell behind on filing or never started? The IRS offers programs to come back into compliance without catastrophic penalties.
The Streamlined Filing Compliance Procedures are designed for non-willful violations. You file three years of back tax returns and six years of FBARs, pay any taxes owed, and certify that your failure to file was non-willful. If you qualify, the IRS waives failure-to-file penalties and reduces FBAR penalties significantly (to 5 percent of account balances, or zero if you owe no tax).
The key word is “non-willful.” If you genuinely didn’t know about your filing requirements, you probably qualify. If you knew and deliberately didn’t file, that’s willful and you don’t qualify. There’s a gray area where people knew they should probably file but didn’t think they owed anything so they ignored it. That’s technically non-willful, but the IRS might disagree.
The normal Voluntary Disclosure program is for willful violations. It involves more years of returns, steeper penalties, and often requires working with an attorney. Most expats don’t need this program unless they deliberately hid accounts or evaded taxes.
Practical Tips for Managing Expat Taxes
Keep meticulous records of your physical presence. Use an app or spreadsheet to track every day and where you were. Immigration stamps in your passport can prove presence, but they’re not always definitive. Credit card statements showing transactions in specific countries help too.
Open accounts at US banks before you leave. It’s much easier to open accounts as a US resident than to open them from abroad. Keep at least one US checking account and one US credit card. You’ll need them for various reasons.
Consider setting up a US mailing address through family or a mail forwarding service. You’ll need a US address for various financial accounts, government correspondence, and other purposes. Many services don’t ship abroad or charge exorbitant international fees.
File on time even if you can’t pay. Failure-to-file penalties are much worse than failure-to-pay penalties. If you owe money you can’t pay immediately, file your return on time and set up a payment plan with the IRS.
Keep copies of foreign tax returns and proof of foreign taxes paid. If you claim the Foreign Tax Credit, you need documentation. Some countries don’t issue clear tax bills like the IRS Form 1040. Keep whatever documentation your foreign country provides.
Don’t ignore state tax obligations. File final part-year returns and take clear steps to sever residency. States can come after you years later if they decide you never really left.
When to Hire Professional Help
Expat taxes are complicated enough that most people should use a tax professional, at least for the first few years abroad. But not all tax preparers understand expat issues. H&R Block at your local strip mall probably can’t help you.
Look for enrolled agents (EAs) or CPAs who specialize in expat taxation. Many firms focus specifically on this niche. They’re familiar with the Foreign Earned Income Exclusion, FBAR, FATCA, totalization agreements, and tax treaties.
Expect to pay $400-1,500 for professional expat tax preparation, depending on complexity. Self-employed individuals with multiple countries, foreign corporations, or complex investments pay at the higher end. Simple W-2 employment situations run cheaper.
Tax software designed for expats exists, like MyExpatTaxes or OnLine Taxes. These can work well for straightforward situations. But if you have any complications—self-employment income, rental properties, foreign business ownership, stock options—professional help is worth the cost.
Don’t Let Taxes Stop You From Moving
All of this sounds overwhelming, we know. But once you understand the requirements and get into a routine, expat tax filing becomes manageable. Most Americans abroad pay zero US income tax thanks to the Foreign Earned Income Exclusion and Foreign Tax Credit. You just need to file the paperwork proving you don’t owe anything.
The penalties for not filing are severe enough that you can’t ignore this responsibility. But with proper planning and compliance, US tax obligations shouldn’t prevent you from living your international adventure.
When you’re ready to make your international move, let us handle the logistics of getting your belongings to your new home. We’ve helped thousands of Americans relocate abroad, and we understand the unique challenges of international moving.
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Frequently Asked Questions
Do I have to file US taxes if I don’t owe anything?
Yes. Filing requirements are based on income thresholds, not whether you owe taxes. Even if you’re certain you don’t owe anything thanks to the Foreign Earned Income Exclusion, you still must file to claim that exclusion.
Can I just stop filing after a few years abroad?
No. Your US tax obligations continue as long as you’re a US citizen or green card holder, regardless of how long you’ve lived abroad. Some expats who’ve lived abroad for decades still must file US tax returns annually.
What if I can’t afford to pay the taxes I owe?
File your return on time anyway and contact the IRS about a payment plan. They offer installment agreements for people who can’t pay in full. Failure-to-file penalties are much worse than failure-to-pay penalties.
Should I renounce my citizenship to avoid taxes?
This is a drastic step with serious implications beyond taxes. Renunciation costs $2,350, you permanently lose US citizenship, and you might face an exit tax if your net worth exceeds certain thresholds. Most people shouldn’t renounce over tax issues.
Can the IRS seize my foreign bank accounts?
The IRS can’t directly seize foreign accounts, but they can get US courts to order you to repatriate funds. They can also levy US-based accounts and assets. Don’t assume foreign accounts are beyond IRS reach.
What happens if I’ve never filed but want to start?
Look into the Streamlined Filing Compliance Procedures. You’ll file the last three years of returns and six years of FBARs with reduced penalties. Consider working with a tax professional who specializes in these programs.
