US Taxes Abroad: How Filing Works When You Live Overseas

Moving abroad does not end your relationship with the IRS. The United States taxes its citizens on worldwide income no matter where they live, so the retiree in Lisbon, the remote worker in Medellín, and the teacher in Accra all still file a Form 1040. The good news is that most Americans abroad who file correctly owe little or no US income tax, because the tax code includes two big tools to prevent double taxation. The bad news is that you have to know they exist and claim them.

Citizenship-based taxation in plain English

Almost every country taxes people based on where they live. The US is the notable exception: it taxes based on citizenship (and on green card status). That means your filing obligation follows your passport, not your address.

Living abroad changes how you file, not whether you file. You report worldwide income in US dollars, then use exclusions, credits, and treaty provisions to reduce or eliminate the US tax on income that your new country already taxes.

Do you have to file? Filing thresholds

You must file if your gross income from worldwide sources meets the threshold for your filing status and age. For most people under 65, that threshold is tied to the standard deduction. For tax year 2026, the IRS set the standard deduction at:

Two points catch expats off guard. First, the test uses gross income before the Foreign Earned Income Exclusion. Someone earning $90,000 abroad who expects to exclude all of it still has to file, because the exclusion only exists if you claim it on a return. Second, if you are self-employed, you must file once your net self-employment earnings reach $400, regardless of the standard deduction. The exact thresholds for each status and age are in the Form 1040 instructions and IRS Publication 54.

Deadlines and extensions

The federal return is due April 15, but Americans abroad get more time in stages:

1. Automatic two-month extension to June 15. If on April 15 you live outside the US and Puerto Rico and your main place of business or post of duty is also outside the US, you get until June 15 to file and pay. Attach a statement explaining that you qualify. One spouse qualifying is enough on a joint return. Interest still runs on unpaid tax from April 15.
2. Extension to October 15. File Form 4868 by June 15 to get the remaining time, for a total of six months. This extends filing only, not payment.
3. Discretionary extension to December 15. Taxpayers abroad can ask for two more months by letter. The IRS only responds if it denies the request.
4. Special extension for the FEIE tests. If you moved abroad recently and have not yet met the physical presence or bona fide residence test, Form 2350 lets you extend until after you qualify.

The Foreign Earned Income Exclusion (FEIE)

The FEIE, claimed on Form 2555, lets you exclude a set amount of foreign earned income from US income tax. The amount is adjusted for inflation each year:

A married couple who both work abroad and both qualify can each exclude up to the maximum on their own earnings. A non-working spouse cannot borrow the unused amount.

Qualifying: two tests, pick one

Your tax home must be in a foreign country, and you must meet one of these:

• Physical presence test: you are physically present in a foreign country or countries for at least 330 full days during any 12 consecutive months. The days do not have to be consecutive, and the 12-month window can start on any day. Days in transit over international waters and days in the US do not count.
• Bona fide residence test: you are a genuine resident of a foreign country for an uninterrupted period that includes an entire tax year (January 1 to December 31 for most people). If you tell the foreign government you are not a resident and it agrees you are not subject to its tax, you cannot use this test.

Physical presence is simple counting. Bona fide residence suits people truly settled somewhere who visit the US for longer stretches.

What the FEIE does not cover

This is the most common misunderstanding among retirees. The exclusion applies only to earned income: wages, salaries, and self-employment profit for work performed abroad. The IRS lists these as not foreign earned income:

• Pensions and annuities, including Social Security benefits
• Interest, dividends, and capital gains
• Rental income from property you do not actively manage as a business
• Alimony and gambling winnings

A retiree living on a pension, IRA withdrawals, and Social Security gets nothing from the FEIE. Those people rely on the Foreign Tax Credit and treaty provisions instead. See our guide to Social Security abroad for how benefits are handled.

The foreign housing exclusion

If you qualify for the FEIE and pay for housing abroad with employer-provided income, you may also exclude part of your housing costs. You can exclude reasonable housing expenses above a base amount (16% of the maximum exclusion, which works out to $20,800 for 2025) up to a limit that is generally 30% of the maximum exclusion ($39,000 for 2025). The IRS raises the limit for many high-cost cities. Self-employed people take a housing deduction instead.

