Expat tax filing

United States citizens and green card holders are taxed on their worldwide income regardless of where they live. Unlike nearly every other country (only the US and Eritrea do this), the US uses citizenship-based taxation rather than residence-based taxation.

68 steps across 12 sections

1. Determine If You Must File (January)

  • Single: gross income of $15,750 or more
  • Married Filing Jointly: $31,500 or more
  • Self-employed: $400 or more in net earnings (regardless of other thresholds)
  • You owe any special taxes (self-employment tax, AMT, household employment taxes)
  • You want to claim a refund of withheld taxes or estimated tax payments
  • You want to claim the Earned Income Credit (note: EITC is not available if you use the FEIE)

2. Gather Documents (January-March)

  • Social Security Numbers for yourself, spouse, and dependents
  • Prior year tax return (for AGI verification in e-filing)
  • Bank account and routing numbers (for direct deposit)
  • Current foreign address and country of residence
  • W-2 forms from any US employer
  • Foreign employer pay stubs or salary statements (converted to USD)
  • 1099 forms (1099-INT, 1099-DIV, 1099-B, 1099-R, 1099-NEC)
  • Records of foreign rental income, business income, or investment income
  • Foreign pension or social security statements
  • Dates of all international travel (precise entry/exit dates for Physical Presence Test)

3. Determine Your Tax Home and Qualification Test

  • You must be physically present in one or more foreign countries for at least 330 full days during any consecutive 12-month period
  • The 12-month period does not have to align with the calendar year
  • Days in transit over international waters do NOT count
  • Brief trips to the US are allowed (up to 35 days in the 365-day period)
  • "Full day" means the entire 24-hour period from midnight to midnight
  • This is purely mechanical — it does not matter why you were abroad
  • You must be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year (January 1 - December 31)
  • The IRS considers factors like: intent to remain abroad, nature of your stay, ties established in the foreign country (home, family, social involvement), purpose of trips back to the US
  • Brief or temporary trips to the US do not necessarily disqualify you
  • Cannot be used in the first calendar year abroad (since you need a full calendar year)

4. Choose Between FEIE and Foreign Tax Credit (or Both)

  • Only applies to earned income (wages, salaries, self-employment income, professional fees)
  • Does NOT apply to investment income, rental income, pensions, Social Security, capital gains, or interest/dividends
  • If married and both spouses qualify, you can exclude up to $260,000 combined (2025)
  • Reduces your taxable income — remaining income is taxed at the rate that would apply if the exclusion had not been taken (the "stacking rule")
  • Once you revoke the FEIE election, you cannot re-elect it for 5 years without IRS approval
  • You live in a low-tax or no-tax country (UAE, Singapore, Hong Kong, Bahamas, etc.)
  • Your earned income is below the exclusion amount
  • You do not pay significant foreign taxes
  • You want simplicity
  • Provides a dollar-for-dollar credit against your US tax for foreign taxes paid or accrued

5. Calculate the Housing Exclusion/Deduction

  • Base amount: 16% of the FEIE ($20,800 for 2025)
  • Maximum housing amount: $39,000 (unless you qualify for a higher limit in a high-cost city)
  • Net excludable amount: Maximum housing expenses minus base = up to $18,200
  • Base amount: 16% of the FEIE ($21,264 for 2026)
  • Maximum housing amount: $39,870
  • Net excludable amount: up to $18,606

6. File Your Return

  • E-file using tax software (TurboTax, H&R Block, MyExpatTaxes)
  • E-file through a tax professional
  • Paper file by mail to: Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215 (for those outside the US with no US address)

7. Exceptions to the Saving Clause

  • Pension provisions — Some treaties exempt foreign government pensions from US tax
  • Social Security provisions — Many treaties prevent double taxation of Social Security benefits (e.g., US-UK, US-Canada, US-Germany)
  • Student/trainee provisions — Certain exemptions for study or training
  • Government service provisions — Pay for government service may be taxable only in the paying country

8. Practical Impact

  • Retirees receiving foreign pensions or Social Security from treaty countries
  • Specific types of passive income (royalties, dividends) where treaties reduce withholding rates
  • Resolution of disputes about which country has taxing rights

9. FBAR (FinCEN Form 114)

  • Threshold: $10,000 aggregate balance across ALL foreign financial accounts at any point during the year
  • Filed electronically through BSA E-Filing (not with your tax return)
  • Deadline: April 15 with automatic extension to October 15
  • Penalties for non-filing: Up to $10,000 per account per year for non-willful violations; up to $100,000 or 50% of account balance for willful violations (CRIMINAL penalties also possible)
  • What counts as a "foreign financial account": Bank accounts, securities accounts, mutual funds, retirement accounts, insurance policies with cash value, and accounts where you have signature authority

10. FATCA (Form 8938)

  • Higher thresholds than FBAR (for expats): $200,000 at year-end or $300,000 at any point during the year (single); $400,000 at year-end or $600,000 at any point (married filing jointly)
  • Filed with your tax return (not separately)
  • Covers broader category of assets: Foreign accounts plus foreign stock/securities held outside a financial institution, foreign partnership interests, foreign mutual funds, foreign hedge funds, foreign private equity funds
  • Penalty: $10,000 for failure to file, up to $50,000 for continued failure after IRS notification

11. Best Practices

  • Formally establish domicile in a no-income-tax state before moving abroad (if possible)
  • Sever ties with your former state: surrender driver's license, change voter registration, close bank accounts, sell or lease property
  • Keep documentation proving you do not intend to return to the taxing state
  • Some states require filing a "part-year" or "non-resident" return in the year you leave

12. Who Is a "Covered Expatriate"?

  • Net worth: $2 million or more on the date of expatriation
  • Average tax liability: Average annual net income tax for the 5 years preceding expatriation exceeds a threshold (~$201,000 for 2025, adjusted for inflation)
  • Compliance: You cannot certify that you have been in compliance with all US tax obligations for the preceding 5 years

Common Mistakes

  • Not filing at all
  • Missing the FBAR filing
  • Choosing FEIE when FTC is better (or vice versa)
  • Revoking the FEIE without understanding the 5-year lockout
  • Failing to convert foreign currency correctly

Pro Tips

  • Run a comparison every year
  • Maintain a detailed travel log
  • File even if you owe nothing
  • Consider Totalization Agreements for SE tax
  • Use the Streamlined Filing Compliance Procedures if you are behind

Sources

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