Taxes for American Expats: Your 2025 Guide to IRS Rules and Tax Breaks

You can leave the country—but you can’t leave the IRS.

Unlike most countries, U.S. taxes are based on citizenship, not residency. That means if you’re a U.S. citizen or green card holder, you’re required to file a federal income tax return every year—even if you’ve spent the entire tax year sipping espresso in Rome or running a surf school in Bali.

This system, known as citizenship-based taxation, applies to all U.S. taxpayers abroad, including resident aliens with substantial ties to the U.S. And yes, the IRS still expects a complete tax return, no matter where in the world you’re living—or how little you earn.

The good news? While taxes for American expats can be complicated, there are generous tax breaks and credits for U.S. citizens overseas. But you have to file to claim them.

Do American expats still have to file U.S. tax returns?

If you’re earning income while living abroad, chances are you’re still on the IRS’s radar.

Whether you’re freelancing in Bali, running a business in Berlin, or teaching in Tokyo, you’ll likely need to file a U.S. federal tax return every calendar year. The exact filing requirements depend on how much you earn, your filing status, and whether you’re self-employed—but many expats are surprised by how low the thresholds are.

Here’s what to know:

• Employees generally must file if their gross income exceeds standard IRS thresholds (e.g., $15,000 for single filers in 2025).
• Self-employed taxpayers must file if they earn just $400 or more.
• If you qualify, the Child Tax Credit or other expat-friendly tax breaks could reduce what you owe—or even trigger a refund.

And don’t forget about deadlines. Expats automatically get until June 15 to file, but if you owe taxes, interest starts accruing after April 15. You can request a further extension until October 15, but it must be submitted before the June deadline.

You can e-file from abroad using tax software or work with a CPA who understands the unique challenges of tax filing across borders. Either way, staying current on your U.S. tax return ensures you remain in good standing—and opens the door to valuable tax benefits down the line.

What taxes do U.S. expats pay?

Living abroad may get you a fresh view, cheaper groceries, and fewer small talk obligations—but when it comes to taxes, Uncle Sam still wants his cut.

As a U.S. expat, you’re required to report your worldwide income—even if you earn it in a foreign country and never transfer a dime back home. That includes:

• Wages or salary (from a U.S. or foreign employer)
• Self-employment or freelance income
• Rental property income
• Capital gains from selling investments
• Dividends, interest, and yes, even that side hustle teaching yoga online

It all counts toward your gross income, and once you cross the IRS filing threshold, you’ve got a tax return to file. Depending on your situation, you may also owe:

• Income tax (subject to your filing status and tax bracket)
• Self-employment tax (yes, even abroad—Social Security and Medicare still apply unless you qualify under a totalization agreement)
• Capital gains tax, depending on how long you’ve held an asset
• Taxes on rental income, if you’re earning money from properties at home or abroad

And for a handful of Americans with very high net worths, there’s something called the expatriation tax (or exit tax)—a final tax bill for those giving up U.S. citizenship or a green card. (If that’s on your radar, talk to a tax professional ASAP. This one’s not DIY-friendly.)

The good news? You may not owe much—if anything—once you apply exclusions, credits, and deductions. But you still have to file. The IRS isn’t big on skipping paperwork, no matter how far you’ve wandered.

How to avoid double taxation as an American abroad

Nobody wants to pay taxes twice—especially not on the same paycheck. But when you’re living abroad as a U.S. taxpayer, that’s exactly what can happen… unless you know how to navigate the system.

Thankfully, the IRS offers a few surprisingly helpful tools to reduce your U.S. tax liability if you’re already paying income tax in a foreign country. With the right mix of exclusions, credits, and (occasionally confusing) tax forms, you can avoid double taxation and keep more of your money where it belongs: in your pocket.

