How much tax do US citizens living abroad pay?
US expats use the same federal income tax brackets as taxpayers living in the United States: for 2025, ordinary income rates run from 10% to 37%. But many qualifying expats owe $0 in US income tax after the Foreign Earned Income Exclusion (FEIE), the Foreign Tax Credit (FTC), or both. Filing is not the same as paying.
For the 2025 tax year, the FEIE can exclude up to $130,000 of qualifying foreign earned income per person. For the 2026 tax year, the IRS has increased that limit to $132,900. The exact tax you pay depends on income type, country of residence, foreign tax paid, self-employment status, investment income, and state residency.
Taxes for Expats helps Americans abroad turn those moving parts into a clear filing plan. If you need a number before year-end or before making a move, use TFX’s US expat tax projection service to estimate what to set aside.
How much do US expats usually pay in federal income tax?
Many US expats owe $0 in federal income tax on foreign wages when their 2025 earned income is under the $130,000 FEIE limit or when foreign tax credits fully offset US tax. The IRS still generally requires US citizens and resident aliens abroad to report worldwide income on Form 1040, so the filing duty can remain even when the final tax bill is $0.
The IRS explains the Foreign Earned Income Exclusion as a way to exclude qualifying foreign earnings from income, and the Foreign Tax Credit as a credit for eligible foreign income taxes paid. Those 2 tools answer most “how much” questions for wage earners abroad.
What expats pay in taxes also changes when income is not from wages. Dividends, interest, capital gains, rental income, foreign mutual funds, US-source income, and self-employment income can remain taxable even when salary is covered by FEIE or FTC.
For 2025, many wage-only expats under $130,000 owe $0 US income tax, but freelancers, investors, and high earners often need a separate calculation.
| Common expat situation | Main relief tool | Likely US income tax result | Watch item |
|---|---|---|---|
| Employee abroad earning $95,000 | FEIE | Often $0 | Must qualify under Form 2555 rules |
| Employee in Germany earning $120,000 with high German tax | FTC | Often $0 | Form 1116 limitation rules |
| Worker in the UAE earning $125,000 with no income tax | FEIE | Often $0 | The UAE does not levy individual income tax on wages, so no FTC is available unless another qualifying foreign income tax is paid. |
| Freelancer earning $90,000 | FEIE for income tax | Income tax may be $0 | Self-employment tax can still apply |
| Investor with $20,000 dividends | FTC, if foreign tax paid | Depends on credit limit | FEIE does not cover passive income |
| High earner with $180,000 salary | FEIE plus FTC on excess | Often reduced, not always $0 | Cannot credit tax on excluded income |
Example table: How much is expat tax?
This depends on 4 variables: income amount, income type, foreign tax rate, and the relief used on the US return. The examples below are illustrative for the 2025 tax year filed in 2026 and are not promises of a specific result.
IRS Publication 54 explains the special rules for US citizens and resident aliens abroad, including foreign earned income, housing exclusion rules, and filing deadlines. For a TFX comparison of the 2 main relief tools, review our guide to Foreign Tax Credit vs Foreign Earned Income Exclusion.
For 2025, the simplest $0 cases usually involve qualifying earned income under $130,000 or foreign income taxes that equal or exceed the US tax on the same income.
| Salary or income mix | Country tax level | Relief used | Likely US result |
|---|---|---|---|
| $80,000 salary | Low-tax country | FEIE | Usually $0 US income tax if eligible |
| $125,000 salary | High-tax country | FTC | Often $0 if foreign tax credit covers US tax |
| $150,000 salary | No-tax country | FEIE only | US tax likely on income above $130,000 |
| $95,000 freelance net profit | Low-tax country | FEIE | Income tax may be $0, but SE tax likely applies |
| $70,000 salary plus $15,000 dividends | High-tax country | FEIE plus FTC | Salary may be excluded; dividends need separate treatment |
| $220,000 salary | High-tax country | FEIE plus FTC | US tax often reduced; excess wages still analyzed |
Based on our client scenario at TFX: A single US citizen living in Spain earns $118,000 in 2025 wages and pays Spanish income tax. If they qualify for FEIE, the full wage amount may be excluded because it is below $130,000. If they use the FTC instead, the Spanish tax may reduce the US tax to $0, but the better choice depends on credits, deductions, and future carryovers.
