Dual citizenship taxes: Complete guide for US expats (2025)

In 2025, dual citizenship taxes sound big and scary, but the idea is simple. This guide shows how the rules work and how life with two passports affects your money in a clear, easy way.

US dual citizen taxes follow one basic rule: the US asks you to report your income each year, even when you live in another country. Most people do not pay tax twice because tools like the foreign earned income exclusion, the foreign tax credit, and tax treaties help prevent that.

The question: What is dual citizenship feels different during tax time, but it does not have to be confusing. This article by Taxes for Expats (TFX) keeps everything short, calm, and easy to follow. And if any part feels overwhelming, we are here to support you as you move through the steps.

What is dual citizenship?

Dual citizenship means holding full legal status in two countries at once, with the freedom to vote, work, own property, and use public services in both places while carrying two valid passports.

The idea is surprisingly simple – some people legally belong to two countries at the same time. The moment someone asks, What is dual citizenship? they’re usually trying to understand how everyday rights, travel, and taxes fit together. And once that idea clicks, the rest of the rules make a lot more sense.

Every so often, someone grows up entirely outside the US and discovers much later that they’re considered an accidental American because a US parent passed citizenship to them at birth. That experience is far more common than many expect, especially when banks request proof of US status. You might have acquired dual citizenship through various means:

• Birth in a foreign country to US citizen parents
• Naturalization in another country while keeping US citizenship
• Marriage to a foreign national
• Ancestry or descent-based citizenship

Once that foundation is clear, tax strategies designed for dual nationals become much easier to navigate. Regardless of the path taken, dual citizenship creates ongoing tax obligations – US law requires citizens to file a tax return each year on worldwide income, even when living abroad or using a second passport.

Do dual citizens have to pay US taxes?

Yes. US dual citizens must file US tax returns every year and report all money earned anywhere in the world. This rule was confirmed in the Supreme Court case Cook v. Tait, which said the United States can tax its citizens even when they live abroad.

This idea starts the whole process because filing comes first, and the other steps help lower or remove taxes.

• Must report worldwide income on a return every year
• Filing is needed even when the final US tax is $0 after credits or exclusions
• Deadline for expats is June 15 instead of April 15
• Common forms: 1040, 2555 for the Foreign Earned Income Exclusion, 1116 for the Foreign Tax Credit, plus FBAR and FATCA forms

NOTE! Expats get an automatic extra 2 months to file, and a free expat extension can push the deadline to October.

Need more time to handle IRS taxes? Extend your US expat deadline to December 15

Request additional extension

The US tax filing requirements treat dual citizens the same as anyone living stateside. This is why dual citizenship taxes often feel confusing. Many people ask Do dual citizens pay taxes, but the rules make the answer clear.

Here is how the filing thresholds work for 2025, so you know when a return is required.

NOTE! These 2025 base thresholds use gross worldwide income; FEIE only works after you file and claim it on a return.

Do dual citizens pay taxes in both countries?

Most dual citizens file tax returns in two countries, but they rarely face full double taxation on the same income. The foreign earned income exclusion and the foreign tax credit usually ensure that one country applies tax first, and the other removes most or all of the remaining amount.

So, do dual citizens pay double taxes? Understanding the basic factors listed next helps explain how each country applies tax:

• Country of residence – The place where a person mainly lives and works generally decides which tax authority applies its rules first.
• Source of income – Salary, self-employment income, dividends, or rental income follows different tax rules under IRS guidance.
• Tax treaties – Bilateral tax treaties explain which country has the primary right to tax certain types of income.
• Financial situation – Income level, assets, and allowable deductions influence the final tax calculation.

Consider a taxpayer with dual nationality in the UK and the US, living in London and earning £80,000. In 2025, this equals about $100,000, which is below the $130,000 foreign earned income exclusion. UK tax is paid first. On the US return, Form 2555 or the foreign tax credit on Form 1116 offsets the income, resulting in no IRS balance due while remaining fully compliant.

Dual citizenship taxes by country

Tax rules for dual citizens change as soon as you cross a border, so a dual nationality in the UK and the US can feel very different from pairing a US passport with Canada or Germany. Imagine one year you work in London, the next in Toronto, and later in Berlin – the treaty, tax strategies, and social security rules shift, but the US tax return stays.

US-UK dual citizenship taxes

US-UK dual citizenship sits under a robust income tax treaty that aims to stop double taxation. The UK taxes residents on worldwide income, while the US taxes citizens worldwide, so most UK-based duals rely on the Foreign Tax Credit instead of the Foreign Earned Income Exclusion.

