Dual citizenship can offer individuals valuable benefits, such as expanded travel rights, access to social services, and the ability to live and work in multiple countries. However, with these benefits also come complex tax responsibilities—especially when one of your citizenships is American. The United States is one of the few countries that taxes its citizens on worldwide income, regardless of where they live. This means that dual citizens who hold U.S. citizenship are required to file U.S. tax returns, even if they reside abroad and earn all their income overseas.
This detailed blog explores how dual citizens should approach U.S. tax filing, what forms are required, how to avoid double taxation, and how to stay compliant while minimizing liabilities and penalties.
Who Qualifies as a Dual Citizen?
A dual citizen is someone who holds the citizenship of two countries at the same time. This can occur by:
- Birth in a foreign country to U.S. parents
- Birth in the U.S. to foreign parents (and later acquiring another citizenship)
- Naturalization in another country without renouncing U.S. citizenship
- Acquisition of citizenship through marriage or descent
If you are a U.S. citizen and hold citizenship in another country, you are still obligated to meet your U.S. tax reporting requirements regardless of where you live or where your income is earned.
Do Dual Citizens Have to File U.S. Taxes?
Yes. The U.S. imposes taxes on the worldwide income of all its citizens, including those who reside permanently in another country. This obligation exists regardless of how long you’ve lived abroad or whether you pay taxes to a foreign government.
As a dual citizen, if your income exceeds the minimum filing threshold (which varies based on filing status and age), you must file a U.S. federal income tax return each year using Form 1040. Additional forms may also be required depending on your foreign financial accounts, business holdings, and residency status.
Key Tax Forms for Dual Citizens
1. Form 1040 – U.S. Individual Income Tax Return
This is the main form for reporting your income to the IRS. You must include income from both U.S. and foreign sources.
2. Form 2555 – Foreign Earned Income Exclusion
Dual citizens who meet the IRS requirements for foreign residence or physical presence abroad can exclude up to $120,000 (2025 limit, indexed annually) of earned income using this form.
3. Form 1116 – Foreign Tax Credit
If you paid foreign income taxes to another country, you may use this form to claim a dollar-for-dollar credit against your U.S. tax liability, helping to avoid double taxation.
4. FinCEN Form 114 – FBAR (Foreign Bank Account Report)
If the aggregate value of your foreign bank and financial accounts exceeds $10,000 at any time during the year, you must file an FBAR electronically with the U.S. Treasury Department. Failure to file can result in steep penalties.
5. Form 8938 – FATCA (Statement of Specified Foreign Financial Assets)
U.S. taxpayers with foreign financial assets exceeding certain thresholds must file Form 8938 along with their tax return. Thresholds vary based on filing status and residency (e.g., $200,000 for individuals living abroad).
Residency Tests: Are You Considered Abroad?
To qualify for certain exclusions or credits, the IRS considers whether you are truly living abroad. There are two primary residency tests:
- Physical Presence Test: You must be physically present in a foreign country for at least 330 full days during a 12-month period.
- Bona Fide Residence Test: You must be a bona fide resident of a foreign country for an entire tax year, usually accompanied by permanent resident status and strong ties to the foreign country.
Meeting these tests allows you to claim the Foreign Earned Income Exclusion and potentially avoid taxation on a portion of your income.
How to Avoid Double Taxation
One of the main concerns for dual citizens is paying taxes twice—once to the U.S. and again to their other country of citizenship. Thankfully, there are mechanisms in place to prevent this:
Foreign Tax Credit (Form 1116)
If you pay foreign taxes on the same income that the U.S. taxes, you can claim a foreign tax credit to offset your U.S. tax liability. This credit reduces your U.S. tax dollar-for-dollar by the amount of foreign tax paid, subject to limitations.
Foreign Earned Income Exclusion (Form 2555)
Rather than taking a credit, you may choose to exclude a portion of your foreign earned income. However, the exclusion does not apply to unearned income like dividends or capital gains.
Tax Treaties
The U.S. has income tax treaties with many countries to help dual citizens avoid double taxation and determine which country has taxing rights over specific types of income. Treaties can impact how pensions, Social Security, business income, and other items are taxed.
Reporting Foreign Bank Accounts and Investments
In addition to reporting income, dual citizens must disclose foreign financial accounts and assets to the IRS and the Treasury Department. This includes checking and savings accounts, investment accounts, pensions, and certain life insurance policies held abroad. Two important reporting requirements are:
- FBAR (FinCEN 114): Required if the total value of your foreign accounts exceeds $10,000 at any point during the year.
- FATCA (Form 8938): Required if your foreign assets exceed specific thresholds—$200,000 for single filers living abroad, or $50,000 if living in the U.S.
Penalties for failing to comply with these reporting requirements can be severe, including fines of $10,000 or more per violation.
Do Dual Citizens Need to File State Taxes?
State tax obligations depend on your ties to a specific U.S. state. If you have a permanent residence, driver’s license, voter registration, or business in a state, you may still be considered a resident and required to file a state return. Severing ties with the state when moving abroad is crucial to avoid unwanted tax obligations.
What If You Haven’t Been Filing?
Many dual citizens are unaware of their U.S. tax filing obligations, especially those who’ve never lived in the U.S. or left at a young age. Fortunately, the IRS has programs to help you catch up without penalties:
Streamlined Foreign Offshore Procedures
This amnesty program allows non-compliant taxpayers residing outside the U.S. to file up to three years of tax returns and six years of FBARs without facing failure-to-file penalties, provided their non-compliance was non-willful.
Delinquent FBAR or 8938 Submission
If you’ve filed all income tax returns but missed informational filings like FBAR or Form 8938, you may be able to submit these forms late under streamlined rules to avoid penalties.
Renouncing U.S. Citizenship: A Last Resort?
Some dual citizens consider renouncing their U.S. citizenship to avoid ongoing tax obligations. While legal, this is a serious decision with long-term implications:
- You may be subject to the U.S. exit tax if your net worth exceeds $2 million or if you haven’t been tax compliant for five years.
- Renunciation is irrevocable and may affect your ability to travel to the U.S.
- You must settle all tax obligations and file Form 8854 (Initial and Annual Expatriation Statement).
Renunciation should only be considered after consulting with a qualified tax and immigration professional.
Tips for Filing U.S. Taxes as a Dual Citizen
- Maintain thorough documentation of all income, foreign taxes paid, and financial accounts.
- Work with a tax preparer experienced in expat and international tax matters.
- Consider using U.S.-based tax software with expat features or specialized expat tax services.
- File early to accommodate time zone differences, mailing delays, and complexities.
- Use the automatic two-month extension for expats (to June 15) if needed, and file Form 4868 for further extension to October 15.
Conclusion: Stay Compliant While Living Globally
Filing U.S. taxes as a dual citizen may seem daunting, but with the right knowledge and preparation, you can fulfill your obligations while minimizing double taxation and avoiding penalties. Understanding the forms required, leveraging credits and exclusions, and maintaining transparency with the IRS are key to staying compliant. For many dual citizens, working with a qualified international tax advisor is the smartest way to navigate the intricacies of cross-border taxation and ensure peace of mind while enjoying the benefits of global citizenship.
