Topic guide · US tax for expats

US Taxes for Expats: FEIE, FBAR, and What You Actually Owe in 2026

The American tax system follows you out the door. The United States and Eritrea are the only two countries on earth that tax their citizens on worldwide income regardless of where they live. This means that for as long as you remain a US citizen or green-card holder, you file a US federal tax return every year — even if you've lived in Portugal for two decades, paid Portuguese taxes for two decades, and last set foot in the US during the Bush administration.

The good news, mostly, is that you usually don't owe the US much additional tax beyond what you're already paying locally. The Foreign Earned Income Exclusion and the Foreign Tax Credit are the two big mechanisms that prevent the worst double-taxation outcomes. Used correctly, most expats end up paying close to zero US federal tax on top of their local tax bill.

The bad news is that the rules are byzantine, the forms are unfriendly, the penalties for non-compliance are severe, and the people most likely to mess it up are exactly the people who are usually right about most other financial things — DIY-confident high earners with self-employment income, brokerage accounts in multiple countries, and a tendency to assume "I'll figure it out later." Later is when the IRS gets in touch.

This guide is the version of the US-tax conversation we wish we'd had at month one of planning. Not advice — talk to a CPA before you do anything specific — but the shape of the rules, the levers you have, and the failure modes that catch Americans abroad.

The big picture

A US citizen or green-card holder abroad is, for US federal tax purposes, taxed exactly the same as a US citizen or green-card holder at home. The same tax brackets, the same standard deduction, the same Form 1040, the same April 15 filing deadline (with an automatic 2-month extension to June 15 for bona fide expats, and a further extension to October 15 by request).

The differences are three:

1. You can exclude some foreign-earned income via the Foreign Earned Income Exclusion (FEIE).
2. You can credit foreign taxes paid against your US tax liability via the Foreign Tax Credit (FTC).
3. You have additional reporting obligations: FBAR, FATCA, and country-specific informational forms.

Tax treaties between the US and many countries modify the picture further — Totalization Agreements affect Social Security, and bilateral tax treaties affect how specific income types (pensions, dividends, rents) are taxed. But the structure above is the skeleton.

The Foreign Earned Income Exclusion (FEIE)

The FEIE lets you exclude up to $126,500 of foreign-earned income from US federal taxation in 2025, rising to approximately $130,000 in 2026 (indexed for inflation). You claim it on Form 2555, filed with your 1040.

What qualifies:

• Earned income — salary, wages, self-employment income, professional fees, commissions — from work performed outside the US.
• The work must be physically performed outside the US. Sitting in Italy and doing work for a US employer counts as foreign-earned. Sitting in New York and being on a brief visit while paid by an Italian employer does not.

What does NOT qualify:

• Pensions, annuities, Social Security retirement benefits.
• Dividends, interest, capital gains, royalties.
• Rental income.
• US government salary (federal employees abroad).
• Any income for work performed inside the US.

Tests to qualify:

You must pass one of two tests:

• Bona Fide Residence Test. You're a tax resident of a foreign country for an entire calendar tax year, with the intent of indefinite stay, and the foreign country recognizes you as a resident. Requires that you actually live there with a genuine home, not just have a visa.
• Physical Presence Test. You're physically outside the US for 330 full days during any 12-month period. This is the more common pathway in year one — you don't have to live in any one country, you just have to be out of the US. Travel days count as days in the country you spend the majority of the day in.

Important quirks:

• FEIE excludes income for income tax purposes but does not exclude it from self-employment tax. If you're a US self-employed contractor, you owe ~15.3% Self-Employment tax on your net self-employment income, FEIE or not. The only way around this is a Totalization Agreement election (see below).
• FEIE is per-person. A married expat couple, both working, can each claim ~$126,500 — combined ~$253,000 in 2025.
• FEIE comes with a Foreign Housing Exclusion / Deduction that can add another $15,000–$50,000+ depending on city (Form 2555, Part VI). High-cost cities like London, Singapore, Hong Kong, Geneva have higher caps. Lisbon, Madrid, Rome, Mexico City — modest amounts.
• Once you elect FEIE, you generally have to stick with it. You can revoke, but the IRS treats this skeptically and you can't re-elect for 5 years without IRS consent.