How the Foreign Earned Income Exclusion reduces expat tax
The FEIE reduces the 2025 US income tax by excluding up to $130,000 of qualifying foreign earned income per eligible person on Form 2555. It applies to income from services performed abroad, such as wages, salaries, commissions, bonuses, and self-employment income, but it does not apply to passive income.
The IRS Form 2555 page explains that qualifying taxpayers use Form 2555 to figure the foreign earned income exclusion and the foreign housing exclusion or deduction. TFX’s Form 2555 guide for foreign earned income explains how the form connects to Form 1040.
The following 4 conditions usually drive FEIE eligibility for a 2025 return:
- You are a US citizen or resident alien eligible to claim the exclusion.
- You have foreign-earned income from services performed in a foreign country.
- Your tax home is in a foreign country during the qualifying period.
- You meet either the physical presence test or the bona fide residence test.
The physical presence test generally requires 330 full days in a foreign country or countries during a 12-month period. See TFX’s guide to the physical presence test for expats for day-count examples.
For US citizens, the bona fide residence test generally requires an uninterrupted period of foreign residence that includes an entire tax year. A US resident alien generally must also be a citizen or national of a treaty country to use this test. It is more fact-based than the 330-day physical presence test.
So, how much tax do you pay if you work abroad? If your 2025 earned income is $130,000 or less, all work is performed abroad, and you meet the FEIE rules, your US income tax on that earned income may be $0. That does not automatically remove self-employment tax, investment tax, state tax, or reporting obligations.
How the Foreign Tax Credit can reduce US tax to zero
The Foreign Tax Credit can reduce 2025 US income tax dollar for dollar when you pay or accrue qualifying foreign income taxes on income that is also taxable by the United States. It is often the better tool in high-tax countries because it can apply to earned income and certain passive income.
IRS Topic 856 explains that unused foreign tax credit generally can be carried back 1 year and carried forward 10 years, subject to limitations. See the IRS page on the foreign tax credit and the 2025 Form 1116 instructions for the filing mechanics.
TFX’s foreign tax credit guide for US expats explains when the credit is more valuable than a deduction. For form-level details, see our guide on Form 1116 for claiming the foreign tax credit.
The following 4 foreign tax credit points matter for US expats:
- The foreign tax must generally be an income tax or a tax in lieu of income tax.
- The income must generally be foreign-source income under US rules.
- The credit is limited by Form 1116, so it may not use every dollar of foreign tax in the current year.
- Unused credits may carry back 1 year and forward 10 years, with exceptions.
TFX’s foreign tax credit carryover guide explains why tracking excess credits matters when income changes between years.
Based on our client scenario at TFX: A US citizen in France earns $105,000 in wages and pays $28,000 of French income tax for 2025. If Form 1116 calculates US tax of $18,000 on that same income, the FTC may reduce the US income tax to $0, and unused foreign taxes may be reviewed for carryback or carryforward.
FEIE vs FTC: which one affects how much expat tax you pay?
FEIE and FTC affect expat tax in different ways: FEIE excludes up to $130,000 of 2025 qualifying earned income, while FTC reduces US tax based on eligible foreign income taxes paid. They can sometimes be used together, but not on the same dollar of income.
IRS Publication 54 explains that once foreign earned income is excluded, foreign taxes tied to that excluded income cannot also generate a credit. IRS Publication 514 explains how the foreign tax credit is calculated and limited.
The tax American expats pay often comes down to whether their foreign country has a higher or lower tax rate than the United States. For a deeper side-by-side analysis, read TFX’s guide to choosing between FEIE and FTC.
For 2025, FEIE usually helps most in low-tax countries, while FTC often works better in high-tax countries or where passive income is involved.
| Feature | FEIE | FTC |
|---|---|---|
| What it reduces | Taxable earned income | US tax liability |
| 2025 amount or limit | Up to $130,000 per qualifying person | No flat dollar cap, but Form 1116 limits apply |
| Eligible income | Earned income only | Earned and passive foreign-source income, if tax qualifies |
| Best for | Low-tax or no-tax countries | High-tax countries and mixed income |
| Main form | Form 2555 | Form 1116, unless exception applies |
| Carryover | No carryover | Generally 1-year carryback and 10-year carryforward |
| Can they be combined? | Yes, on different income | Yes, but not on excluded income |
When US expats still owe tax
US expats can still owe tax in 2025 when income is above the FEIE limit, earned in a low- or no-tax country, self-employed, passive, US-source, connected to rental property, or tied to foreign funds. FEIE and FTC reduce many bills, but they do not erase every tax category.
