U.S. Taxes for Americans Abroad: How to File, Save, and Stay Compliant
Living overseas can be an incredible experience—whether you’re building a career in another country, running your own business, or enjoying retirement in a new culture. But if you’re a U.S. citizen or lawful permanent resident (green card holder), your tax obligations don’t disappear when you leave the country.
The United States is one of the few countries that taxes its citizens and residents on their worldwide income, no matter where they live. That means you may still need to file a U.S. tax return, report foreign income, and possibly pay U.S. taxes—even if you haven’t set foot in the States all year.
This guide breaks down the rules, benefits, and strategies you need to know to file correctly, reduce your tax bill, and stay compliant.
1. Understanding Worldwide Income Reporting
If you’re a U.S. citizen or green card holder living abroad, you must:
• File an annual U.S. tax return (Form 1040)
• Report all income—from both U.S. and foreign sources—unless specifically exempt under U.S. tax law or a treaty
• Pay any applicable federal income tax
It doesn’t matter if your income is in euros, yen, or pesos, or if it’s deposited into a foreign bank account—you must still report it in U.S. dollars.
2. The Foreign Earned Income Exclusion (FEIE)
The Foreign Earned Income Exclusion is one of the most valuable tax breaks for Americans abroad. It allows you to exclude a set amount of your foreign earned income from U.S. taxation each year.
• 2025 limit: $126,500 per qualifying taxpayer (adjusted annually for inflation)
• You may also qualify for a foreign housing exclusion (if employed) or foreign housing deduction (if self-employed) for certain housing costs above a base amount.
Who Qualifies?
To claim the FEIE, you must:
1. Have foreign earned income – Wages or self-employment income from work performed in a foreign country.
2. Have a foreign tax home – Your main place of business must be outside the U.S., and your “abode” (economic and personal ties) must also be abroad.
3. Meet one of two residency tests:
Bona Fide Residence Test – You are a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year.
Physical Presence Test – You are physically present in one or more foreign countries for at least 330 full days during any 12-month period.
4. Make a valid election – File Form 2555 with your tax return.
3. What Counts as Foreign Earned Income?
Foreign earned income is pay for services performed in a foreign country. It does not include:
• Income earned in U.S. territories (like Puerto Rico or Guam)
• Pay from the U.S. government to its employees, even if earned abroad
• Income earned in international waters, airspace, or Antarctica
• Passive income such as dividends, interest, or capital gains
4. The Foreign Tax Home Requirement
Your tax home is your regular or main place of business, employment, or post of duty. To qualify for the FEIE, your tax home must be in a foreign country, and your abode—your personal, economic, and family ties—cannot be in the U.S. during that period (with limited exceptions for certain military service).
5. The Residency Tests
Bona Fide Residence Test
• Who can use it: U.S. citizens, or U.S. residents who are citizens/nationals of a country with a U.S. income tax treaty.
• Requirement: You must be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year.
• How it’s determined: This is a subjective test—the IRS considers factors such as your intent, the extent of your integration into the foreign community, and the reasons for any temporary absences.
Physical Presence Test
• Who can use it: Any U.S. citizen or resident.
• Requirement: You must be physically present in one or more foreign countries for at least 330 full days during any 12-month period.
• How it’s determined: This is an objective test—it’s purely a matter of counting days.
6. Waiver of Time Requirements
If you must leave a foreign country early due to war, civil unrest, or other adverse conditions, the IRS may waive the time requirements for the Bona Fide Residence or Physical Presence Test. The IRS publishes a list of qualifying countries and dates each year.
7. Filing Requirements
Even if your FEIE reduces your taxable income to zero, you still must file a U.S. tax return to claim it.
You’ll typically need:
• Form 1040 – Your main tax return
• Form 2555 – To claim the FEIE and/or foreign housing exclusion/deduction
• Foreign Earned Income Tax Worksheet – To calculate tax on any income not excluded
8. Employment Taxes Abroad
FICA Taxes
If you work for:
• An American employer
• A foreign employer treated as an American employer under U.S. tax law
• Certain foreign affiliates of American employers
…you may have to pay Social Security and Medicare taxes (FICA) on your wages, even while living abroad.
SECA Taxes
If you are self-employed, you must pay self-employment tax if your net earnings are $400 or more, regardless of where you live or whether you claim the FEIE.
9. Totalization Agreements: Avoiding Double Social Security Taxes
The U.S. has totalization agreements with many countries to prevent double payment of Social Security taxes. These agreements determine whether you pay into the U.S. system, the foreign system, or both.
If covered by a totalization agreement:
• Employees should obtain a certificate of coverage from the foreign country or the U.S. Social Security Administration.
• Self-employed individuals should attach the certificate to their U.S. tax return and note “Exempt, see attached statement” on the self-employment tax line.
10. Common Mistakes to Avoid
• Not filing because you think you owe nothing – You must file to claim exclusions or treaty benefits.
• Confusing foreign earned income with all foreign income – Investment income abroad is not “earned” and cannot be excluded under FEIE.
• Missing deadlines – Americans abroad get an automatic two-month extension to file (June 15), but interest still accrues after April 15.
• Ignoring FBAR and FATCA rules – Separate from income tax, you may need to report foreign bank accounts and assets.
11. FBAR & FATCA Reporting
Separate from your tax return:
• FBAR (FinCEN Form 114) – Required if foreign bank accounts exceed $10,000 aggregate at any time during the year.
• FATCA (Form 8938) – Required for certain foreign financial assets above thresholds.
12. Key IRS Resources
Final Takeaway
If you’re a U.S. citizen or permanent resident abroad, your tax obligations follow you. The good news is that the tax code offers tools like the Foreign Earned Income Exclusion, foreign housing benefits, and totalization agreements to help reduce double taxation. But these benefits only work if you understand the rules and file correctly.
Pro tip: Keep detailed records of your travel dates, income sources, and housing expenses. This will make it much easier to prove eligibility for exclusions and avoid costly mistakes.
Ready to simplify your expat tax compliance and keep more of what you earn?
At Beechhurst Capital Advisors, we specialize in helping Americans abroad navigate complex tax rules, optimize their filings, and integrate tax planning with broader financial strategies. Schedule a consultation today to get a tailored plan that keeps you compliant, minimizes your tax burden, and frees you to focus on your life overseas.
