US Taxes When Living Abroad:
What Americans Actually Need to Know

The One Rule That Never Changes

If you are a US citizen or permanent resident, you must file a US federal tax return every year, regardless of where you live, how long you have been gone, or whether you owe anything. The United States taxes based on citizenship, not residency, putting it in rare company globally. Moving to Portugal or Thailand does not remove your obligation to file. It changes what you might owe, and sometimes dramatically so, but the filing requirement stays.

This surprises Americans who assume that leaving solves the tax problem. It doesn't. What it can do is reduce your bill significantly, through the Foreign Earned Income Exclusion, the Foreign Tax Credit, and by living in a country with a tax treaty or territorial tax system. Understanding the difference between those tools is what expat tax planning actually means.

The Foreign Earned Income Exclusion (FEIE)

The FEIE is the main tool Americans use to reduce US taxes abroad. For 2024, it allows you to exclude up to $126,500 of foreign-earned income from US federal income tax, adjusted annually for inflation. If you earn $80,000 working remotely abroad, you may owe nothing to the IRS on that income.

Critical limits: FEIE applies to earned income only: wages, self-employment income, freelance revenue. It does not apply to investment income, dividends, capital gains, pensions, or Social Security. And if you are self-employed, you still owe self-employment tax (the 15.3% Social Security and Medicare tax) on excluded income. FEIE does not eliminate that.

FBAR: Reporting Foreign Accounts

If you have foreign bank accounts (including a local bank account abroad) and the combined balance exceeds $10,000 at any point during the year, you must file an FBAR (FinCEN Form 114) by April 15, with an automatic extension to October 15. It is filed separately from your tax return, through FinCEN's BSA E-Filing System, not the IRS.

Non-filing penalties are severe: up to $10,000 per violation for non-willful failure, and much higher for willful non-disclosure. Most expat tax professionals file FBAR as a standard part of their annual process. If you are doing your own taxes, do not overlook it.

Worldwide, Territorial, and Zero-Tax Countries

Where you live determines whether you face a second tax obligation on top of your US filing. Countries fall into three categories:

Worldwide tax (most European countries, Australia, Canada): you pay local tax on all income, wherever earned. Combined with your US obligation, this creates dual-filing complexity, though the Foreign Tax Credit usually prevents actual double taxation.

Territorial tax (Panama, Costa Rica, Malaysia, Georgia, Paraguay, Thailand): the local government only taxes income earned within its borders. Foreign-sourced income, like a US client or a remote job, is typically not locally taxed. This is a significant advantage for freelancers and remote workers.

Zero personal income tax (UAE, Qatar, Saudi Arabia, Bahamas): no local income tax at all. Your only obligation is to the US. Simple in theory, expensive in practice due to cost of living.

Your US State Still Has a Say

Moving abroad does not automatically break your US state tax obligations. Some states, especially California, New York, and Virginia, are aggressive about claiming continued residency and will pursue state tax returns even after you leave. The general rule is that you must establish "domicile" in another state (or abroad) before your original state stops taxing you.

The simplest situation: if you already live in one of the nine states with no personal income tax, this is a non-issue.

If you are in any other state, research your state's "safe harbor" rules before leaving, or consult a tax professional who specializes in state residency changes for expats.

Retired Americans Abroad

Social Security income remains taxable by the US regardless of where you live. Pension income from US sources is also generally subject to US tax. The FEIE does not apply to these. It is an earned income exclusion only. If your retirement income comes entirely from investments, Social Security, or pensions, you face a relatively straightforward US filing with no FEIE benefit, but also typically no double-taxation issue in territorial or zero-tax countries.