The IRS Form 8621 page is important for expats with foreign mutual funds, ETFs, or other passive foreign investment company (PFIC) holdings. The IRS Form 1040 page confirms that Form 1040 is the annual US income tax return for individual taxpayers.
US citizens living abroad pay tax when their taxable income remains after exclusions, deductions, and credits. That can include capital gains, dividends, interest, pension income, rental income, US-source income, and foreign income not protected by treaty or credit rules.
The following 7 situations commonly leave a US balance due:
- High earners with wages above the $130,000 FEIE limit for 2025.
- Expats in low-tax or no-tax countries with income above the FEIE limit.
- Freelancers who owe self-employment tax.
- Investors with dividends, interest, capital gains, or PFIC income.
- Landlords with net rental income or depreciation recapture.
- Taxpayers with US-source income, such as US rental property or certain business income.
- Former state residents who remain domiciled in a state that continues to tax them.
Foreign investing can add a reporting layer even when the income amount is modest. TFX’s guide to foreign investment tax rules for US expats explains how Form 1116, Form 8938, FBAR, and Form 8621 can overlap.
What is the tax you pay on overseas income? For 2025, it can be $0 after FEIE or FTC, or it can follow the regular 10% to 37% federal brackets after deductions and credits. The answer depends on what kind of overseas income you have, not just where you live.
Self-employment tax: the expat tax many freelancers miss
Self-employment tax is often the largest surprise for freelancers abroad because FEIE can reduce income tax, but generally does not reduce US Social Security and Medicare tax. For 2025, the self-employment tax is 15.3% on 92.35% of net earnings, once net earnings reach the filing threshold for Schedule SE.
The IRS explains the self-employment tax rate as 15.3%, made up of 12.4% Social Security tax and 2.9% Medicare tax. IRS Topic 554 also states that the amount subject to self-employment tax is generally 92.35% of net earnings.
Expats pay US taxes differently when they are employees versus independent contractors. A foreign employer may withhold foreign payroll tax, but a US freelancer may still need Schedule C, Schedule SE, estimated tax payments, and possibly totalization agreement analysis.
Based on our client scenario at TFX: A US freelance designer in Portugal has $80,000 of net self-employment profit for 2025 and qualifies for FEIE. The FEIE may reduce US income tax on that $80,000 to $0, but Schedule SE still starts with $80,000 × 92.35%, creating $73,880 of earnings subject to the 15.3% self-employment tax calculation before any applicable Social Security wage base limits or treaty relief.
TFX’s guide to filing taxes as an independent contractor explains the forms freelancers commonly need. A totalization agreement may change where Social Security coverage applies, but that depends on the country and the facts.
So, how much taxes do I pay if I work overseas as a freelancer? Your US income tax may be $0 if FEIE or FTC covers the income, but self-employment tax can still apply at 15.3% on 92.35% of net earnings. That is why freelancers need a separate estimate.
Do expats pay tax in both countries?
Yes, Americans abroad may face tax in both the United States and their country of residence, but FEIE, FTC, and tax treaties often reduce or eliminate double taxation. Foreign tax paid does not remove the US filing duty for 2025 Form 1040 purposes.
The IRS tax treaties page explains that treaty benefits vary by country and income type. The foreign tax credit is usually the main tool for reducing double taxation when a foreign country taxes the same income.
Americans living abroad pay tax under citizenship-based US rules and local residence rules, which is why the same salary can appear on 2 tax systems. TFX’s guide to double taxation for US expats explains when credits, exclusions, and treaties may help.
The following 3 tools reduce double taxation for many expats:
- FEIE can exclude up to $130,000 of qualifying 2025 earned income.
- FTC can offset US tax with eligible foreign income taxes paid.
- Treaties can change how certain pensions, government pay, wages, or investment income are taxed, depending on the treaty article and saving clause.
