Working Abroad Tax: US Filing Requirements

The United States taxes its citizens and resident aliens on their worldwide income, regardless of where they live. This citizenship-based taxation system means that if you are a U.S. person working abroad, you must file a U.S. federal income tax return. While your worldwide income is subject to U.S. tax, special exclusions and credits are available that can significantly reduce or eliminate your U.S. tax liability, helping to avoid double taxation.

Establishing Eligibility for Tax Relief

To access the primary tax benefits for Americans abroad, you must be a “qualified individual.” This status requires that your tax home is in a foreign country and that you meet either the Bona Fide Residence Test or the Physical Presence Test.

Tax Home Test

Your tax home is your main place of business or employment. To meet the tax home test, your tax home must be in a foreign country for an indefinite period. If your assignment abroad is temporary, meaning it is expected to last for one year or less, your tax home does not shift to the foreign location.

You cannot have an “abode” in the United States. An abode is the location of your strongest personal and economic ties. Maintaining a home, family, and bank accounts in the U.S. could cause the IRS to determine your abode is in the U.S., disqualifying you from having a foreign tax home.

Bona Fide Residence Test

To meet the Bona Fide Residence Test, you must be a resident of a foreign country for an uninterrupted period that includes an entire tax year (January 1 through December 31). This requires demonstrating that you have established lasting ties to the foreign country. The IRS considers factors like your visa type, if you have purchased a home or signed a long-term lease, and your integration into the local community. Brief trips to the U.S. do not disqualify you if you intend to return to your foreign residence.

Physical Presence Test

The Physical Presence Test is a mathematical test requiring you to be physically present in a foreign country for at least 330 full days during any 12-month period. A full day is a 24-hour period starting at midnight, and time in transit over international waters does not count. The 12-month period is flexible and does not have to align with the calendar year. This test is often used by those on shorter-term assignments who cannot establish bona fide residence.

Key U.S. Tax Exclusions and Credits

Qualified individuals can use several provisions to lower their U.S. tax bill. The most common are the Foreign Earned Income Exclusion (FEIE), the Foreign Housing Exclusion or Deduction, and the Foreign Tax Credit (FTC).

Foreign Earned Income Exclusion (FEIE)

The FEIE allows you to exclude a portion of your foreign earnings from U.S. income tax. For the 2025 tax year, the maximum exclusion is $130,000, an amount indexed for inflation. To claim the FEIE, you must file a U.S. tax return and attach Form 2555.

Foreign earned income includes salaries, wages, and professional fees for services performed in a foreign country. It does not include unearned income like interest or dividends, nor does it include income from the U.S. government.

Foreign Housing Exclusion and Deduction

In addition to the FEIE, you can claim a benefit for housing costs, which is an exclusion for employees and a deduction for the self-employed. Qualifying expenses include rent, utilities, and repairs. The calculation is based on your housing expenses, but they are only considered to the extent they exceed a base amount of 16% of the maximum FEIE. There is also an overall cap on expenses, which is 30% of the maximum FEIE, though this limit can be higher in certain high-cost localities.

Foreign Tax Credit (FTC)

As an alternative to the FEIE, you can claim the Foreign Tax Credit (FTC) on Form 1116. The FTC provides a dollar-for-dollar reduction of your U.S. tax liability for income taxes paid to a foreign country. This is often a better option if you live in a country with a higher tax rate than the U.S.

You cannot claim both the FEIE and the FTC on the same income. The FEIE is beneficial in low-tax countries, while the FTC can be more valuable in high-tax countries because it can offset U.S. tax on income above the FEIE limit and on unearned income.

Required Information and U.S. Tax Forms

Filing your U.S. tax return from abroad requires specific documentation and forms.

Information and Documentation to Gather

You should collect all relevant financial documents, including income statements from your foreign employer and records of any foreign taxes paid. If claiming the housing benefit, you need a list of qualified expenses like rent and utilities. For the Physical Presence Test, a travel calendar logging all dates of entry and exit from the U.S. is needed to calculate the 330 days spent abroad.