• Treaty coverage: US–UK income tax treaty covers income, capital gains, pensions, and certain social security benefits.
• UK tax rates: UK bands run from 20% basic to 40% higher and 45% additional, versus US federal 10–37% brackets.
• Best strategy: Because UK income tax is often higher, many dual residents favor the Foreign Tax Credit on Form 1116 instead of Form 2555’s Foreign Earned Income Exclusion.
• Common pitfall: UK ISAs and other tax-free accounts stay fully taxable to the IRS because US citizens report worldwide income.
• Social security: A US–UK totalization agreement decides whether you pay National Insurance or US Social Security, preventing double payroll taxes.
• Filing requirement: UK residents may need Self Assessment, and US citizens must file Form 1040 every year, while dual citizens.

US-Canada dual citizenship taxes

The US-Canada tax treaty is one of the broadest and shapes how US-Canada dual citizenship taxes work in practice. Canada taxes residents on worldwide income at progressive federal rates of about 14.5–33% plus provincial tax, while US citizens still file globally and usually claim credits or exclusions.

• Treaty benefits: US-Canada tax treaty allocates taxing rights on employment, business income, and pensions, and grants credits to prevent double taxation.
• TFSA/RRSP: Canadian registered plans can grow tax-sheltered in Canada, but the IRS may still tax or require separate US reporting under worldwide-income and foreign-asset rules.
• Best strategy: For salaries under roughly the $130,000 Foreign Earned Income Exclusion, FEIE on Form 2555 can work; higher earners usually rely on the Foreign Tax Credit.
• Common pitfall: Canadian bank, brokerage, and pension accounts often trigger FBAR once combined balances exceed $10,000 at any time in the year.
• Tax year alignment: Canada and the US use January–December tax years, which makes tax planning, records, and currency conversions easier.

US-Germany dual citizenship taxes

US-Germany dual citizenship is governed by an income tax treaty that coordinates US and German tax rules on salaries, investments, and pensions. Germany taxes residents using progressive rates that quickly approach US levels, so many dual citizens in Germany rely on the Foreign Tax Credit rather than exclusions.

• Treaty coverage: German-American tax treaty covers income, capital gains, business profits, pensions, and certain German social security benefits.
• German tax rates: Germany applies progressive income tax from about 14% up to 42% and 45%, plus a 5.5% solidarity surcharge.
• Best strategy: Because German tax often exceeds US tax on salary, the Foreign Tax Credit usually beats the Foreign Earned Income Exclusion.
• Common pitfall: Riester and Rürup retirement plans can be tax-favored in Germany but create difficult US income and reporting issues under worldwide-income and foreign-asset rules.
• Tax year: Germany and the US both use calendar-year taxation, which simplifies matching pay slips, bank statements, and credit calculations for dual filers.

Tax planning strategies for dual citizens

Effective tax planning for dual citizens works like a money map. Each year, you choose the best rule, match income to the right country, and use the forms that cut your tax bill. These steps protect savings and lower the risk of double taxation under IRS rules like Form 1116 and Form 2555.

Timing income realization

Shifting income a little earlier or later can make taxes lighter. Paychecks, bonuses, capital gains, and stock options fall into the year they are taken, so moving them across December 31 can change which country taxes them first. A software engineer moving from the US to Germany may delay stock option exercise until German residency begins to benefit from different capital gains rules.

Retirement planning across borders

Retirement planning expats do best when they check how the IRS taxes 401(k)s, IRAs, Roth moves, and foreign pensions. RMDs start at age 73 under IRS rules. A totalization agreement usually makes you pay into only one country’s Social Security system. Medicare abroad covers almost nothing, so most people pair it with local care or private plans.

Investment location strategy

Where you keep investments matters. A US account makes reporting simple. A foreign account can trigger tough PFIC rules on Form 8621, which can mean big penalties and extra tax. Many dual citizens stick to US-based ETFs and choose real estate or savings based on which country gives the easier tax result for 2025.

3 costly mistakes dual citizens make

Many dual citizens make expensive tax mistakes that lead to penalties, interest, and stress. Below are five common mistakes and how to avoid them.

• Using the wrong exchange rates
  Income earned in another currency must be changed to US dollars using IRS-approved yearly averages or Federal Reserve rates. Using random online rates, year-end rates, or mixing methods can throw numbers off and trigger questions.
• Not coordinating FEIE and FTC
  The foreign earned income exclusion (up to $130,000 in 2025) and the foreign tax credit cannot be used on the same income. But they can work together on different types of income. Many dual citizens lose money by picking one and ignoring the other, even though good tax strategies often blend both.
• Ignoring US state taxes after moving abroad
  Some states, like California, Virginia, South Carolina, and New Mexico, can keep taxing you until you fully break ties. Without formal steps, a person can face state tax and foreign tax at the same time.