What are the taxes you pay if you live abroad? Most US citizens abroad need to consider at least 2 systems: US federal tax and local-country tax. Some also need to consider US state tax, foreign social tax, self-employment tax, and foreign account reporting.
How much money is tax-free when working overseas?
For 2025 returns filed in 2026, up to $130,000 of qualifying foreign earned income can be excluded under FEIE per eligible person. For the 2026 tax year filed in 2027, the FEIE limit increases to $132,900 per eligible person.
The question “how much money is tax-free when working overseas” usually refers to the FEIE, but the exclusion is not automatic. You must have foreign earned income, a foreign tax home, a qualifying physical presence or bona fide residence period, and a valid Form 2555 election.
FEIE applies to work income, not all foreign income. Dividends, interest, capital gains, pensions, and most rental income are not tax-free under FEIE, though the Foreign Tax Credit or treaty rules may reduce double taxation.
For a deeper TFX explanation, see our Foreign Earned Income Exclusion guide. The decision rule is simple for 2025: $130,000 is the maximum per qualifying person, not a blanket exemption for every dollar earned abroad.
Based on our client scenario at TFX: A married couple lives in Singapore for all of 2025. One spouse earns $140,000, and the other earns $75,000, and both qualify for FEIE. The first spouse may exclude up to $130,000, while the second may exclude up to $75,000, for a combined $205,000 excluded before reviewing foreign housing, credits, and other income.
Foreign account reporting can cost more than income tax mistakes
Foreign account reporting is separate from income tax, and missing it can create penalties even when 2025 US income tax is $0. The most common forms are FBAR, filed with FinCEN when foreign financial accounts exceed $10,000 in aggregate, and Form 8938, filed with the IRS when specified foreign financial assets exceed higher FATCA thresholds.
The IRS FBAR page explains that FBAR is filed on FinCEN Form 114 for certain foreign accounts. FinCEN states that a US person must file when the aggregate value of foreign financial accounts exceeds $10,000 at any time during the calendar year.
The IRS comparison of Form 8938 and FBAR requirements makes clear that one form does not replace the other. TFX’s Form 8938 guide and FBAR filing guide explain the practical differences.
For 2025, FBAR can apply at just $10,000 in aggregate foreign accounts, while Form 8938 thresholds for taxpayers abroad can start at $200,000 year-end or $300,000 at any time for unmarried filers.
| Form | Filed with | 2025 trigger for many expats | Due date pattern | Key point |
|---|---|---|---|---|
| FBAR, FinCEN Form 114 | FinCEN | Over $10,000 in aggregate foreign accounts at any time | April 15, automatic extension to October 15 | Not filed with Form 1040 |
| Form 8938 | IRS | For unmarried taxpayers abroad, over $200,000 at year-end or $300,000 at any time | Filed with Form 1040 | Does not replace FBAR |
The following 4 account types commonly trigger reporting review:
- Foreign checking, savings, and time deposit accounts.
- Foreign brokerage and securities accounts.
- Certain foreign pension or retirement accounts.
- Accounts where you have signature authority, even without ownership.
Filing deadlines for US citizens living abroad
For 2025 federal returns, the regular filing and payment deadline is April 15, 2026. Qualifying US citizens and resident aliens abroad generally receive an automatic 2-month extension to file until June 15, 2026, but tax payments still should be made by April 15 to reduce interest.
The IRS page for US citizens and resident aliens abroad explains the automatic 2-month extension for taxpayers abroad. The IRS page on the automatic 2-month extension explains who qualifies.
Further extensions may be available. Form 4868 can extend filing to October 15, 2026, and Form 2350 may apply when a taxpayer needs more time to meet the FEIE physical presence or bona fide residence test.
For first-year expats, TFX’s Form 2350 FEIE extension guide explains when the form fits. Form 2350 is not a payment extension, so it should be used only when the FEIE timing issue is real.
Does every US citizens living abroad pay tax by June 15? No. The June 15 date is usually an automatic filing extension for qualifying taxpayers abroad, while the payment deadline remains April 15, 2026, for most 2025 federal income tax balances.
What if you have not filed US taxes while abroad?
If you have not filed US taxes while abroad, the IRS streamlined filing compliance procedures may help if your noncompliance was non-willful. Streamlined filing generally focuses on correcting prior tax returns, foreign asset reporting, and FBAR issues without turning the article into a full catch-up guide.
