If you are a US citizen or green card holder living abroad, US taxes still apply to you: the federal government taxes your worldwide income regardless of where you live, and you generally have to file a return every year even when you owe nothing. For the 2026 tax year, qualifying Americans overseas can exclude up to $132,900 of foreign earnings from federal income tax, and a separate credit is available for foreign income taxes already paid. What follows is what you actually have to file, what you can exclude, and the reporting rules that catch expats off guard.
You Still Have to File a US Return
Moving abroad does not change your basic obligation. Your worldwide income is subject to US income tax the same way it would be if you never left.1Internal Revenue Service. U.S. Residents The two main tools that keep this from turning into double taxation are the Foreign Earned Income Exclusion and the Foreign Tax Credit.
The Foreign Earned Income Exclusion (FEIE) lets you exclude foreign wages and self-employment income from your US taxable income. For 2026, the maximum exclusion is $132,900 per qualifying person.2Internal Revenue Service. Figuring the Foreign Earned Income Exclusion You claim it on Form 2555 attached to your Form 1040. A separate foreign housing exclusion covers certain housing costs above a base amount equal to 16% of the maximum FEIE, capped at $39,870 for 2026 with higher limits set by the IRS for specific high-cost cities.3Internal Revenue Service. Foreign Housing Exclusion or Deduction
The Foreign Tax Credit works differently. Rather than excluding income, it gives you a dollar-for-dollar reduction in your US tax bill for income taxes you already paid to a foreign government. You claim it on Form 1116. For high earners whose foreign income exceeds the FEIE cap, the credit is often the better tool, and the two can sometimes be used together on different categories of income.
To claim either FEIE benefit, you have to pass one of two residency tests. The Physical Presence Test requires you to be physically present in a foreign country for at least 330 full days during any 12 consecutive months.4Internal Revenue Service. Foreign Earned Income Exclusion – Physical Presence Test Those days do not need to be consecutive, but partial days and time in transit over international waters do not count. The Bona Fide Residence Test requires you to establish genuine residency in a foreign country for an uninterrupted period that includes an entire tax year.5Internal Revenue Service. Foreign Earned Income Exclusion The IRS weighs factors like the nature and length of your stay, whether you joined local community life, and whether you intend to return.
Deadlines Expats Actually Work With
If you live abroad, you get an automatic two-month extension to file, pushing the federal return deadline from April 15 to June 15. No form is needed to claim it. If you still need more time, Form 4868 gives you another four months, extending the deadline to October 15.6Internal Revenue Service. Form 4868 – Application for Automatic Extension of Time To File U.S. Individual Income Tax Return
The extension applies only to filing, not to payment. Interest accrues on any unpaid taxes from April 15 regardless of your filing extension.7Internal Revenue Service. Taxpayers Who Need More Time to File a Federal Tax Return Should Request an Extension You can e-file through authorized providers or mail paper returns to the IRS processing center in Austin, Texas. All foreign currency amounts on the return must be converted to US dollars. The IRS has no official exchange rate; it generally accepts any consistently used posted rate, such as rates published by banks or the Treasury Department.8Internal Revenue Service. Yearly Average Currency Exchange Rates
Keep records for at least six years. Federal tax law extends the normal three-year statute of limitations to six years when a taxpayer omits income attributable to foreign financial assets exceeding $5,000, even if the omission was not deliberate.9Office of the Law Revision Counsel. 26 USC 6501 – Limitations on Assessment and Collection Hold onto foreign wage statements, interest statements from foreign banks, and records of foreign taxes paid.
Self-Employment Tax Is Not Excluded
This one blindsides a lot of freelancers and business owners abroad. The FEIE does not reduce your self-employment tax. Even if your foreign earned income is fully excluded from income tax, you still owe the 15.3% self-employment tax on net earnings of $400 or more.10Internal Revenue Service. Self-Employment Tax for Businesses Abroad The 15.3% is 12.4% for Social Security (up to the annual wage base) and 2.9% for Medicare with no cap. An additional 0.9% Medicare surtax applies to earnings above $200,000 for single filers or $250,000 for married couples filing jointly.
If you live in one of the 30 countries that has a Social Security totalization agreement with the United States, you generally pay into only one country’s system, which can eliminate the US self-employment tax.11Social Security Administration. U.S. International Social Security Agreements Without an agreement, you owe the full US self-employment tax even if you are simultaneously contributing to a foreign social security system. Half of the self-employment tax is deductible as an adjustment to income, but the hit is still meaningful.
Foreign Account Reporting: FBAR and Form 8938
The United States enforces two separate reporting requirements for foreign financial accounts and assets. They overlap in confusing ways, and missing either one carries serious penalties. Filing one does not excuse you from filing the other.12Internal Revenue Service. Comparison of Form 8938 and FBAR Requirements
FBAR (FinCEN Form 114)
Under the Bank Secrecy Act, you must file a Report of Foreign Bank and Financial Accounts if the combined value of all your foreign financial accounts exceeds $10,000 at any point during the calendar year.13Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR) – Section: 4.26.16.2.6 Aggregate Value Over $10,000 The threshold is aggregate: three accounts holding $4,000 each on the same day crosses it. Bank accounts, brokerage accounts, and certain insurance policies all count.