The Foreign Tax Credit (FTC)

The FTC (Form 1116) gives you a dollar-for-dollar credit against your US tax liability for income taxes paid to a foreign country on the same income. There's no exclusion cap — if you paid €40,000 in Italian taxes on €120,000 of Italian income, you can credit all $42,000 (or however it converts) against US tax on that same income.

FTC vs. FEIE — the choice:

The general rule:

• High-tax country (most of Western Europe, Australia, Canada, Japan): FTC almost always wins. Your foreign tax bill is higher than your US tax bill, so you owe $0 US tax and have carryforward credits (10-year carryforward).
• Low-tax country (Costa Rica, Panama, UAE, much of Southeast Asia for FEIE-eligible income): FEIE almost always wins, because the foreign tax bill is lower than the US tax that FEIE excludes, and using FEIE keeps the difference.
• Mixed picture (Portugal post-NHR, parts of Latin America with varying treatment): Run both and compare. Worth a CPA hour.

FTC for unearned income: This is where FTC really shines. Pensions, dividends, capital gains, rental income — none of these qualify for FEIE. If your foreign country taxes them at all, FTC offsets your US liability. Otherwise (e.g., territorial-tax Costa Rica which doesn't tax foreign-source dividend income), you owe the full US tax with no offset.

Categories of income for FTC. FTC is calculated separately for "passive" income (dividends, interest, capital gains) and "general" income (earned income, self-employment, pensions). You can't cross credits between categories. This catches retirees with a mix of pension and investment income — the categories need separate calculations.

FBAR (FinCEN Form 114)

FBAR is the Report of Foreign Bank and Financial Accounts. You must file it if you have financial interest in or signature authority over one or more foreign accounts whose combined maximum value at any point during the year exceeded $10,000 USD equivalent.

Who has to file:

• Anyone with foreign checking, savings, brokerage, mutual fund, or investment accounts whose aggregate hit $10,000+ at any point in the year.
• Joint accounts count fully (a joint $20,000 account counts as $20,000 to you and $20,000 to your spouse, even though there's only $20,000 of money).
• Foreign retirement accounts count (UK personal pension, foreign employer pension if you control it, Canadian RRSP, Australian superannuation in some cases).
• Foreign crypto accounts on regulated exchanges count.
• Accounts where you only have signature authority (parent's account, employer's account where you can sign) count.

Who's exempt:

• Foreign accounts where the foreign government holds the money on your behalf (some pension wrappers).
• Accounts at US banks' foreign branches (your American bank's London branch is still considered a US account).

Filing: Done online at FinCEN's BSA E-Filing site. Free. Takes about 20 minutes once you have your account numbers and maximum balances assembled. Due April 15 with an automatic extension to October 15.

Penalties: Severe. Up to $10,000 per non-willful violation per year per account. Up to the greater of $100,000 or 50% of the account value for willful violations. The IRS sometimes settles for less under voluntary disclosure programs, but the headline numbers are designed to encourage compliance and they do.

FATCA (Form 8938)

Filed with your 1040 if your total foreign financial assets exceed certain thresholds:

• Unmarried, abroad: $200,000 at year-end OR $300,000 at any point during the year.
• Married joint, abroad: $400,000 year-end OR $600,000 anytime.
• (Lower thresholds apply if you reside in the US.)

FATCA overlaps with FBAR but isn't redundant. FBAR goes to FinCEN; FATCA goes to the IRS. Foreign assets covered include bank accounts (overlap with FBAR), foreign stocks held outside a US brokerage, foreign-issued mutual funds, foreign hedge funds and private equity, foreign partnership interests, and foreign retirement accounts.