The IRS streamlined filing compliance procedures are for taxpayers who can certify that failure to report foreign financial assets and pay tax was not willful. Non-willful conduct generally means negligence, inadvertence, mistake, or a good-faith misunderstanding of the law.
TFX offers a streamlined filing procedure service for eligible taxpayers who need help catching up. For foreign-resident expats, our guide to the Streamlined Foreign Offshore Procedures explains the nonresident path.
The following 3 questions should be answered before choosing a catch-up method:
- Have you filed any US returns for the most recent 3 tax years?
- Did your foreign accounts exceed $10,000 in aggregate during any of the last 6 FBAR years?
- Was the failure to file non-willful, or is there any risk of willful conduct?
What happens if I forgot to file? The right correction path depends on the number of missed years, foreign account balances, income, and willfulness. Do not quietly file old returns without checking whether streamlined, delinquent FBAR, or another IRS compliance path fits your facts.
How to estimate your US expat tax
To estimate your 2025 US expat tax, separate earned income, passive income, self-employment income, US-source income, and foreign tax paid before choosing FEIE, FTC, or both. A practical estimate must also check self-employment tax, FBAR, Form 8938, and possible state tax.
TFX’s Form 1040 guide explains where income and credits appear on the individual return. Our tax documents checklist can help you collect the information needed to estimate or file accurately.
The following 7 steps give a usable estimate for a 2025 expat return:
- List each income type: wages, freelance profit, dividends, interest, capital gains, rental income, pension income, and US-source income.
- Convert foreign income and foreign tax to US dollars using a consistent, supportable method.
- Separate earned income from passive income because FEIE applies only to earned income.
- Test FEIE eligibility using Form 2555 rules and the $130,000 limit for 2025.
- Estimate FTC using foreign income taxes paid and Form 1116 categories.
- Add self-employment tax if net freelance income is $400 or more.
- Check FBAR, Form 8938, PFIC, and state residency issues before assuming the return is complete.
The tax US citizens pay abroad is not a separate “expat tax.” It is a regular US federal tax calculated after deductions, exclusions, credits, and additional taxes that apply to the person’s facts.
A tax projection is useful when income is changing, you have moved countries, you switched from employee to contractor, or you expect to owe estimated tax. Taxes for Expats can prepare a quantitative tax projection with a draft Form 1040 and estimated payment vouchers. Estimate your 2025 expat tax today, or schedule a free call with us for guidance on your next steps.
FAQ
These 8 answers cover the most common 2025 tax-year questions for US citizens abroad filing in 2026.
Many expats owe $0 in US income tax after FEIE or FTC, especially when 2025 earned income is under $130,000 or foreign income taxes cover the US tax. High earners, freelancers, investors, and taxpayers in low-tax countries may still owe.
Yes, expats pay US taxes in the sense that they usually must file a US return and report worldwide income. Foreign tax paid may reduce US tax through the Foreign Tax Credit, but it does not automatically remove the filing requirement.
Not automatically. The first $130,000 of 2025 foreign earned income can be excluded only if you meet FEIE requirements and file Form 2555. The exclusion does not cover dividends, interest, capital gains, pensions, or most rental income.
Often, yes. FEIE may reduce income tax, but it generally does not reduce self-employment tax. For 2025, self-employment tax is 15.3% on 92.35% of net earnings, subject to the Social Security wage base and possible totalization agreement relief.
Some do. State tax depends on domicile, residency rules, property, voter registration, driver’s license, family location, and state-specific rules. Moving abroad does not automatically end state residency for every taxpayer.
The amount depends on missed income, foreign tax paid, account reporting, and penalties. A taxpayer may owe $0 income tax after FEIE or FTC but still need streamlined filing, delinquent FBARs, or amended returns to fix the record.
US citizens abroad use the same 10% to 37% federal tax brackets for 2025, but FEIE, FTC, deductions, and credits can reduce the final bill to $0. The actual answer depends on income type, foreign tax paid, and eligibility for expat relief.
Retirees usually cannot use FEIE for pension, Social Security, IRA, dividend, or capital gain income because those are not earned income. Their US tax depends on regular federal rules, treaty provisions, foreign tax credits, and the country taxing the retirement income.