Ignored US returns while overseas? See how streamlined filing lets dual citizens catch up.

Learn more

Real-world tax scenarios for dual citizens

Real numbers make it easier to see how dual citizenship taxes work in practice. These three stories show how different rules can either wipe out US tax or leave a bill if planning is weak.

1. US-UK software engineer in London
   A US-UK dual citizen earning £90,000 (about $110,000) pays around £23,000 of UK tax at the 2040% rates and then uses smart tax strategies so the higher UK tax fully cancels the US bill, making this a clear dual citizenship tax example where double taxation is avoided, and the outcome shows how choosing the right method prevents big tax mistakes.
2. Digital nomad freelancer in Portugal
   A US freelancer living in Lisbon makes $75,000 from clients worldwide and pays about $11,000 in Portugal, and because the income fits under the $130,000 FEIE limit for 2025 the entire amount is excluded so no US income tax is left, though about $10,600 of self-employment tax still applies and this case study shows why the FEIE is great in low-tax spots but cannot remove Social Security costs.
3. Retiree in Mexico living on US income
   A 67-year-old retiree in Mexico gets $40,000 of Social Security and $30,000 from an IRA and owes no Mexico tax on the Social Security while the US taxes about $64,000 of income and creates a bill close to $6,000, and this tax example shows how timing IRA withdrawals and avoiding tax mistakes helps keep levels low even when a treaty does not erase the US part.

Social Security benefits for dual citizens

US dual citizens can still receive Social Security as long as they earn 40 work credits, and these benefits can be paid to most countries abroad without trouble. This makes retirement planning much easier for people who have lived and worked in more than one place.

Totalization agreements

A totalization agreement is a simple deal between the US and another country that keeps workers from paying Social Security tax twice while helping them qualify for benefits more easily. These rules connect two systems, so careers split across borders still count.

• What they are – Shared Social Security rules that prevent double Social Security tax and help workers qualify for benefits in both systems.
• How they work – Each country decides who collects tax, and work credits from both sides can be added up to meet minimum eligibility.
• Countries covered – More than 30 partners, including the UK, Canada, Germany, France, Australia, Italy, Spain, Japan, and South Korea, which helps many people with a totalization agreement stay fully protected.
• Someone who works 6 years in the US and 4 years in the UK can meet the 10-year rule for both systems, even though the years were split.
• Without an agreement – The same person would need 10 full years in each country, making dual citizenship Social Security planning much harder.
• Benefit calculation – Each country pays only its own share of the benefit, based on the credits earned there, so the final amount stays fair.

Windfall Elimination Provision (WEP)

The windfall elimination provision is a rule that can reduce a US Social Security payment when someone also receives a foreign pension from work that did not pay into Social Security.

• How much it can reduce – WEP can cut a monthly benefit by up to about $600 in 2025, with the exact drop based on how many years of strong US earnings a worker has.
• Who it affects – People with fewer than 30 years of substantial US-covered income and a foreign or non-covered pension see the biggest impact from WEP.
• Who is protected – A pension created through a totalization agreement is not hit by WEP, and the rule reduces but never removes the benefit fully.

Medicare and dual citizenship

Medicare focuses on care inside the US, so people living abroad often need another plan for regular doctor visits or hospital treatment. Even so, Medicare remains valuable because many dual citizens travel back to the US for major procedures.

• Coverage limitation – Medicare works mostly inside the US, with only small exceptions for rare emergencies near Canada or Mexico.
• No coverage abroad – Regular care overseas usually comes through local systems or private plans, making Medicare abroad something to plan around.
• FEIE impact – Income excluded under the foreign earned income rules does not count toward Medicare payroll tax, but anyone who earned enough work credits can still join Medicare at 65.
• Options while abroad – Many people use local public care, private international insurance, expat health plans, or return to the US for covered treatments.

Claiming strategies

Smart timing can make Social Security last longer and fit smoothly with foreign pensions, taxes, and overall retirement plans.

• When to claim – Starting at 62 cuts the amount by about 25–30%, claiming at 66–67 pays 100%, and delaying to 70 can raise benefits to around 124–132%.
• Foreign residence – Living overseas usually does not reduce the benefit amount, and social security abroad can be paid to many countries without disruption.
• Payment methods – Payments can go to a US bank or, in many places, directly to a foreign bank account.
• Tax withholding – Filing a short W-4V form lets people pick how much federal tax to withhold from their monthly checks.
• Coordination – It helps to match Social Security timing with foreign pension payments so the windfall elimination provision, taxes, and cash flow all work smoothly together.

What if I'm an accidental American?

