Living abroad may come with new adventures, cultures, and lifestyles—but one thing that doesn’t necessarily change is your obligation to pay taxes to the United States. American citizens and resident aliens are taxed on their worldwide income, regardless of where they live. This rule often surprises expatriates and can lead to confusion and noncompliance. In this detailed blog, we’ll explain whether you owe U.S. taxes if you live abroad, how the rules work, and what you can do to stay compliant and reduce your tax burden.
U.S. Citizens Are Taxed on Worldwide Income
One of the most important facts for Americans to know is that the U.S. is one of the few countries that taxes its citizens on their worldwide income, even if they reside outside the country. This rule applies whether you live in Paris, Tokyo, Sydney, or Dubai—you must still file a U.S. tax return if you meet the minimum income threshold.
This rule applies to all income, including:
- Foreign salary and wages
- Foreign business income
- Rental income from overseas properties
- Interest and dividends from foreign banks
- Capital gains from foreign investments
Who Needs to File a U.S. Tax Return While Abroad?
Any U.S. citizen or green card holder must file a tax return (Form 1040) if they earn income above the filing threshold, regardless of their location. For 2024, the basic income thresholds are:
- $13,850 for single filers under 65
- $27,700 for married couples filing jointly
- $5 for married filing separately
Even if your income is completely foreign and taxed abroad, you are still required to report it on your U.S. tax return. However, you may be eligible for tax relief under provisions such as the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC).
Foreign Earned Income Exclusion (FEIE)
The Foreign Earned Income Exclusion is a powerful tool that allows qualifying Americans abroad to exclude up to $126,500 (for 2024) of foreign earned income from U.S. taxation. To claim the FEIE, you must:
- Have foreign earned income (salary, wages, self-employment income)
- Have a tax home in a foreign country
- Meet one of the two tests:
- Bona Fide Residence Test: You must be a bona fide resident of a foreign country for an uninterrupted period that includes a full tax year.
- Physical Presence Test: You must be physically present in a foreign country for at least 330 full days during any 12-month period.
You must file Form 2555 with your tax return to claim the exclusion.
Foreign Housing Exclusion
If you qualify for the FEIE, you may also be eligible to exclude certain housing costs under the Foreign Housing Exclusion or Deduction. This applies to rent, utilities (except telephone), and similar expenses. The standard limit is generally 30% of the FEIE, but higher limits are allowed for high-cost cities such as London, Hong Kong, or Tokyo.
Foreign Tax Credit (FTC)
The Foreign Tax Credit allows you to offset U.S. tax liability by the amount of income tax you pay to a foreign government. This is especially useful for Americans living in countries with higher tax rates. Unlike the FEIE, the FTC applies to all types of income—not just earned income.
You must file Form 1116 to claim the foreign tax credit. The credit reduces your U.S. tax dollar-for-dollar for foreign taxes paid, but cannot exceed your total U.S. tax liability on the same income.
What If You Pay No Tax Abroad?
If you live in a country that does not tax foreign residents (such as some Gulf nations), you may not owe local income taxes—but you are still required to file a U.S. tax return and may owe U.S. taxes. Without a foreign tax liability, you cannot use the FTC and will have to rely on the FEIE and other deductions to reduce your taxable income.
Reporting Foreign Bank Accounts (FBAR)
If you live abroad, you likely have one or more foreign financial accounts. If the combined value of these accounts exceeds $10,000 at any time during the year, you must file FinCEN Form 114, also known as the FBAR (Foreign Bank Account Report).
FBAR is filed separately from your tax return, through the Financial Crimes Enforcement Network. Failing to file the FBAR can result in substantial penalties—even if no tax is due.
Form 8938 – Statement of Foreign Financial Assets
In addition to the FBAR, certain taxpayers must also file IRS Form 8938 under the FATCA (Foreign Account Tax Compliance Act) if their foreign financial assets exceed specified thresholds. These thresholds vary by filing status and residency. For those living abroad, the limits are:
- $200,000 on the last day of the year (single) or $400,000 (married filing jointly), or
- $300,000 at any point during the year (single) or $600,000 (married filing jointly)
Do You Owe State Taxes If You Live Abroad?
Even if you’re no longer living in the U.S., your last state of residence may still consider you a tax resident. Some states, like California, New Mexico, and South Carolina, are particularly aggressive in taxing former residents. To avoid state taxes, you must establish a clear break in residency and show that you’ve moved permanently abroad.
What If You Missed Filing While Living Abroad?
Many Americans discover years later that they should have been filing U.S. taxes while living abroad. Fortunately, the IRS offers the Streamlined Filing Compliance Procedures to help delinquent taxpayers catch up without penalties. You must:
- File the last 3 years of delinquent tax returns
- File the last 6 years of FBARs
- Certify that your non-filing was non-willful
This program is available for both foreign and domestic residents, though rules vary depending on location.
Self-Employment and Social Security Taxes
Even if you’re living abroad, you may still owe self-employment tax (Social Security and Medicare) on your income. However, the U.S. has Totalization Agreements with many countries to avoid double taxation of social security. If you’re covered by a foreign system, you may be exempt from U.S. self-employment tax under these agreements.
Tax Filing Deadlines for Americans Abroad
Expats get an automatic 2-month extension to file their return—until June 15—but interest still accrues from April 15. You can also request an extension to October 15. Here are key dates:
- April 15: Regular tax deadline (pay by this date to avoid interest)
- June 15: Automatic extended deadline for expats to file
- October 15: Extended deadline if Form 4868 is filed
- FBAR Deadline: April 15, with automatic extension to October 15
Do You Always Owe U.S. Taxes When Living Abroad?
Not necessarily. While you’re always required to file a return, many expats ultimately owe little or nothing thanks to the Foreign Earned Income Exclusion, Foreign Tax Credit, and other deductions. However, you must still file to claim these benefits and avoid penalties for noncompliance.
Conclusion: Stay Compliant, Stay Informed
Living abroad does not exempt you from U.S. tax responsibilities. From income tax returns to FBARs and Form 8938, U.S. citizens must remain vigilant and proactive. The good news is that the IRS provides several mechanisms—like the FEIE and FTC—to avoid double taxation.
If you’re an American abroad, the key to staying compliant is:
- Understand your filing obligations
- Keep records of all foreign income and taxes paid
- Consult a qualified tax advisor familiar with expat tax laws
Staying informed ensures that you avoid penalties, take advantage of all exclusions and credits, and enjoy your life overseas without IRS worries.
