Tax Considerations for Americans Moving Abroad

For young Americans transforming a study-abroad experience into a permanent move, taxes can become a significant hurdle.

While living abroad doesn’t automatically mean double taxation, Americans must navigate tax obligations in both the U.S. and their new country. Erin Collins, who heads the Taxpayer Advocate Service, pointed out in a recent report to Congress that issues facing expatriate taxpayers are some of the most pressing for Americans.

Collins emphasized that U.S. citizens are still bound by U.S. tax laws, which can complicate compliance with local tax regulations. Noncompliance can lead to hefty penalties, she warned in her correspondence with CNBC.

Tax Complexities of Living Abroad

Reese Charron, a college student, shared her experiences studying in Valencia, Spain. Interestingly, tax worries didn’t cross her mind during her time there. The 21-year-old senior from the University of Virginia appreciated immersing herself in the local culture and found the pace of life appealing. “Speaking the language made it easier for me, and I enjoyed how communal everything felt,” she noted, expressing interest in possibly living there long-term.

However, her perspective shifted upon learning about tax obligations for Americans abroad, making her reconsider the implications of such a move.

U.S. Tax Filing Requirements for Expats

Many Americans living abroad may still need to file U.S. federal income tax returns, reporting their global income. This doesn’t always equate to being taxed twice, according to tax experts.

Sheneya Wilson, a CPA and CEO of Fola Financial, explained that just because expatriates file a U.S. return doesn’t mean they’ll owe taxes to both the U.S. and their host country.

There are provisions, like the foreign earned income exclusion, which may benefit some. For the 2026 tax year, eligible taxpayers could exclude up to $132,900 of foreign income from U.S. taxes. But, it’s important to note that to benefit from this exclusion, one has to meet specific criteria and generally file a U.S. tax return.

The IRS states that people must either be “bona fide residents” of a foreign country for an uninterrupted period covering a full tax year or be “physically present” in another nation for 330 days within a 12-month timeframe.

Some Americans abroad may also qualify for the foreign tax credit, which offers a deduction or credit for taxes paid to another country on income also subject to U.S. tax. Yet, if one utilizes the foreign earned income exclusion, the foreign tax credit cannot be claimed. An annual U.S. income tax return must be filed to qualify for this credit.

Additionally, U.S. citizens abroad typically get an automatic two-month extension for their federal tax filings. Nonetheless, interest on owed taxes begins accruing from the standard April tax deadline.

The FBAR Filing Requirement

Opening a bank account abroad can introduce expatriates to new reporting requirements, such as filing a Report of Foreign Bank and Financial Accounts (FBAR) with the Financial Crimes Enforcement Network. This is usually necessary if the total value of foreign financial accounts surpasses $10,000 at any point in the year. Wilson reassured that this filing doesn’t involve taxes on the funds themselves, but it’s a requirement for transparency with the IRS.

The FBAR is due April 15 after the reporting year, with an extension available until October 15.

Moreover, Americans living abroad may also need to report specified foreign financial assets exceeding certain thresholds directly to the IRS as part of their annual tax return.

Thorough Research Before Moving

Before making a significant move or accepting a job overseas, it is crucial for Americans to understand how living in a foreign country may impact their taxes, bank accounts, and other financial responsibilities. Tax obligations vary by location, and the specifics depend on individual circumstances.

Wilson recommends consulting tax professionals who understand both U.S. tax laws and those of the host country. Grasping how tax systems interact can avert potential pitfalls.

Reflecting on her potential move, Charron noted, “I hadn’t really thought much about taxes before, but now it’s making me ponder. How will it affect what I owe? What will it really look like?”