Moving abroad is an exciting step—new opportunities, new cultures, and often a better lifestyle. But if you’re a U.S. citizen, one thing follows you no matter where you go: your U.S. tax obligations. Unlike most countries, the United States taxes its citizens on worldwide income, even if they haven’t set foot on U.S. soil for years. That’s why it’s critical to plan your US taxes before and after moving overseas.
This guide explains what Americans need to know when relocating abroad, covering filing requirements, foreign income, tax treaties, and strategies to avoid double taxation.
The U.S. is one of only two countries in the world that imposes citizenship-based taxation. This means:
- You must file a U.S. federal tax return every year if you meet the income thresholds, regardless of where you live.
- Income earned abroad—salary, self-employment, or investments—must be reported.
- Penalties for failing to file can be severe, even if you don’t owe U.S. tax.
1. Federal Tax Return (Form 1040)
Every U.S. citizen abroad must file annually if their income exceeds the standard thresholds.
2. Foreign Bank Account Reporting (FBAR, FinCEN Form 114)
Required if your combined foreign accounts exceed $10,000 at any point in the year.
3. FATCA (Form 8938)
Required if your foreign financial assets cross IRS thresholds, which vary by filing status and residency.
4. State Taxes
Some states may still consider you a resident unless you cut ties properly (e.g., California, Virginia).
Expats often fear paying taxes twice—once to their host country and again to the U.S.
Thankfully, the IRS provides relief mechanisms:
- Foreign Earned Income Exclusion (FEIE) – Allows you to exclude up to $126,500 (2025 figure, adjusted annually) of earned income.
- Foreign Tax Credit (FTC) – Dollar-for-dollar credit for taxes paid abroad.
- Tax Treaties – Agreements between the U.S. and certain countries (including Australia, the UK, and Canada) that help minimize overlaps.
To make your transition smoother, consider these steps:
- Update residency ties – If leaving a U.S. state, formally change residency to avoid unexpected state taxes.
- Check employer tax arrangements – Some U.S. companies may withhold incorrectly for expats.
- Organize foreign bank accounts – Set up compliant accounts to simplify FBAR reporting.
- Consult a tax professional – An expat tax advisor can help you plan your US taxes and avoid costly mistakes.
- Believing they don’t need to file because they earn abroad.
- Missing FBAR or FATCA deadlines.
- Assuming U.S. taxes stop once they pay foreign taxes.
- Forgetting to track housing allowances or retirement contributions.
1. Do I still need to file U.S. taxes if I don’t earn much abroad?
Yes. If your income exceeds the filing threshold, you must file, even if you owe nothing after credits or exclusions.
2. Can I avoid filing if I pay taxes in my host country?
No. Filing is mandatory, but you may not owe anything due to FEIE or FTC.
3. What if I haven’t filed U.S. taxes for years?
You may be eligible for the Streamlined Amnesty Program, which helps expats catch up without penalties.
4. Do I need to report my foreign retirement accounts?
Yes, most foreign pensions must be reported under FATCA and sometimes FBAR.
5. Can moving abroad reduce my U.S. tax bill?
Often yes, thanks to exclusions, credits, and treaties—but only if you file correctly.
Conclusion
Relocating abroad changes many aspects of your life, but not your obligation to the IRS. To avoid penalties and unnecessary stress, you need to plan your US taxes carefully. By understanding filing requirements, using credits and exclusions, and seeking professional guidance, you can focus on enjoying life overseas without tax surprises.
When planning a move abroad, especially to destinations like Portugal, understanding your visa options is just as crucial as knowing your tax obligations. The country offers several residency pathways, each tailored to different lifestyles — from retirees and investors to remote workers. For a clear breakdown of the types of visas for Portugal and how they align with long-term relocation or tax planning, it’s worth reviewing updated guidance before making the move.