Accidental Americans are people who became US citizens at birth, either by being born in the US or to US citizen parents, but lived almost their whole lives abroad and often never knew. Even with very weak ties, they still have full US tax duties, including yearly returns, worldwide income reporting, and foreign account disclosures.

• File annual US tax returns reporting worldwide income
• Report foreign bank accounts if total balances go over $10,000 at any time in the year (FBAR)
• Comply with FATCA rules for foreign financial accounts and assets
• Follow the same filing dates and extension rules as any other US citizen

If you discover you are an accidental American and have never filed, the IRS streamlined filing compliance procedures let you send the last 3 years of tax returns and 6 years of FBARs, usually with reduced penalties when mistakes were not willful.

Some dual citizens decide to renounce US citizenship, but they must first be tax compliant, pay a $2,350 consular fee, and high-wealth cases can trigger a separate exit tax calculation.

Didn’t know your dual status has America in it? Read how accidental Americans can become compliant

Read more

How can dual citizens avoid double taxation?

US dual citizens can avoid double taxation by using simple tools that cut or erase the US tax bill. The best choice depends on where you live, how much you earn, and whether your money comes from work or from savings. These four options work together to lower taxes in the most effective way.

1. Tax treaties
2. Foreign Tax Credit
3. Foreign Earned Income Exclusion
4. Foreign Housing Exclusion

NOTE! Run your calculations yearly; many dual citizens exclude up to $130,000 with FEIE, then use the foreign tax credit for the remaining earned income and all passive income.

Pros and cons of dual citizenship

The pros and cons of dual citizenship often balance each other, giving more freedom in life while adding extra rules and responsibilities. Dual citizenship offers travel ease and access to two systems, but US citizens still face yearly worldwide income reporting.

Advantages

These benefits of dual citizenship help people enjoy more freedom and opportunity.

• Visa-free travel to 150+ countries with two passports.
• Work authorization in both countries without visa/permit requirements.
• Access to two healthcare and education systems,
• Property ownership in markets restricted to citizens only.
• Voting rights and political participation in two countries.
• Inheritance and property rights in both nations.

Disadvantages

These disadvantages of dual citizenship show why careful planning is important.

• Must file US taxes annually on worldwide income regardless of residence.
• FBAR and FATCA reporting requirements for foreign financial accounts.
• Potential military service obligations in some countries (Israel, South Korea, others).
• May limit eligibility for government security clearance jobs.
• Complex estate planning and gift tax considerations across borders.
• Difficult and expensive renunciation process if circumstances change.

What if I owe US taxes?

If you owe US taxes as a dual citizen abroad, you can choose from several IRS payment options, from full payment to monthly plans, but staying compliant and in contact with the IRS is vital to limit penalties and interest. This is the safest way to handle issues of owing US taxes abroad without letting problems snowball.

• Pay in full – Simplest choice if affordable, using IRS Direct Pay, wire transfer, or check, and often the cheapest of all IRS payment options.
• Short-term payment plan – Gives up to 180 days to pay the balance in full, with no formal installment agreement, but normal interest and penalties still running.
• Long-term installment agreement – Monthly payments over time (often up to 72 months) with a setup fee in the roughly $31–$225 range, depending on how you apply and how you pay.
• Offer in compromise – Lets some taxpayers settle for less than the full balance when they truly cannot pay in full, based on a detailed review of income, expenses, and assets.

For people behind on returns, the IRS streamlined filing procedures can provide a clean restart by requiring the last three years of federal returns, six years of FBARs, and payment of all tax plus interest, usually with reduced penalties for non-wilful errors.

The IRS can certify seriously delinquent tax debt to the State Department, risking passport denial or revocation if ignored, so passport revocation tax debt situations are exactly when communication and a payment plan matter most today.

Tax calendar for dual citizens

Final insights to guide you

Dual citizenship can make taxes feel overwhelming, but when you know which rules apply to you, staying compliant in both countries becomes far easier than it first appears.

• Choose the smartest approach for your situation by comparing FEIE, FTC, or a blend of both based on income and local tax rates.
• Gather all foreign income records, tax receipts, and bank statements so every figure is correct.
• Convert foreign income to USD using IRS rates or Federal Reserve rates for clean reporting.
• File Form 1040 plus Form 2555 (FEIE) or Form 1116 (FTC), depending on your best tax method.
• Submit the FBAR if foreign accounts passed $10,000 at any point in the year.
• Use the June 15 automatic expat deadline or extend to October 15 when needed.
• Pay any owed tax by April 15 to avoid interest buildup.

Taxes for Expats has supported more than 10,000 US dual citizens with expert dual citizenship tax help. Our expat tax services make cross-border filing simpler through guidance tailored to every expat’s life.

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