The other side of FATCA: it forces foreign banks to report American account-holders to the IRS, with severe penalties for non-compliance. This is why some foreign banks decline to open accounts for Americans — the FATCA compliance cost isn't worth it for them. Major banks in popular expat countries (Portugal, Spain, Italy, France, Germany, Mexico) have learned to work with American customers; smaller banks may not.

State taxes after you leave

US federal tax follows your citizenship. State tax follows your residency. Most expats from most states stop owing state tax the moment they establish bona fide non-residency. Some states make that easier than others.

The friendly states. Texas, Florida, Nevada, Tennessee, Washington, South Dakota, Wyoming, Alaska — no state income tax to begin with. Nothing to do.

The reasonable states. Most other states stop taxing once you've genuinely moved. Connections that survive (a vacation home, a P.O. box, a bank account, a stored car) typically don't trigger residency on their own. The general standard: have you replaced your "domicile" (your true permanent home) with one in another country?

The sticky four. California, Virginia, New Mexico, and South Carolina. These four have aggressive residency rules and audit pursuit of taxpayers who claim non-residency. California is the most aggressive — the FTB (Franchise Tax Board) considers domicile sticky, and severing it requires deliberate action: surrender California driver's license, register to vote elsewhere, sell or rent out California property to a non-relative, close California-specific accounts, move tangible personal property, file as a "part-year resident" in your departure year, and ideally establish residency in a no-income-tax state (Texas, Florida, etc.) for a documentable period before leaving the country.

The strategy. If you're a resident of one of the sticky four and plan to leave the US within 1–2 years, talk to a state-tax CPA about a deliberate residency-breaking sequence. Six to twelve months in a no-income-tax state before international departure is the standard playbook. Skipping this step has cost individual taxpayers hundreds of thousands of dollars in disputed-residency tax bills.

New York. Tricky for high earners with NY connections. Easier than California to leave, harder than most states. The "183-day rule" matters — fewer than 183 days in NY in a year is necessary but not sufficient to claim non-residency if your "permanent place of abode" stays in NY.

Social Security and Medicare

Social Security retirement benefits pay out anywhere in the world via direct deposit, with a few sanctioned-country exceptions (Cuba, North Korea). You can receive them at the same monthly amount whether you live in Lisbon or Lima or Phoenix.

Medicare does not cover care outside the US except in narrow emergency circumstances (medical emergency where US care is nearest, certain Mexican/Canadian situations). Most expats over 65 enroll in their destination country's public healthcare system (where eligible) or buy private international insurance. The strategic question: do you keep paying Medicare Part B premiums (~$185/month base in 2025) for visits home?

The conservative approach: keep Part A (free for most who paid in 10+ years), drop Part B. Most expats can re-enroll in Part B later but with a permanent surcharge (Late Enrollment Penalty: 10% per 12-month period of non-enrollment, for life). The arithmetic only works out if you're confident you'll never need US-based care, which is a strong claim. Many expats keep Part B for the optionality.

Social Security and self-employment. Self-employed Americans abroad owe Self-Employment tax (~15.3%) on net self-employment income unless they're working in a country with a US Totalization Agreement and elect into the local social security system. The Totalization countries are most of the major expat destinations: UK, Germany, France, Italy, Spain, Netherlands, Switzerland, Sweden, Denmark, Norway, Finland, Belgium, Greece, Portugal, Ireland, Czech Republic, Slovakia, Poland, Hungary, Australia, Japan, Chile, Brazil, Uruguay, South Korea, and others. The IRS publishes the full list.

To elect into the foreign system, you need a Certificate of Coverage from the foreign social security agency, submitted with your US return. The savings — eliminating 15.3% SE tax on $100,000+ of self-employment income — can dwarf the cost of a CPA who knows what they're doing.

