Taxes When You Move Abroad

Unlike most countries, the United States taxes its citizens and permanent residents on their worldwide income regardless of where they live. Moving abroad doesn't end your U.S. tax obligations — but the tax code does provide important tools to prevent double taxation and reduce your U.S. tax liability while living overseas.

The primary tool is the Foreign Earned Income Exclusion (FEIE), which allows qualifying Americans living abroad to exclude a substantial amount of their foreign wages and self-employment income from U.S. tax — up to $126,500 in 2024 (indexed for inflation). To qualify, you must meet either the physical presence test (present in a foreign country for 330 full days in any 12-month period) or the bona fide residence test (established as a bona fide resident of a foreign country for an uninterrupted period that includes a full tax year). The FEIE doesn't cover all income — investment income, rental income, and pension income don't qualify, but wages and self-employment income from foreign employment do.

In addition to the FEIE, you may be able to claim the foreign housing exclusion to exclude housing costs paid by your employer that exceed a base amount, or the foreign housing deduction if you're self-employed. Together, the FEIE and housing exclusion can significantly reduce or even eliminate your U.S. federal tax liability in many expat situations.

The Foreign Tax Credit is the alternative to the FEIE — rather than excluding income, you claim a dollar-for-dollar credit for income taxes paid to a foreign government, which can be more advantageous in countries with higher tax rates than the U.S. You generally can't claim both the FEIE and the Foreign Tax Credit on the same income, but you can use the Foreign Tax Credit for income that doesn't qualify for the FEIE (like investment income). The right strategy depends on your specific income level, the tax rate in your host country, and the nature of your income.

Living abroad also triggers foreign financial account reporting requirements. If you have foreign bank or brokerage accounts and the aggregate balance exceeds $10,000 at any point during the year, you must file an FBAR (FinCEN Form 114) by April 15. You may also need to file Form 8938 under FATCA if your foreign financial assets exceed certain thresholds. Additionally, if you're working for a foreign employer and covered by a foreign social security system, a totalization agreement may exempt you from paying U.S. Social Security taxes on those same wages. If you renounce your U.S. citizenship or give up your green card, you may be subject to an exit tax on unrealized gains — a significant consideration that requires advance planning.