Completing Key Tax Forms

Form 2555, Foreign Earned Income, is used to claim the FEIE and the foreign housing exclusion or deduction. On this form, you will provide information to prove you meet the eligibility tests and calculate your exclusion. If you choose the Foreign Tax Credit, you will complete Form 1116. This form requires you to categorize your foreign income and allocate the foreign taxes you paid to each category.

Foreign Account Reporting Requirements

U.S. persons abroad have reporting obligations for their foreign financial accounts. The Report of Foreign Bank and Financial Accounts (FBAR), FinCEN Form 114, must be filed if the total value of your foreign financial accounts exceeds $10,000 at any time during the year. This report is filed separately from your tax return.

You may also need to file Form 8938, Statement of Specified Foreign Financial Assets, with your tax return. The filing thresholds for Form 8938 are higher and vary by filing status. For example, a single person living abroad must file if their specified foreign assets exceed $200,000 on the last day of the tax year or $300,000 at any point during the year.

The Filing Process and Key Deadlines

The filing process for U.S. citizens abroad involves different deadlines and submission methods than for domestic filers.

Expatriate Filing Deadlines

U.S. citizens residing overseas on the April 15 tax deadline receive an automatic two-month extension to file and pay, moving the deadline to June 15. While the extension to file is automatic, interest will be charged on any unpaid tax from the April deadline. You can file Form 4868 to extend the deadline to October 15. If you need more time to meet the requirements for the Bona Fide Residence or Physical Presence tests, you can file Form 2350 to request an extension to a date after you expect to qualify.

How to Submit Your Tax Return

You can submit your tax return by e-filing or mailing a paper copy. When e-filing, verify that your chosen software can accommodate foreign addresses and international tax forms. If filing by mail, you must use a specific IRS address for international filers. For returns without a payment, mail to the Department of the Treasury, Internal Revenue Service, Austin, TX 73301-0215, USA. If a payment is included, mail to Internal Revenue Service, P.O. Box 1303, Charlotte, NC 28201-1303, USA.

How to Submit the FBAR

The FBAR is not filed with your tax return. You must file it electronically through the BSA E-Filing System website, which is maintained by the Financial Crimes Enforcement Network (FinCEN).

Paying U.S. Taxes from Abroad

If you owe U.S. taxes, you can make payments from a foreign country. IRS Direct Pay and the Electronic Federal Tax Payment System (EFTPS) allow you to pay for free from a U.S. bank account. For those without a U.S. bank account, payments can be made via wire transfer from a foreign bank.

State and Social Security Tax Considerations

Beyond federal income tax, U.S. citizens abroad must consider state tax obligations and how foreign employment affects U.S. Social Security and Medicare taxes. These areas have rules that are not tied to federal provisions like the FEIE.

State Tax Obligations

Moving abroad does not automatically end your state tax responsibilities. State tax residency is based on “domicile,” which is your permanent home and the place you intend to return to. If you have not established a new domicile and have maintained ties to your former state, you may still be considered a resident for tax purposes.

To sever ties with a state, you must demonstrate intent to abandon your old domicile. Actions that can demonstrate this intent include:

• Selling property in the state
• Closing local bank accounts
• Changing your voter registration
• Obtaining a driver’s license in your new country of residence

Some states are strict and will presume you are still a resident until you can prove otherwise.

Social Security and Medicare Taxes (FICA)

The FEIE applies only to income tax and does not reduce your income for U.S. Social Security and Medicare (FICA) taxes. If employed by a U.S. company while abroad, you and your employer will continue to pay FICA taxes. If you are self-employed abroad, you are still subject to self-employment tax.

To prevent double taxation of social security taxes, the U.S. has Totalization Agreements with many countries. Under these agreements, a worker pays social security taxes to only one country. If you work in a country with such an agreement, a certificate of coverage from the U.S. Social Security Administration can exempt you from paying social security taxes there.