Taxes for US Citizens Living Abroad: What You Need to Know in 2025

Leaving the country? The Internal Revenue Service hopes you’re enjoying the view—because they’re coming with you.

As far as the U.S. tax code is concerned, moving abroad doesn’t mean you’ve escaped your obligations. In fact, it may mean you’ve got more to keep track of. Citizenship, not location, is what ties you to the U.S. tax system.

So if you’re a U.S. citizen, green card holder, or resident alien, you’re expected to report your worldwide income—salaries, side gigs, rental profits, investments, all of it. Gross income has no borders, and neither does the IRS.

Filing requirements for US citizens abroad

Living abroad might change your address—but it doesn’t change your taxpayer obligations.

If you’re a U.S. citizen, green card holder, or resident alien, you’re required to file a U.S. tax return each year if your gross income exceeds the minimum threshold. That includes income earned anywhere in the world—from salaries and freelance work to rental income and investment gains.

Here’s how the 2025 filing thresholds break down:

• Single: File if your gross income is over $14,600
• Married filing jointly: File if your combined income exceeds $29,200
• Self-employed: File if you earn $400 or more in gross self-employment income—regardless of total income or location

These thresholds are tied to the standard deduction and may shift each year, so it’s worth checking the IRS website before you file.

For Americans living abroad, there are a few added complexities:

• You may owe self-employment tax (Social Security + Medicare) even if you qualify for income exclusions or credits.
• You must file to claim benefits like the Foreign Earned Income Exclusion or Foreign Tax Credit. If you skip filing, you lose the right to use them.
• You automatically get a filing extension until June 15, but interest on unpaid taxes starts accruing from April 15.
• The U.S. tax year is always the calendar year—January 1 to December 31—even if your host country uses a different system.

Many expats choose to work with a tax professional familiar with the maze of foreign income, financial accounts, and IRS reporting. When you’re managing bank accounts, rental properties, or self-employment across borders, expert help isn’t a luxury—it’s a lifeline.

What tax forms do you need to file?

Living abroad doesn’t simplify your paperwork—it multiplies it. U.S. citizens abroad are still required to file a federal income tax return (Form 1040) each year, even if they qualify for exemptions or owe nothing.

Here are the core IRS forms many expats need to file:

• Form 1040: The standard U.S. tax return. If you’re a U.S. citizen or resident alien, you must file this form annually—reporting all worldwide income.
• Form 2555: For claiming the Foreign Earned Income Exclusion (FEIE), which lets you exclude up to $130,000 (2025 tax year) of foreign earned income if you meet physical presence or bona fide residency tests.
• Form 1116: Used to claim the Foreign Tax Credit (FTC), which reduces your U.S. tax bill if you’ve paid foreign taxes on the same income.
• Form 8938: Part of FATCA reporting, this form discloses specified foreign financial assets (like overseas bank accounts, investment accounts, or foreign pensions) above certain thresholds.
• FinCEN Form 114 (FBAR): Required if the aggregate value of your foreign bank accounts exceeded $10,000 at any time during the tax year. This form is filed separately with the U.S. Treasury, not with your tax return.

And don’t forget: tax treaties between the U.S. and your country of residence may affect how certain types of income are taxed. But you still need to file to benefit from them—treaty exemptions aren’t automatic.

How the Foreign Earned Income Exclusion (FEIE) works

The Foreign Earned Income Exclusion (FEIE) is one of the most valuable tax benefits available to U.S. citizens living abroad—if you qualify.

For the 2025 tax year, the FEIE allows you to exclude up to $130,000 in foreign earned income from your U.S. tax return. But it’s not automatic—you must pass one of two residency tests and file Form 2555 with your federal tax return.

Here’s how the tests work:

• Physical Presence Test: You must be physically present in a foreign country (or countries) for 330 full days in any 12-month period.
• Bona Fide Residency Test: You must be a bona fide resident of a foreign country for an entire tax year, with strong ties like a long-term lease, local tax payments, or permanent residence.

If your foreign earned income exceeds the FEIE limit, or if you pay rent abroad, you may also qualify for the Foreign Housing Exclusion—an additional deduction that covers reasonable housing expenses, including rent, utilities, and insurance.

The Foreign Tax Credit: How to avoid double taxation

The Foreign Tax Credit (FTC) lets U.S. taxpayers reduce their U.S. tax liability by claiming a dollar-for-dollar credit on income taxes they’ve already paid to a foreign country.

It’s designed to prevent double taxation—and it works especially well if you live in a country with higher tax rates than the U.S. (looking at you, Scandinavia). You’ll file Form 1116 with your federal tax return to claim the credit.