Here’s how it works:

• Foreign Earned Income Exclusion (FEIE): You can exclude up to $130,000 for the 2025 tax year if you meet either the physical presence test or the bona fide residence test. It’s one of the most popular tax breaks for expats with earned income.
• Foreign Housing Exclusion: If your rent and utility bills are high, the foreign housing exclusion lets you knock out some of those costs too—especially useful in pricey cities abroad.
• Foreign Tax Credit (FTC): Already paying income taxes to your host country? You may be able to claim a dollar-for-dollar credit on your U.S. taxes instead of excluding income.
• Tax treaties: These agreements can offer extra protection—but many include a “saving clause” that limits their benefits for U.S. citizens. Translation: check before you count on them.

Understanding which strategy to use (and when) can make a big difference in your final tax bill. Choose wisely—and when in doubt, bring in a tax expert who understands expat filings inside and out.

FBAR and FATCA: Reporting foreign financial accounts

Two major reporting requirements—FBAR and FATCA—apply to many American expats. They aren’t taxes, but they are legal filing obligations. And missing them can lead to serious penalties.

Here’s what each one covers:

1. FBAR (FinCEN Form 114)

You must file an FBAR if:

• The aggregate value of your foreign financial accounts exceeds $10,000 USD at any time during the calendar year
• This includes checking, savings, investment accounts, pensions, and some business accounts

FBARs are submitted electronically through the Financial Crimes Enforcement Network (FinCEN)—not with your regular tax return.

2. FATCA (Form 8938)

FATCA applies to foreign financial assets, and must be filed with your federal income tax return. You’ll need to file if your assets exceed the following thresholds:

• $200,000 at year-end or $300,000 at any point during the year (for single filers living abroad)
• $400,000 at year-end or $600,000 at any point during the year (for joint filers living abroad)

FATCA focuses on what the assets are—stocks, securities, foreign-held partnerships—not just where they’re held.

What’s the difference between FBAR and FATCA?

• FBAR tracks accounts—where the money is
• FATCA tracks assets—what the money is invested in

If you meet both thresholds, you may need to file both.

What happens if you forget?

Penalties for non-compliance can be steep:

• Non-willful FBAR violations may result in fines of $10,000 per account, per year
• FATCA penalties can reach $10,000+, with additional fines for continued failure to file

If your oversight was non-willful, the Streamlined Filing Compliance Procedures or delinquent FBAR submission procedures may help you file late without penalties.

Bottom line: If you have foreign accounts or financial assets, FBAR and FATCA are part of your filing requirements. Staying compliant not only protects you from penalties—it also keeps your financial life abroad running smoothly.

Do U.S. expats have to file state taxes?

Just because you’ve packed your bags doesn’t mean your home state has let you go. While the federal government always expects a tax return, some state governments do too—even if you live abroad full-time.

Whether or not you need to file a state tax return depends on the state you last lived in—and how well you’ve severed ties.

What makes a state “sticky”?

States like California, New York, New Mexico, and South Carolina are known for being particularly reluctant to let go of taxpayers. If you still have strong ties, they may consider you a resident for tax purposes.

You may be required to file a state return if you:

• Maintain a home or rental property in the state
• Have a state-issued driver’s license or ID
• Vote in state elections
• Keep a bank account or investment account with a local branch
• Return to the state regularly or spend significant time there

How to break ties with your state

If you want to establish non-resident status, taking some of these steps may help:

• Cancel voter registration in the state
• Surrender your driver’s license and get one in your new country (if applicable)
• Close local bank accounts and set up international ones
• End leases or property ownership (or document that it’s for investment, not residence)
• Update your permanent address with financial institutions and the IRS

Some states don’t tax income at all

A handful of states—like Florida, Texas, and Nevada—have no state income tax. If your last U.S. residence was in one of these, you’re in luck: no state return is required.

Understanding your state’s residency rules—and formally cutting ties—can save you from unnecessary tax bills down the line.

Common IRS forms for expats

U.S. taxes come with a hefty stack of forms—and moving abroad doesn’t lighten the load. In fact, it may add a few new ones to your annual checklist.