The FBAR is filed electronically through FinCEN’s BSA E-Filing System, not with your tax return. The deadline is April 15, with an automatic extension to October 15 that requires no paperwork.14Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR) Penalties are harsh. Non-willful violations carry fines up to roughly $16,500 per account per year, adjusted annually for inflation. Willful violations can result in the greater of $100,000 or 50% of the account balance at the time of the violation.13Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR) – Section: 4.26.16.2.6 Aggregate Value Over $10,000
Form 8938 (FATCA)
The Foreign Account Tax Compliance Act requires a separate disclosure of specified foreign financial assets on Form 8938, filed with your tax return. For single filers living abroad, the threshold is $200,000 on the last day of the tax year or $300,000 at any point during the year. Married couples filing jointly get higher thresholds: $400,000 on the last day of the year or $600,000 at any time.15Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets? Form 8938 covers a broader range of assets than the FBAR, including foreign stock and securities, financial instruments, and interests in foreign entities. Many expats have to file both forms for the same year, each through its own system.
Foreign Gifts and Inheritances
A gift or inheritance from someone outside the United States does not trigger US income tax, but it does trigger a reporting obligation if the amount is large enough. You must file Form 3520 if you receive more than $100,000 in aggregate gifts or bequests from foreign individuals during a single tax year. For gifts over that threshold, each individual gift exceeding $5,000 must be separately identified.16Internal Revenue Service. Gifts From Foreign Person
The penalty for not filing or filing late is 5% of the unreported gift amount for each month the report is overdue, up to a maximum of 25%.17Office of the Law Revision Counsel. 26 USC 6039F – Information on Tax Status of Gifts and Bequests From Foreign Persons On a $200,000 inheritance, that is up to $50,000 in penalties for a form that carries no tax liability. A reasonable cause exception exists, but the IRS interprets it narrowly.
Avoid Foreign Mutual Funds and ETFs
One of the costliest tax mistakes Americans abroad make is investing in foreign mutual funds, ETFs, or other pooled investment vehicles. The IRS treats most of these as Passive Foreign Investment Companies (PFICs), which triggers a punishing tax regime.
When you receive an “excess distribution” from a PFIC or sell your shares at a gain, the gain is spread across every year you held the investment, taxed at the highest marginal rate that applied in each of those years, and then hit with an interest charge calculated as if you owed back taxes for every prior year in the holding period.18Office of the Law Revision Counsel. 26 USC 1291 – Interest on Tax Deferral The combined tax-plus-interest bill can easily exceed the actual gain. You must also file Form 8621 for each PFIC you own.19Internal Revenue Service. Instructions for Form 8621
Two elections can soften the blow. A Qualified Electing Fund election lets you pay tax on your pro-rata share of the fund’s earnings annually. A mark-to-market election requires you to include unrealized gains each year but avoids the excess distribution regime. Both require timely filing, and many foreign funds do not provide the financial statements needed for a QEF election. The practical advice for most Americans abroad: stick with US-domiciled index funds and avoid foreign-registered investment products.
Your Former State May Still Tax You
Federal taxes get all the attention, but your former state may still want a piece of your income after you leave. Roughly 41 states and the District of Columbia levy an income tax, and moving abroad does not automatically end your obligation. Each state has its own residency rules, and a handful are aggressive about maintaining claims against people who have left the country.
Factors that can keep you on a state’s tax rolls include maintaining a home or property there, holding a driver’s license or state ID, having a spouse or dependents who remain, staying registered to vote in the state, and keeping bank accounts or professional licenses. Some states distinguish between “residence” and “domicile,” meaning you can owe taxes even if you have not set foot in the state all year. If you left a state that taxes income, research its specific departure requirements before assuming you are in the clear.
Social Security and Medicare
The 30 US totalization agreements cover most of Western Europe, Canada, Australia, Japan, South Korea, and several Latin American nations. They prevent you from paying social security taxes to both countries on the same earnings and let you combine work credits from both countries to qualify for benefits.11Social Security Administration. U.S. International Social Security Agreements US citizens can generally receive Social Security payments in most foreign countries, though the SSA maintains a short list of countries where payments cannot be sent due to US sanctions or other restrictions.20Social Security Administration. Country List 1 – International Programs
Medicare is a different story. Coverage is essentially limited to the 50 states, the District of Columbia, and US territories.21Medicare. Travel Outside the U.S. A few narrow exceptions exist for emergencies near the Canadian or Mexican border or on cruise ships, but Medicare will not pay for care received abroad. If you plan to return to the US eventually, keep paying your Part B premiums to avoid the late enrollment penalty: an extra 10% added to your monthly premium for each full year you were eligible but did not enroll. That surcharge lasts as long as you have Part B, which for most people means permanently.22Medicare. Avoid Late Enrollment Penalties
Renouncing Citizenship and the Exit Tax
Some Americans abroad eventually consider giving up citizenship to end the lifelong filing obligations. The process involves appearing at a US consulate, formally renouncing before a consular officer, and paying a $450 administrative fee. Ending your citizenship does not necessarily end your tax obligations cleanly.
If you qualify as a “covered expatriate,” the IRS imposes a mark-to-market exit tax, treating all your worldwide assets as if sold the day before you renounce. You owe tax on any unrealized gain above an inflation-adjusted exclusion (set at a base of $600,000 in 2008).23Office of the Law Revision Counsel. 26 USC 877A – Tax Responsibilities of Expatriation Deferred compensation, retirement accounts, and interests in trusts face their own separate rules. You become a covered expatriate if your net worth is $2 million or more, if your average annual net income tax liability over the five preceding years exceeds a threshold adjusted yearly for inflation, or if you fail to certify on Form 8854 that you have met all federal tax obligations for the prior five years.24Internal Revenue Service. Expatriation Tax
Form 8854 must be filed by anyone who renounces citizenship or terminates long-term permanent residency, generally defined as holding a green card in at least 8 of the last 15 tax years.25Internal Revenue Service. Instructions for Form 8854 Exceptions to covered expatriate status exist for certain dual citizens from birth and individuals who renounce before age 18½. Renunciation is irreversible, and the tax consequences can be substantial for anyone with significant assets. Professional advice before taking this step is well worth the cost.