While many expats qualify for both the Foreign Earned Income Exclusion (FEIE) and the FTC, using them together takes strategy. You can’t double-dip—income you exclude with the FEIE can’t also be used to claim the credit.

So, when should you use which?

• FEIE is usually best if you live in a low- or no-tax country and want to exclude earned income up to the annual limit.
• FTC tends to be better if you’re paying high income taxes abroad—or have passive income (like dividends or capital gains) that doesn’t qualify for the FEIE.
• Both can be used in combination, but must apply to separate sources of income.

FBAR and FATCA: Reporting foreign financial accounts

Paying taxes isn’t the only obligation U.S. citizens living abroad face. You also have to report your foreign accounts—sometimes in more than one place.

Two key requirements apply here: FBAR (FinCEN Form 114) and FATCA (Form 8938). While both aim to prevent offshore tax evasion, they’re different in scope, thresholds, and where they’re filed.

Here’s the breakdown:

• FBAR (Foreign Bank Account Report) applies if the total value of your foreign financial accounts (like bank accounts, brokerage accounts, or certain pensions) exceeds $10,000 at any point during the calendar year. You file it through the BSA E-Filing System, not with your tax return.
• FATCA (Form 8938), which stands for Foreign Account Tax Compliance Act, is filed with your federal tax return and has higher thresholds—starting at $200,000 for expats filing as single. It covers not just bank accounts, but foreign stocks, trusts, and other financial assets.

Miss a filing, and the penalties aren’t light. FBAR noncompliance can lead to fines of $10,000 or more, while FATCA carries similar penalties and could draw the attention of the IRS for deeper investigation.

Do American expats need to file state taxes too?

Living abroad doesn’t always mean you’ve escaped state taxes—especially if you moved from a state that wants to keep you on the books.

Some U.S. states—like California, New Mexico, South Carolina, and Virginia—have strict residency definitions and no clear exit path unless you’ve formally severed ties. That means even if you’re living in Berlin or Bangkok, you could still be expected to file a state income tax return.

How do they decide if you still “belong” to them? State tax authorities look at things like:

• Where you’re registered to vote
• Your driver’s license and vehicle registration
• Where your family resides
• Where you own property or have financial accounts

To end your tax relationship, you typically need to establish residency elsewhere and cut as many of those ties as possible.

Tax exemptions, credits, and deductions for expats

When you’re living abroad, the U.S. tax code still offers some helpful ways to lighten your tax bill—if you know where to look.

Start with the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC)—two of the most powerful tools for reducing double taxation. But beyond those, there are additional benefits worth noting:

• Social Security benefits may be taxable depending on your country of residence and any applicable tax treaty. Some countries exempt these benefits; others don’t.
• Child Tax Credit and Additional Child Tax Credit are still available to qualifying expat parents—even if you live overseas full-time.
• Tax preparation fees and certain housing costs related to your foreign assignment may also qualify for deductions in specific cases.

Not all reporting requirements lead to tax owed—but missing them can cost you anyway. If you’re a U.S. tax resident abroad with foreign financial accounts, make sure you’re claiming the credits and deductions that apply to your filing status and income source.

Common pitfalls and penalties

The U.S. tax system doesn’t take international distance as an excuse—and mistakes abroad can come with a serious price tag.

Miss a filing deadline? Fail to report your foreign financial accounts? Forget to include income on your return? You could face:

• Penalties starting at $10,000 for failing to file FBAR or Form 8938.
• Interest charges for late payment, even if you’re on the expat filing extension.
• Loss of access to amnesty programs like the Streamlined Filing Compliance Procedures or DIIRSP if the IRS contacts you first.

Many expats assume that if they don’t owe tax, they don’t need to file. Unfortunately, the IRS and the U.S. government see it differently. Filing is required to claim exclusions, deductions, and credits—regardless of whether your final U.S. income tax bill is zero.

Getting help with your U.S. expat taxes

Filing taxes as a U.S. expatriate isn’t just about checking boxes—it’s about navigating one of the world’s most complex tax systems while living outside it. From managing foreign income and financial institutions to decoding the ever-changing rules around credits, exemptions, and deadlines, even the most organized nonresident can hit a wall.

That’s where expert help makes all the difference.

At Bright!Tax, our CPAs specialize in helping U.S. citizens, green card holders, and expats stay fully compliant while optimizing their tax position. Whether you’re filing from Berlin, Bangkok, or Buenos Aires, we’ll guide you through every step—so your tax obligations don’t get in the way of your life abroad.

Have questions? Ready to simplify your tax year? Get in touch and file smarter, not harder—wherever in the world you call home.

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