If you are planning to move overseas, there are tax obligations you should be aware of. As a United States Citizen, you are required to file a U.S. federal tax return to report your worldwide income, regardless of where you live and work. And the only way to leave U.S. taxes behind is to renounce your citizenship. Failing to file your taxes when required could result in steep penalties and interest.
If you are living and working overseas, the Internal Revenue Service does provide several tax benefits that can help you reduce your U.S. tax liabilities. These include:
Foreign Earned Income Exclusion (FEIE): This allows you to exclude a certain amount of foreign earned income from your U.S. taxes. This amount changes every year. For 2025, the maximum amount of foreign earned income you can exclude is $130,000 per qualifying individual. Foreign income earned indirectly cannot be excluded using the FEIE. This includes income such as dividends, interest, capital gains, gambling, rent and scholarships.
Foreign Tax Credit: This is a dollar-for-dollar credit on any income taxes paid to a foreign government. This means that if you paid $10,000 in foreign taxes, you could potentially reduce your U.S. taxes by the same amount. This helps avoid double taxation.
Foreign Housing Deduction (or Exclusion): You can deduct or exclude certain rental housing expenses from your gross income while living abroad, by claiming the Foreign Housing Exclusion. To qualify for this exclusion, you must satisfy either the bona fide residence test or the physical presence test.
If you are retiring abroad, you will still have to file and potentially pay U.S. taxes on your worldwide income. This includes pensions, social security benefits, investment income and retirement accounts. However, as a citizen or resident alien of the U.S., you may also be eligible for certain tax benefits and rate reductions, arising from the income tax treaties the U.S. has with several countries.
The United States has income tax treaties with many countries around the world. Each treaty is unique, but they all have the same purpose, which is to eliminate double taxation.
In addition to your annual tax return filing obligation, you may also be required to share financial information as an American living abroad, such as:
Foreign Bank Account Reporting (FBAR): If you own one or more foreign financial accounts and the total combined value of those account balances exceeds $10,000 at any point during the reporting year, then you need to file an FBAR.
Foreign Account Tax Compliance Act (FATCA): You may need to report your foreign financial assets if the aggregate value of those assets exceeds the threshold. For a single person living abroad, the threshold is $200,000 in foreign assets held at the end of the year or more than $300,000 at any point during the year. For a married person living abroad, the threshold is $400,000 in foreign assets held at the end of the year or more than $600,000 at any point during the year.
U.S. persons living abroad who fail to file U.S. taxes risk passport denial, penalties and even criminal charges. The IRS charges penalties for both late filing and late payments. The U.S. tax laws can be complex, especially when living abroad, but it is important that you remain current in your U.S. tax filing obligations.
-Contributed by Elizabeth Shauger, CPA, director at Mauldin & Jenkins