The country pictures, briefly

• Portugal. NHR (Non-Habitual Resident) regime closed to new applicants in 2024. New regime (IFICI) is narrower, targeted at scientific research and qualifying highly-skilled occupations. Standard Portuguese tax otherwise applies. Worldwide income taxation for residents, treaty with the US prevents most double tax outcomes. FTC usually beats FEIE for high earners.
• Spain. Beckham Law (regime for new arrivals) lets qualifying workers tax foreign-source income at 24% flat for 6 years — useful for high-earning W-2 transferees but not for most retirees or self-employed. Spain otherwise taxes worldwide income at progressive rates up to 47%. FTC usually wins.
• Italy. Standard system taxes worldwide income for residents at progressive rates up to 43% federal plus regional. The 7% flat-tax regime for retirees who move to qualifying southern municipalities (population under 20,000) lasts 10 years and applies to foreign pensions only. The Inbound Worker regime (50% income reduction for 5 years for qualifying movers) was tightened in 2024; check current eligibility.
• France. Worldwide income taxation, top rate 45% plus social charges. France-US treaty has unusually favorable treatment for some US pensions and Social Security — most US-source retirement income is taxed only in the US, not France. CPAs who know the treaty can save retirees substantially here.
• Costa Rica. Territorial taxation — foreign-source income (including US pensions, Social Security, and dividends) is not taxed by Costa Rica at all. US tax still applies. This makes Costa Rica unusually clean for American retirees with US-source income. FEIE may beat FTC because there's no foreign tax to credit.
• Panama. Similar to Costa Rica — territorial system, foreign-source income largely untaxed locally. US tax still applies.
• Mexico. Worldwide income taxation for tax residents, but the resident threshold is meaningful (>50% of activities or income center of life). Many American snowbirds in Mexico don't meet the Mexican-resident threshold and pay only US tax. Full residents pay Mexican tax with FTC against US liability.
• UAE. No personal income tax. FTC has nothing to credit. FEIE applies to earned income. The new 9% corporate tax (introduced 2023) hits owner-operated businesses but not most personal income.
• Thailand, Indonesia, Vietnam. Each has its own rules; most popular expat scenarios use FEIE for earned income and pay no local tax under tourist or DTV-type pathways for periods short enough not to trigger local tax residency. Bona fide residence and physical presence rules matter intensely here.

What to do this year

If you haven't left yet:

1. Run the FEIE-vs-FTC math for your situation (or have a CPA do it).
2. If you're a resident of California, Virginia, New Mexico, or South Carolina, build a residency-breaking plan now.
3. Identify the brokerages and banks you'll keep, with US addresses on file.
4. Plan a US address (parent, sibling, virtual mail service) that survives your move.
5. Check whether your destination country has a Totalization Agreement (it almost certainly does if it's on most expat shortlists).
6. Hire a CPA who specializes in expat returns. Greenback Expat Tax Services, Bright!Tax, Online Taxman, and Taxes for Expats are the best-known specialists; many smaller firms also do this well. Expect $500–$1,500/year for a standard expat return; more for self-employed or multi-country situations.

If you've already left:

1. Confirm you've filed FBAR and FATCA (if applicable) for every year since you left.
2. If you've been non-filing, look into the Streamlined Foreign Offshore Procedures program. It lets you catch up on 3 years of returns and 6 years of FBAR without civil penalty if you qualify. Talk to a CPA before applying — qualification matters.
3. Set up a calendar reminder for April 15 (return) and October 15 (FBAR final deadline).
4. Review your situation when major life changes happen — marriage, kids, business formation, real estate purchase, inheritance. Each triggers new rules.

The version with your specific situation

The structure above is universal. The version that knows your country, your visa pathway, your income shape, your family situation, and your departure date is what GTFO is built to produce.

Open the planner to load the country-specific tax overlay onto your move. The country profiles include the local tax picture for each of 49 destinations; the visa pathways view shows tax treatment under each major pathway; and the timeline calls out the tax-relevant deadlines you actually need to hit.

This isn't tax advice. Talk to a CPA before you act on anything specific. But knowing the shape of the rules in advance is the difference between a clean exit and a five-figure surprise.

Last verified: May 2026 · Numbers change. We re-check thresholds and timelines every quarter. Always confirm with the consulate or official government source before you act.

GTFO is built and maintained by Natasha — making the same move you're planning.