The Foreign Tax Credit (Form 1116)

The Foreign Tax Credit gives you a dollar-for-dollar credit against US tax for income tax you paid to another country. It works on all kinds of income, including pensions and investment income, which makes it the main tool for retirees and for people in countries with tax rates similar to or higher than US rates.

Key rules:

• You cannot claim a credit for foreign tax on income you already excluded with the FEIE. You can use both in the same year, but on different slices of income.
• The credit is generally limited to the US tax on that foreign income, and is calculated separately for different categories of income.
• You can usually choose a credit or an itemized deduction for foreign taxes. The IRS notes the credit is better in most cases.
• Unused credits can generally carry forward to future years, which matters if you live in a high-tax country.

FEIE or credit?

There is no universal answer. As a rough guide, the FEIE often suits people earning in low-tax or no-tax countries. The credit often suits people in higher-tax countries, people with income above the exclusion, and people with children who want the refundable part of the Child Tax Credit (which you cannot get while claiming the FEIE). Once you elect the FEIE and later revoke it, you generally cannot claim it again for five years without IRS consent, so the first choice matters.

Self-employment tax and totalization agreements

Remote freelancers often assume the FEIE wipes out their US tax bill. It does not touch self-employment tax. If your net self-employment earnings are $400 or more, you generally owe US Social Security and Medicare tax (15.3% at most income levels) on the full amount, even the portion excluded from income tax.

The fix, where it exists, is a totalization agreement. The US has Social Security agreements with about 30 countries, mostly in Europe plus Canada, Australia, Japan, South Korea, Chile, Brazil, and Uruguay. These agreements generally make sure you pay social security tax to only one country. If you are self-employed and live in an agreement country, you may be covered by that country's system instead and can request documentation to show the IRS. Without an agreement, as in Mexico, Costa Rica, Panama, or Thailand, you may owe social taxes in both places. Our remote work guide covers the practical side.

Tax treaties and the saving clause

The US has income tax treaties with many countries. They set rules for which country taxes what, reduce withholding on some cross-border payments, and break ties when two countries both call you a resident.

Most US treaties include a saving clause, which lets the US keep taxing its own citizens as if the treaty did not exist, with specific exceptions. As the IRS puts it, treaties generally do not reduce the US taxes of US citizens. The exceptions vary treaty by treaty and often involve pensions, Social Security, and relief from double taxation. Read the actual article for your country, or have a professional do it.

A worked example (illustrative only)

Dana is single, a US citizen, and moved to a country with lower income tax rates than the US in late 2025. In 2026 she earns $95,000 in salary from a foreign employer and receives $3,000 in dividends from a US brokerage account. She spends 345 full days abroad in 2026.

1. Filing requirement. Her gross income of $98,000 is far above the $16,100 threshold, so she files.
2. FEIE. She meets the physical presence test, so she can exclude her $95,000 salary (below the $132,900 cap) on Form 2555.
3. What is left. The $3,000 in dividends is not earned income, so it stays taxable. Because of the FEIE "stacking" rule, it is taxed at the rate that would apply if the excluded salary were still counted, not at the bottom bracket.
4. Host-country tax. She pays local income tax on her salary. She cannot also take a Foreign Tax Credit on that salary, because she excluded it.
5. Other forms. Her local bank account balance tops $10,000 at one point, so she also files an FBAR. See FBAR and FATCA.

If Dana lived in a country with higher tax rates than the US, the Foreign Tax Credit might leave her better off, with unused credits carried forward. That is exactly the comparison a good preparer runs.

Don't forget your state, and get help when it's complex

Federal rules are only half the picture. Some states keep taxing former residents who never clearly cut ties. Read state taxes and domicile before you leave.

Hire a US expat-tax professional (a CPA or enrolled agent who handles international returns) if you are self-employed, own a foreign business, hold foreign mutual funds or pensions, have rental property, are catching up on missed years, or are deciding between the FEIE and the credit for the first time. Put your tax deadlines into your moving checklist so the first June 15 does not surprise you.

Last reviewed October 17, 2026. General information only, not legal, immigration, or tax advice. Requirements change, so confirm with official sources before you apply. See our disclaimer.