US Taxes for Americans Living Abroad: What You Still Owe
Why US citizens file even when living overseas, how the Foreign Earned Income Exclusion and Foreign Tax Credit work, and what FBAR requires.
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Published by ClearCalc Editorial Team
ClearCalc Editorial Team
Our editorial team creates clear, practical explanations of personal finance, with an emphasis on transparent assumptions and useful next steps.
Key takeaways
- The US taxes citizens on worldwide income, no matter where they live.
- The Foreign Earned Income Exclusion and Foreign Tax Credit prevent most double taxation.
- Foreign accounts totaling over $10,000 at any point in the year trigger an FBAR filing.
Citizenship-based taxation
The United States is one of very few countries that taxes its citizens based on citizenship rather than residence. If you are a US citizen or green card holder, you generally have to file a federal return every year your income exceeds the filing threshold — even if you haven't set foot in the US for a decade.
Filing doesn't necessarily mean paying. Most Americans abroad owe little or no US tax once they apply the tools designed to prevent double taxation. But failing to file can create penalties and complications, so it's worth understanding the basics.
The Foreign Earned Income Exclusion
The Foreign Earned Income Exclusion (FEIE), claimed on Form 2555, lets you exclude a sizeable amount of foreign earned income from US tax each year. To qualify, you must have a tax home abroad and pass either the bona fide residence test or the physical presence test, which requires 330 full days outside the US in a 12-month period.
The FEIE only applies to earned income such as salary or self-employment income. It doesn't cover investment income, pensions or rental income, and it doesn't eliminate self-employment tax for freelancers.
Expat Budget Planner
Type today's rate from your bank or a currency service. The default is only a placeholder — we never fetch live rates.
What you earn per month before tax, in the currency you're paid in.
- Left to save each month (destination)
- €1,785
- Left to save each month (home)
- $1,940
- Gross income in destination currency
- €5,980
The Foreign Tax Credit
The Foreign Tax Credit (FTC), claimed on Form 1116, gives you a dollar-for-dollar credit for income taxes you pay to another country. If you live somewhere with higher tax rates than the US — much of Western Europe, for example — the FTC often wipes out your US liability entirely and can leave excess credits to carry forward.
In many cases the FTC is more valuable than the FEIE, particularly for families who want to claim the refundable portion of the Child Tax Credit. A tax professional who specializes in expat returns can model both approaches.
FBAR and FATCA reporting
Separate from your tax return, you must file an FBAR (FinCEN Form 114) if the combined value of your foreign financial accounts exceeded $10,000 at any time during the year. This is an information report, not a tax, but penalties for failing to file can be severe.
Higher balances may also require Form 8938 under FATCA. Expect foreign banks to ask about your US status — this is why some Americans abroad find it harder to open local accounts.
Deadlines and catching up
Americans living abroad get an automatic two-month extension to June 15 to file, and can request a further extension to October 15. Interest still accrues on any tax due from April 15. If you've fallen behind, the IRS Streamlined Filing Compliance Procedures offer a penalty-friendly path back for non-willful filers.
Frequently asked questions
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