Core tax forms for expats

• Form 1040: The standard U.S. individual income tax return. Still required every year, even if you live abroad full-time.
• Form 2555: Used to claim the Foreign Earned Income Exclusion (FEIE) via the bona fide residence or physical presence test.
• Form 1116: For claiming the Foreign Tax Credit on income taxes paid to a foreign country.
• Form 8938: FATCA reporting for foreign financial assets over certain thresholds.

Additional forms for certain tax situations

• Form 8858: Required if you own a foreign disregarded entity, like a single-member foreign LLC.
• Form 5471: For U.S. shareholders of controlled foreign corporations (CFCs)—often applies to expats who own foreign businesses.

What if you’re behind on taxes?

Life happens. Maybe you didn’t realize you had to file U.S. taxes from abroad, or maybe your foreign bank account report slipped through the cracks. The good news? The IRS offers amnesty programs for expats who want to catch up without facing harsh penalties.

Streamlined Filing Compliance Procedures

If your failure to file was non-willful, the Streamlined Procedures can help you get back on track. You’ll need to:

• File 3 years of late or amended income tax returns
• Submit 6 years of FBARs (Foreign Bank Account Reports)
• Include a statement certifying your non-willful conduct

This can eliminate or reduce penalties—especially useful for expats with foreign financial accounts who didn’t realize they had a filing requirement.

Who qualifies?

You may qualify for relief if:

• You’re a U.S. taxpayer who lives abroad
• Your failure to comply wasn’t intentional
• You haven’t already been contacted by the IRS or U.S. government about the issue

Not everyone is eligible, and the paperwork can get complicated fast—especially when dealing with multiple tax years, foreign income, and social security tax.

When to seek help

If you’re unsure whether you qualify—or if your tax situation involves things like foreign corporations, unreported income, or complex tax laws—a tax professional can walk you through the process and help reduce your risk.

IRS refunds and stimulus checks abroad

Living overseas doesn’t disqualify you from receiving an IRS refund or stimulus payment—as long as your tax return is accurate and up to date.

• Refunds can be deposited into a foreign bank account that accepts U.S. wire transfers.
• To avoid delays, keep your mailing address and bank information current with the IRS.
• Filing correctly and on time helps ensure any credits you’re eligible for—like the Child Tax Credit or Foreign Tax Credit—are properly applied.

For many expats, a properly filed return is the difference between missed money and a welcome deposit.

Tax breaks American expats shouldn’t miss

Living abroad doesn’t mean missing out on valuable tax breaks. In fact, U.S. expats often qualify for some of the most impactful deductions and credits available:

• Standard deduction: Available to most taxpayers, regardless of where they live.
• Foreign Earned Income Exclusion (FEIE): Exclude up to $130,000 (for 2025) in foreign earned income using the physical presence or bona fide residence test.
• Foreign Tax Credit (Form 1116): Claim a dollar-for-dollar credit for income taxes paid to a foreign country.
• Child Tax Credit (CTC): Up to $2,000 per qualifying child—with partial refundability, even abroad.
• Additional credits: Includes credits for education, dependent care, and even retirement contributions in some cases.

Get help with U.S. expat taxes

Managing U.S. taxes from abroad requires juggling multiple tax codes while deciphering IRS fine print. Whether you’re navigating complex filing requirements, foreign bank account reports, or simply trying to avoid double taxation, the right support can make all the difference.

A tax professional who specializes in expat tax services can help you:

• Stay compliant with U.S. tax laws across borders
• Maximize exclusions, credits, and deductions
• Avoid missed tax deadlines, costly penalties, and filing errors

At Bright!Tax, we work exclusively with Americans abroad—offering clear pricing, personalized tax strategy, and fast turnaround to meet every deadline (including the automatic extension to June 15). Need a hand? Get in touch and let’s take the stress out of your U.S. expat taxes.

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