This article is up to date for tax year 2025 (returns filed in 2026).
The rules for filing income taxes are generally the same for all American citizens and resident aliens, no matter where in the world you live. That’s because the U.S. filing requirement is based on citizenship — not place of residence. This article takes a look at the tax implications if you live and/or earn income abroad.
Do U.S. citizens pay taxes when living abroad?
Yes, American citizens and resident aliens living abroad are still required to file U.S. taxes. When you file taxes as an expat, the main difference is the type of forms you have to fill out.
Your job and the location of your employer can impact your U.S. tax situation. If you’re working for a U.S.- based company, your income is usually considered U.S. sourced, which means it’s likely fully taxable by the IRS – even if you’re living in another country. But if you work for a foreign employer, you might be able to take advantage of tax breaks like Foreign Earned Income Exclusion or the Foreign Tax Credit.
If you’re retired and living overseas, you still might owe U.S. taxes depending on where your retirement income is coming from. Social Security, pensions, or withdrawals from retirement accounts like IRAs or 401(k)s are often still taxable.
Do I have to file state taxes as an expat, and if so, where?
Each state has its own tax laws, and the state you used to live in may still consider you a resident or non-resident filer. Check the Department of Revenue in your former state to understand your requirement.
When do U.S. citizens living abroad need to file taxes?
By default, American workers in foreign countries get a two-month extension for filing their taxes. The IRS deadline for American citizens in America is typically April 15. So, with the two-month extension for citizens abroad, your taxes in a typical year would be due on June 15.
However, it’s important to note that this extension applies only to filing, not to payment. If you owe taxes, you are still required to pay the amount due by the tax deadline, typically April 15. Even though you have until June 15 to submit your return, any unpaid taxes will begin accruing interest from the original April deadline.
If you need even more time, you can request an additional two-month extension. You’ll need to submit IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. One thing to be aware of here is that an extension to file a return does not also mean an extension to pay. If you owe taxes, you must pay your bill by your original deadline to avoid interest and late fees.
Are there tax exemptions for U.S. citizens living abroad?
Many American expats don’t end up owing taxes to the IRS because the U.S. has agreements with several foreign countries that prevent your income from being taxed twice (once by the country where you live and again by the U.S.).
It’s important to note that even though you may not have to pay U.S. taxes, you’ll still need to file a federal income tax return to report your earnings.
There are some important tax breaks for expats to help you avoid double taxation. Here are two of them:
The Foreign Tax Credit
The Foreign Tax Credit can be used to lower your tax liability for income you earned from a foreign country. The credit is equal to the amount of foreign tax you paid or the “foreign tax credit limit,” whichever is less. The limit is based on the portion of your foreign income to your total income. Only income taxes qualify for the credit.
To claim the FTC, you’ll typically need to file IRS Form 1116. Keep in mind, if your foreign tax credit is more than your U.S. tax liability for the year, you may be able to carry the unused portion back one year or forward up to ten years.
The Foreign Earned Income Exclusion (FEIE)
The FEIE allows American citizens and resident aliens who live abroad full-time to deduct their foreign-earned income up to a certain amount ($126,500 for tax year 2024 and $130,000 for tax year 2025). This amount is exempt from U.S. taxes. Here’s how it works:
Say you live in Madrid and your employer is also based in Spain. In 2025, you earned the equivalent of $140,000. According to the FEIE, you can exclude up to $130,000 of that income on your U.S. taxes. That means that only $10,000 of your foreign-earned income will be subject to federal income tax.
$140,000 – $130,000 = $10,000
The IRS has rules about who can and can’t claim the exclusion. For example, it only applies if you live and work in a foreign country and your employment is indefinite (not just temporary or short-term). Another rule says that if your tax home is still here in the United States, you will not be able to claim this exclusion.
If you do qualify for the FEIE, you’ll use Form 2555 to calculate the exclusion when you file your return.
Who qualifies for the Foreign Earned Income Exclusion?
To claim the FEIE, you must pass either the Tax Home test, Bona Fide Residency test, or the Physical Presence test.
Tax Home test
Your tax home is where you regularly work or do business, not necessarily where you live. To meet this test, your tax home must be in a foreign country for the entire time you’re claiming to live or be present abroad.
Bonda Fide Residency test
To meet this test:
- You must be a U.S. citizen (or a resident alien from a treaty country).
- You must live in a foreign country for an entire calendar year (January 1 to December 31) without major interruptions.
- You can take trips back to the U.S. but must plan to return to your foreign home.
Physical Presence test
To meet this test:
- You must be physically present in a foreign country for at least 330 full days within any 12-month period.
- A full day means 24 hours, starting at midnight.
- Travel days over international waters don’t count.
How do I report my income if it’s in a different currency?
The IRS needs to know how much you made in USD. Many people use the yearly average exchange rate to calculate this amount in dollars but you can also calculate each payment based on the exchange rate for that given day.
How to file taxes as an expat
Filing taxes as a U.S. expat involves reporting your worldwide income to the IRS. You may qualify for special tax benefits like the FEIE (Form 2555) or Foreign Tax Credit (Form 1116). To file, you’ll need to gather documents such as your foreign income statements, housing expenses, and travel records.
TaxSlayer Classic includes all the forms you need to file your individual income taxes, including foreign income tax forms like the IRS Form 2555 and 1116. For additional support from a tax expert with experience in expat tax filing, choose TaxSlayer Premium as your filing option. If you’re self-employed, use TaxSlayer Self-Employed and receive additional support with your situation.
