Paying Taxes for U.S. Citizens Living Outside the U.S.

Do U.S. Citizens Abroad Still Have to Pay Taxes?

Yes, they do. Living overseas will not stop you from reporting and paying your taxes to the Internal Revenue Service (IRS) because you are taxed on your worldwide income.

Therefore, whether your income is derived from work, business ownership, rent, or investments, you must report your income to the IRS on a tax return, even if you already pay taxes in another country like Ireland.

To further reduce or eliminate U.S. tax on some types of income, you should explore whether your country has an active tax treaty with the United States. These treaties often allow reduced withholding rates or exemptions for income like pensions, interest, and dividends. A comprehensive list is available on the IRS page for U.S. income tax treaties, and Publication 901 offers deeper insight into how these apply to your specific country.

Avoidance of Double Taxation

Not-so-good news: The IRS does not want you taxed on the same income twice. You have two main tools to avoid double taxation:

1. Foreign Earned Income Exclusion (FEIE)

As you reside and work outside the United States, you might be able to exclude up to $130,000 of your foreign income from U.S. tax in 2025. Visit the IRS Foreign Earned Income Exclusion page for details and qualification requirements.

You qualify if you satisfy either:

• Spent at least 330 days outside the United States during any period of 12 months, or
• Are a bona fide resident abroad.

2. Foreign Tax Credit (FTC)

If you've already paid income taxes in a foreign country, the FTC permits you to subtract your U.S. tax liability by that amount. It's especially useful if you live in a high-taxed country, like Australia, the UK, or Germany.

Tip: You can use both, but not for the same income. For example, leave your salary under FEIE and use FTC to rental income or income over the FEIE limit.

Key Tax Filing Requirements for Expats

Following are the main forms and submissions you'll probably encounter:

• Form 1040 – This is your main U.S. tax return. Everyone uses this.
• Form 2555 – If you want to ignore foreign earnings under the Foreign Earned Income Exclusion.
• Form 1116 – You'll need this to report the Foreign Tax Credit if you've paid taxes in another country.
• Form 8938 – You'll use this if you own foreign financial assets worth more than certain amounts (e.g., investments or accounts).
• FBAR (FinCEN Form 114) – You’ll use this if your foreign bank accounts total more than $10,000 at any time during the year.

For self-employed: Schedule C and Schedule SE to report your income and calculate self-employment tax.

Deadlines and Extensions for 2025

This is what your calendar should be like:

1. April 15 – This is the regular tax deadline. Even though you're an expat, taxes owed are still due by this date. Additionally, this is the FBAR deadline.
2. June 16 – Expats get two additional months to file their return automatically—without needing to request it.
3. October 15 – If you need more time to file your US tax return, you can file for an extension using Form 4868. On the other hand, this is the automatic extension deadline of filing FBAR.
4. December 15 – You do have a last-minute option, but you must write to the IRS to get permission for an extension.

Common Mistakes Expats Make

Even seasoned expats err sometimes. Here are some common pitfalls to avoid:

• Skipping the FBAR – Too many people overlook reporting foreign accounts.
• Not reporting foreign income – Even if taxed abroad, it must be reported.
• Missing deadlines – Extensions are a good idea, but payments are still due April 15.
• Assuming you don't need to file – If you make more than the filing threshold, you must file—even if you owe nothing.

Tips for Staying Compliant

Navigating U.S. taxes while abroad isn't easy. But with some savvy practices, you can cruise. Here's how:

• Keep track of income, expenses, and foreign taxes paid.
• Utilize expat tax software or hire a professional familiar with international tax laws.
• Seek out totalization agreements – These would allow you to pay Social Security tax once
• Don't overlook self-employment tax – Even when you qualify for FEIE, you do pay self-employment tax except when exempt.

Final Thoughts

As a U.S. citizen expat, taxes might be a hassle but don't have to be overwhelming. You can get in compliance and steer clear of costly mistakes with the proper tools and information, and maybe a little guidance from a tax professional at Expat Tax Online.