Taxes for U.S. Citizens Living Abroad

Filing & Brackets · TAX GUIDE

U.S. citizens must file taxes on worldwide income even while living abroad. The Foreign Earned Income Exclusion, Foreign Tax Credit, FBAR, and FATCA all come into play. Here's how it works.

The United States is one of the only countries that taxes its citizens on worldwide income no matter where they live. If you're an American living and working abroad, you still have to file a U.S. tax return every year — but several provisions exist to keep you from being taxed twice. Here's how to stay compliant and minimize what you owe.

You Still Have to File

U.S. citizens and green-card holders must report their worldwide income to the IRS regardless of where they live or where the income is earned. The filing thresholds are the same as for people living in the U.S. Living abroad gives you an automatic two-month extension to June 15, but any tax owed is still due by April 15 to avoid interest.

Failing to file while abroad is one of the most common — and most costly — mistakes Americans make overseas.

The Foreign Earned Income Exclusion (FEIE)

The FEIE lets qualifying expats exclude a large amount of foreign-earned income from U.S. tax — approximately $130,000 for 2025 (indexed annually). To qualify, you must meet either:

• The Physical Presence Test: present in a foreign country at least 330 full days in a 12-month period, or
• The Bona Fide Residence Test: a bona fide resident of a foreign country for an uninterrupted tax year.

You claim the exclusion on Form 2555. There's also a foreign housing exclusion/deduction for certain housing costs. Note the FEIE applies to earned income (wages, self-employment) — not investment income.

The Foreign Tax Credit (FTC)

If you pay income tax to a foreign government, the Foreign Tax Credit (Form 1116) gives you a dollar-for-dollar credit against your U.S. tax for those foreign taxes. For expats in high-tax countries, the FTC often eliminates U.S. tax entirely and can be more valuable than the FEIE.

You generally can't use the FEIE and the FTC on the same dollars of income, so choosing between them — or combining them across different income — is an important planning decision best made with a professional.

FBAR and FATCA: Don't Forget the Forms

Reporting foreign accounts is separate from — and just as important as — your tax return:

• FBAR (FinCEN Form 114): required if the combined value of your foreign financial accounts exceeded $10,000 at any point during the year. Filed electronically with the Treasury, not the IRS.
• FATCA (Form 8938): required with your tax return if your foreign financial assets exceed higher thresholds (which vary for those living abroad).

Penalties for failing to file these forms are severe — often far larger than any tax that would have been owed. If you're behind, the IRS offers streamlined procedures to catch up.

Frequently Asked Questions

Do I really have to file U.S. taxes if I live abroad?

Yes. U.S. citizens and green-card holders must report worldwide income regardless of where they live. You get an automatic extension to June 15, but tax owed is still due April 15.

Will I be taxed twice on my foreign income?

Usually not. The Foreign Earned Income Exclusion and the Foreign Tax Credit are designed to prevent double taxation. Many expats end up owing little or no U.S. tax after applying them.

What is an FBAR and do I need to file one?

An FBAR (FinCEN Form 114) reports foreign financial accounts. You must file if the combined value of your foreign accounts exceeded $10,000 at any time during the year — even if no tax is owed.

What happens if I haven't filed for years while living abroad?

The IRS offers streamlined filing compliance procedures that let many expats catch up on past returns and FBARs with reduced or no penalties, provided the failure was non-willful. Acting before the IRS contacts you is important.

Does the Foreign Earned Income Exclusion cover investment income?

No. The FEIE only applies to earned income such as wages and self-employment. Investment income, pensions, and rental income don't qualify — though the Foreign Tax Credit may help with those.