US Taxes: Yes, You Still Have To File Them
But you might not have to pay anything. In many cases, you won’t.
The USA enforces what’s referred to as citizenship-based taxation, meaning that as a US citizen, you need to file taxes and report income to the IRS even if you don’t live in the US or earn anything there. Yes, even if you didn’t set foot in the US or earn any income there during the entire tax year. Even, in fact, if you haven’t done either of those things in your entire life.
This is in contrast to residency-based taxation, where a country determines that you owe taxes based on, well, your residency (or income earned within the country, even if you don’t live there, such as rental income from a property you own).
As a US citizen living abroad, this sets you up for potential double-taxation. I live in Germany. Germany, of course, wants me to pay taxes on income I earn while living here. But the US also wants me to report this income and possibly pay taxes on it, too.
The good news is that there are exclusions and credits in place to prevent or at least minimize the amount of double-tax you need to pay. In this post, I’ll discuss at a high level the US tax situation for Americans living abroad.
Always true: I am not a tax professional, just an internet stranger who’s trying to point you in the right direction. When in doubt, hire a tax professional. It’s often worth it!
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Filing deadlines for US citizens abroad
US citizens living abroad are given an automatic 2-month extension for the due date of their return and can request an extension until October if necessary.
Per the IRS (source):
“If you are a U.S. citizen or resident alien residing overseas or are in the military on duty outside the U.S., on the regular due date of your return, you are allowed an automatic 2-month extension to file your return without requesting an extension. If you use a calendar year, the regular due date of your return is April 15, and the automatic extended due date would be June 15. If the due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day.
If you qualify for the 2-month extension but are unable to file your return by the automatic 2-month extension date, you can request an additional extension to October 15…”
Note that if you want to contribute to an IRA for the previous tax year, the deadline is still the original tax return filing deadline not including extensions. In other words, the mid-April deadline.
Next, a couple of common exclusions that help US citizens abroad avoid double-taxation.
The Foreign Tax Credit
The Foreign Tax Credit (FTC) lets you reduce your tax burden to the US government based on how much income tax you’ve already paid to a foreign government (source: IRS).
I live in Germany, which has higher federal income tax rates than the US. Therefore, I pay more income tax to Germany than I would have paid in the US, thus the FTC lets me effectively “cancel out” my US tax liability. You can even “carry forward” an unused credit, that is, the foreign income tax paid that exceeds your US tax liability, for future years (source: IRS).
The FTC is generally the right choice if you want to contribute to e.g. a Roth IRA because it does not reduce your AGI the way other exclusions do. Exclusions such as…
The Foreign Earned Income Exclusion
The Foreign Earned Income Exclusion (FEIE) allows you to exclude a fixed amount of foreign earned income from your US tax liability. In 2024, the amount was $126,500 per person (source: IRS).
The FEIE might be an appealing choice if you live in a country with very low (or no) income tax and therefore would not have an opportunity to use the FTC. Keep in mind this is often not going to be an issue if you’re an ALE (American Living in Europe).
The FEIE also has residency requirements. Per the IRS, you have to be:
A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
Conversely to the FTC, the FEIE does reduce your AGI and might result in an AGI that’s too low to qualify for a Roth IRA contribution, even if your MAGI falls within the limit to allow a full contribution.
What should you look out for when choosing between the FTC and FEIE?
Things you might not think about, but possibly should think about, when filing US taxes:
Contributing to US tax-advantaged retirement accounts: As I touched on above, if you are eligible based on your income to contribute to US retirement accounts such as the Roth IRA, you should probably consider the FTC and not the FEIE. In many cases, the FEIE will lower your AGI to an extent that it will be too low to allow a contribution.
Reporting unemployment payments and other benefits from your resident country: If you receive unemployment benefits from the country where you live (fairly common in Germany if you get laid off), you’ll need to report these payments as income when filing in the US. It’s not considered “earned income”, though (source: IRS), and so cannot be excluded under the FEIE, and you probably don’t pay income taxes on it, so you can’t necessarily apply the FTC, either. You therefore might end up having to pay taxes on it in the US.
I’m not sure how other types of social benefits paid by a foreign government (parental leave, extended sick leave) are treated by the US for tax purposes and can’t find a good source here. If this is relevant to you, I recommend asking a US accountant if you can’t find a trustworthy answer yourself.
Combining the FTC and FEIE: It is possible, in a single year’s return, to use both the FTC and FEIE, but there are limitations to keep in mind. I don’t have any experience with this approach myself (and I don’t even know of a friend, or friend of a friend, who’s taken this approach). But you want to read more, here’s a writeup from an accounting firm that describes scenarios where it might make sense to combine the two.
If you want to learn more
I didn’t go into a ton of detail about the FTC and FEIE in this post. If you want to go deeper on US taxes for citizens abroad, there are many good blog posts, Reddit explainers, etc, that cover these concepts well and can help you decide which is right for you. Here’s another such post that I find helpful.
If you have any questions / comments / glaring errors I overlooked, drop them in below! I’ll update the post with more detail if I can find a good source on how other types of foreign social benefits (parental leave, long-term sick leave) are taxed in the US as well as good strategies for dealing with them.