For Americans

How US tax works when you live abroad

The United States taxes on citizenship, not residence. A US citizen or green card holder files a federal return every year and reports worldwide income, whether they live in Ohio or overseas. Almost no other country does this, and it shapes every decision an American makes about moving.

Two tools prevent double taxation. The Foreign Earned Income Exclusion (FEIE) removes foreign earned income from US tax, up to US$132,900 for 2026, plus a housing amount, if you pass the bona fide residence test (a full tax year living abroad) or the physical presence test (330 full days outside the United States in any 12 month period). The foreign tax credit offsets your US tax with income tax paid to another country.

Neither tool reaches everything. The FEIE covers only earned income, not dividends, interest or capital gains, and it does not reduce self employment tax. In a country with little or no income tax, your investment income stays fully taxable in the United States because there is no foreign tax to credit.

Reporting continues as well. An FBAR (FinCEN Form 114, the foreign bank account report) is due when your foreign accounts together exceed US$10,000 at any point in the year. FATCA (the Foreign Account Tax Compliance Act) adds Form 8938 once foreign financial assets pass US$200,000 at year end or US$300,000 at any time for a single filer living abroad, double for joint filers. Penalties for missing these forms can be heavy even when no tax is owed.

• Foreign mutual funds and ETFs are usually PFICs (passive foreign investment companies), taxed harshly under US rules.
• Owning a foreign company brings Form 5471 and can make its profits taxable to you each year under the controlled foreign corporation rules.
• Living abroad gives an automatic two month filing extension to 15 June, but interest still runs on unpaid tax from 15 April.

Leaving properly

For federal purposes nothing ends when you board the plane. What you can end is residence in your state, and that matters: several states tax residents on worldwide income, and California does not allow the FEIE at all.

States decide residence mainly by domicile, your true permanent home, and you keep your old domicile until you establish a new one. Some also count days: New York treats you as a statutory resident if you keep a permanent place of abode there and spend more than 183 days in the state. California and New York both review departures closely, so keep evidence of your move.

1. 01

   Plan your first year abroad

   Decide whether you will qualify under the bona fide residence test or the physical presence test, and track your days from the start. The year you leave is usually a partial year that needs planning.

2. 02

   Cut state ties

   Sell your home or lease it on arm’s length terms, move your driver’s licence and voter registration, and update your address everywhere. File a part year resident return for the year you leave.

3. 03

   Build real ties abroad

   Hold a residence permit, a home and a local life in your new country. These support the FEIE, your state exit and any later renunciation.

4. 04

   Keep filing every year

   File Form 1040 with Form 2555 for the FEIE or Form 1116 for the foreign tax credit, plus the FBAR and Form 8938 where they apply.

5. 05

   Settle where your money sits

   Some US brokers restrict accounts with a foreign address, and some foreign institutions decline US clients because of FATCA. Arrange this before you move, not after.

Exit tax, property and investments

There is no departure tax for simply moving abroad. The expatriation tax applies only when you renounce citizenship, or when a long term green card holder (someone who held the card in at least 8 of the last 15 years) gives it up.

You are a covered expatriate if any one of three tests applies: average annual net income tax over the previous five years above US$211,000 (the 2026 figure), net worth of US$2 million or more, or failing to certify on Form 8854 that you met all federal tax obligations for the previous five years. Covered expatriates are treated as selling their worldwide assets the day before expatriation, and gains above US$910,000 for 2026 are taxed. Some people who were dual citizens from birth, and some who renounce before age 18 and a half, are exempt from the income and net worth tests, but must still certify compliance.

For covered expatriates, IRAs are treated as fully paid out the day before expatriation, and 401(k) and similar plan payments generally carry 30% withholding when paid out. Gifts and inheritances from a covered expatriate to US citizens or residents are taxed at the top gift or estate rate, paid by the person receiving them.

Your home can still use the US exclusion of up to US$250,000 of gain, or US$500,000 for a married couple filing jointly, if you owned and lived in it for two of the five years before the sale. That window keeps running after you move, so the timing of a sale matters. US rental property stays taxable in the United States wherever you live.

Pensions and Social Security

You can keep your IRA (individual retirement account) and 401(k) (an employer retirement plan) while living abroad, and they stay tax deferred under US rules. Your new country may not recognise that deferral, so check its treatment first; territorial countries such as Paraguay and Panama generally do not tax foreign income. If the FEIE excludes all your earned income, you may not be able to contribute to an IRA, because contributions need taxable compensation.

US citizens can receive Social Security in most countries indefinitely. Payments cannot be sent to Cuba or North Korea and are generally restricted in Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. Medicare generally does not cover care outside the United States, so plan private health insurance for where you will live.

Social security agreements, known as totalization agreements, stop you paying into two systems at once. The United States has one with Uruguay but not with Paraguay, Panama or the UAE, so self employed Americans in those countries generally keep paying US self employment tax.

Dual citizenship and renouncing

The United States allows dual citizenship. Taking a second nationality does not affect your US citizenship, though US law requires you to enter and leave the United States on your US passport.

A second passport does not change your US tax position. Only renouncing does, and renunciation is permanent. You appear in person at a US embassy or consulate abroad, swear an oath before a consular officer and later receive a Certificate of Loss of Nationality (CLN). The government fee fell from US$2,350 to US$450 in April 2026, though appointment waits at many posts are long.

Holding another citizenship first is essential, because renouncing without one would leave you stateless. For the year you expatriate, you file a final dual status return with Form 8854, and your accountant confirms your covered expatriate position well before that date.