Do Retired Expats Pay Taxes on Retirement Income?

The United States operates on a system of citizenship-based taxation, meaning your requirement to file and potentially pay taxes is tied to your passport, not your physical location. This principle catches many retirees by surprise, as they may face tax responsibilities in both their new country of residence and the U.S.

Understanding this worldwide income reporting requirement is the first step for any American planning a foreign retirement. Your global income, from a U.S. pension to interest earned in a foreign bank, is subject to IRS scrutiny.

US Filing Obligations as a Retiree Abroad

U.S. citizens must file a federal tax return regardless of where they live if their worldwide income exceeds certain thresholds. These thresholds are determined by your filing status, age, and gross income. For the 2025 tax year, a single individual over 65 must file if their gross income from all global sources is $17,000 or more. This income includes Social Security benefits, pension distributions, and investment returns.

You report this total income on the standard Form 1040. This filing requirement exists even if you ultimately owe no tax to the U.S. government after applying various credits or exclusions. The mechanisms that reduce or eliminate the actual tax owed are separate from the initial duty to file, and failing to file can lead to penalties.

US Taxation of Retirement Income

The IRS has specific rules for common retirement funds that apply whether you receive the money in the United States or abroad.

Social Security Benefits

The tax treatment of Social Security for expats mirrors the rules for domestic retirees. A portion of your benefits may be taxable depending on your “provisional income.” This is calculated by taking your modified adjusted gross income, adding 50% of your Social Security benefits, and including any tax-exempt interest. If this total exceeds certain thresholds, up to 85% of your benefits can be subject to U.S. income tax.

Pensions

Distributions from U.S.-based pensions are taxable in the United States. If a retiree receives payments from a foreign pension plan, perhaps from years worked abroad, that income is also considered taxable by the IRS and must be reported.

Withdrawals from US Retirement Accounts

Withdrawals from traditional 401(k)s and traditional IRAs are taxed as ordinary income because contributions were made pre-tax. For Roth IRAs and Roth 401(k)s, qualified distributions are tax-free since contributions were made with post-tax dollars. These rules are consistent regardless of where you live when you take the distribution.

Investment Income

Passive income sources such as interest, dividends, and capital gains are part of your U.S. tax picture. Whether these investments are in U.S. or foreign accounts, the income they generate is part of your worldwide income and must be reported to the IRS.

Tools to Prevent Double Taxation

To prevent citizens from being taxed on the same income by two countries, the U.S. tax code provides several mechanisms. These tools must be actively claimed on your U.S. tax return.

Foreign Tax Credit

The most common tool for expat retirees is the Foreign Tax Credit (FTC). This credit allows you to reduce your U.S. income tax liability on a dollar-for-dollar basis for income taxes you have already paid to a foreign government. The credit is claimed using Form 1116 and ensures that income taxed in your country of residence is not taxed again by the U.S.

Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion (FEIE) allows qualifying individuals to exclude foreign-earned income from U.S. taxes, up to $130,000 for 2025. However, the FEIE applies only to earned income like salary. It does not apply to passive income sources like pensions, Social Security, or investments, making it largely irrelevant for most retirees.

Tax Treaties

The United States maintains income tax treaties with dozens of countries. These agreements can override standard U.S. tax code rules, assigning the primary right to tax certain income to one country. For example, a treaty might state that Social Security or pension payments are only taxable in the retiree’s country of residence. Retirees must consult the specific treaty with their host country to claim these benefits.

State Tax Obligations for Expat Retirees

Moving abroad does not automatically end your tax relationship with your former U.S. state. Many states can continue to tax former residents if they have not formally severed ties, a concept based on your legal “domicile.” Domicile is your true, permanent home—the place you intend to return to.

To cease being subject to a state’s income tax, a retiree must demonstrate a clear intent to abandon their old domicile. States look at a variety of factors to determine if this has occurred, including:

• Whether you maintain a driver’s license or voter registration in the state.
• The location of your family and close personal contacts.
• The status of any property you still own in the state.
• Where you maintain banking, religious, or social affiliations.

An individual wishing to break domicile should take concrete steps to sever these connections, such as obtaining a new driver’s license in the foreign country and moving valuable personal property. Without such actions, a former state could still consider you a domiciliary and liable for state income taxes.

Foreign Account Reporting Requirements

Separate from filing an income tax return, the U.S. government requires citizens abroad to report their foreign financial assets. These are informational reports and do not themselves generate a tax liability, but the penalties for failing to file can be severe.

Report of Foreign Bank and Financial Accounts (FBAR)

Any U.S. person with a financial interest in or signature authority over foreign financial accounts must file a Report of Foreign Bank and Financial Accounts (FBAR) if the combined value of those accounts exceeds $10,000 at any point during the year. This report is filed electronically with the Financial Crimes Enforcement Network (FinCEN) using FinCEN Form 114. A “financial account” includes bank accounts, brokerage accounts, and some foreign pension plans.

Statement of Specified Foreign Financial Assets (FATCA)

Under the Foreign Account Tax Compliance Act (FATCA), certain taxpayers must also file Form 8938, Statement of Specified Foreign Financial Assets, with their tax return. The filing thresholds are higher than for the FBAR. For a single filer living abroad, the threshold is met if specified foreign assets are more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year. For married couples filing jointly, these thresholds are doubled.