The US taxes citizens on worldwide income regardless of where they live — one of only two countries in the world to do so. This surprises many Americans who assume that leaving the country ends their US tax obligation. It does not. But with proper planning, most expats pay little to no US tax on income earned abroad.
2026 note: For tax year 2026, the FEIE max is $132,900 per qualifying person. The real decision is still FEIE vs. FTC, plus state domicile and how your income is structured.
| Do you owe US taxes abroad | Yes — US citizens file US tax returns every year regardless of residence |
| Can you avoid double taxation | Yes — FEIE and Foreign Tax Credit eliminate double taxation for most expats |
| FEIE exclusion limit (2026) | $132,900 of earned income per year excluded from US federal tax |
| FBAR threshold | $10,000 in foreign accounts (combined) at any point during the year |
| State taxes | Depends on your prior state — CA/NY are aggressive; most others stop once you establish domicile abroad |
| When to get help | First year abroad — hire a US expat tax professional |
The Foreign Earned Income Exclusion (FEIE)
The FEIE is the primary tool expats use to reduce or eliminate US federal income tax. It allows you to exclude a set amount of earned income (salary, freelance, self-employment, contractor income) from US federal taxation if you meet one of two tests:
- Physical Presence Test — you spend 330 days out of any 365-day period outside the US. Simple to qualify for most full-time expats.
- Bona Fide Residence Test — you are a genuine resident of a foreign country. More flexible on travel but requires demonstrating real residency intent.
The exclusion limit for 2025 is approximately $120,000 per person (adjusted annually for inflation). If you earn $90,000 as a remote worker living in Colombia, and you qualify for the FEIE, you owe zero US federal income tax on that income.
Note: the FEIE only applies to earned income. Passive income (dividends, rental income, capital gains) is not excluded by the FEIE and is taxed by the US regardless.
The Foreign Tax Credit
If you earn more than the FEIE threshold, or have income types not covered by the FEIE (passive income), the Foreign Tax Credit (FTC) offsets your US tax liability by the amount of tax you paid to your host country. If Colombia taxed $30,000 of your income at 20% ($6,000), you can apply that $6,000 credit against your US tax bill on the same income. This prevents double taxation on income above the FEIE limit.
FBAR: Reporting Foreign Bank Accounts
If you have an aggregate of $10,000 or more in foreign financial accounts at any point during the calendar year, you must file an FBAR (FinCEN Form 114) by April 15 each year (automatic extension to October 15). This is a separate filing from your tax return and filed directly with FinCEN (not the IRS) at bsaefiling.fincen.treas.gov. It is free to file.
FBAR covers: bank accounts, brokerage accounts, mutual funds in foreign institutions. It includes accounts you have signatory authority over even if you do not own them. Penalties for non-filing are severe ($10,000+ per violation). File it. It takes 20 minutes.
FATCA: Form 8938
FATCA (Foreign Account Tax Compliance Act) requires you to report foreign financial assets above certain thresholds on Form 8938, filed with your annual tax return:
- Single filers living abroad: $200,000 at year end, or $300,000 at any point during the year
- Married filing jointly: $400,000 at year end, or $600,000 at any point
FATCA thresholds are higher than FBAR and the form is filed with your regular tax return (not separately).
State Taxes: The Often-Ignored Problem
Most US states stop taxing you once you establish domicile elsewhere and sever your state ties. But several states are known for aggressively pursuing former residents:
- California — will continue to tax you if they believe you maintain “domicile” in California. Drivers license, business address, property, frequent returns — all can create California tax nexus. Get proper guidance before leaving CA.
- New York — similar aggressive approach. New York City adds another layer.
- Virginia, South Carolina, New Mexico — also require formal steps to sever residency.
Steps to cut state tax ties: establish domicile in a no-income-tax state (Texas, Florida, Nevada, Wyoming) or in your new country; update voter registration, bank address, and driver’s license; file a final part-year return for the year you leave.
Social Security and Medicare Abroad
If you are retired or near retirement, pair this with Collecting Social Security While Living Outside the United States so you understand the benefit-payment side, not just the tax side.
If you are still working and paying self-employment or employment taxes, you continue accumulating Social Security credits abroad. You can collect Social Security in most countries once you are eligible — there are no restrictions on receiving payments abroad to most countries. Mexico, Colombia, Panama, and most LatAm countries are fine.
Medicare does not cover you abroad. Period. You need private international health insurance from day one outside the US.
When to Hire a Professional
In your first year abroad, hire a US expat tax professional — not a general CPA, but one who specializes in expat returns. The FEIE election, state domicile establishment, and FBAR compliance all have first-year nuances that are easy to get wrong. Cost is $500–1,500 for a full expat return. Worth every dollar.
Resources: Greenback Expat Tax Services, Bright!Tax, and ExpatCPA are specialists widely used in the expat community.
2026 reading list: What Happens to Your US Taxes When You Move Abroad? · Collecting Social Security While Living Outside the United States · US-Mexico Tax Treaty Explained for Expats
Related Guides
- How to Leave the USA: Full Guide
- Banking for Digital Nomads
- Paraguay Residency: Territorial Tax System
- How to Leave Canada
Keep the US Filing Calendar Visible
Living abroad does not remove the annual US filing obligation. Track the federal return, foreign-account reporting, estimated payments, state-residency issues, and any business or investment forms that apply. The Foreign Earned Income Exclusion and foreign tax credit are different tools with different limits; compare them rather than assuming one automatically produces the better result.
Keep travel dates, foreign tax records, pay statements, bank statements, and proof of residence in one file. Citizenship-based taxation can also affect Americans who maintain a company, investment account, or property abroad. A cross-border specialist is often worth the cost when your facts include self-employment, equity compensation, rental income, or multiple countries.
Tax Planning Is Not Tax Avoidance
Changing residence, using a foreign account, or forming a company can be lawful, but only when reported correctly and supported by real facts. Get advice before moving money or changing the structure.
Frequently Asked Questions
Do Americans file U.S. taxes while living abroad?
Generally yes. U.S. citizens normally continue filing federal returns, although exclusions, credits, treaties, and foreign-account reporting can change the final result.
Does moving abroad end state tax residence?
Not automatically. State residence depends on domicile, continuing ties, income source, and the rules of the former state.
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