Leaving the US does not end your tax obligations. Learn how US taxes work for citizens abroad, foreign income, tax treaties, FEIE, credits and common mistakes.

Disclaimer: I am not a tax professional, CPA, or attorney. This post is for educational and informational purposes only and is based on personal experience and publicly available information. Tax situations vary by individual, country, income type, and year. You should consult a qualified tax professional who specializes in US expat taxation before making financial or tax decisions.

US Taxes for Americans Living Abroad 2026

What You Still Owe, What Changes and What Most People Miss

One of the biggest misconceptions people have when leaving the United States is this:

“If I move abroad, I stop paying US taxes.”

That is not how it works.

If you are a US citizen or green card holder, the US taxes you based on citizenship, not residency. That means even if you live abroad full time, you are still required to file US taxes every year.

This post breaks everything down clearly so there are no surprises.

The Big Rule Most People Miss

The United States is one of the only countries in the world that taxes its citizens on worldwide income, no matter where they live.

If you are a US citizen or long term green card holder, you must:

• file a US tax return every year
• report worldwide income
• disclose certain foreign accounts and assets

Even if you live abroad for decades.

Even if you pay taxes somewhere else.

Even if your income is earned entirely outside the US.

Filing Taxes vs Owing Taxes

This distinction matters.

Filing

Most Americans abroad must still file a US tax return every year.

Owing

Many Americans abroad do not actually owe US tax after exclusions and credits are applied.

You still have to file to prove that.

What Counts as Worldwide Income

Worldwide income includes:

• salary from a foreign employer
• self employment or freelance income
• business income
• rental income
• investment income
• interest and dividends
• capital gains

If you earned it anywhere in the world, the US wants it reported.

Why You Are Not Usually Taxed Twice

People hear “worldwide income” and panic about double taxation.

In practice, there are legal protections that often prevent being taxed twice.

The most common ones are:

• Foreign Earned Income Exclusion (FEIE)
• Foreign Tax Credit (FTC)
• Tax treaties

You usually use one or a combination of these.

The Foreign Earned Income Exclusion (FEIE)

The FEIE allows qualifying Americans abroad to exclude a portion of earned income from US taxation.

Key points:

• Applies only to earned income, not passive income
• You must meet residency or physical presence tests
• You still must file to claim it

This is one of the biggest tools Americans abroad use.

If your income qualifies, a large portion may be excluded from US tax, but not from reporting.

For the 2025 tax year (filed in 2026), the Foreign Earned Income Exclusion allows qualifying US citizens living abroad to exclude up to $130,000 of earned income per person from US federal income tax.

That means if you earn under $130,000 in qualifying earned income and meet the physical presence or bona fide residence test, you may legally exclude that income from US federal income tax.

If you earn more than $130,000, only the amount above the exclusion limit is potentially subject to US tax, depending on your situation and other credits used.

The FEIE applies to earned income only, not passive income, and it does not eliminate self employment tax.

The Foreign Tax Credit (FTC)

The Foreign Tax Credit allows you to reduce your US tax bill by the amount of taxes you already paid to another country.

This is commonly used when:

• you live in a higher tax country
• your foreign taxes exceed US taxes
• FEIE is not the best option

You still file a US return, but the credit often reduces US tax owed to zero.

Tax Treaties and What They Actually Do

The US has tax treaties with many countries.

Important clarification:

Tax treaties do not mean you stop filing US taxes.

They help determine:

• which country taxes certain types of income
• how double taxation is avoided
• how pensions, dividends, and business income are treated

Treaties vary by country and income type.

You must look at the treaty specific to where you live.

Self Employed Americans Abroad

This is where people get caught off guard.

If you are self employed or freelancing abroad:

• your income is still subject to US self employment tax
• FEIE does NOT eliminate self employment tax
• you may owe Social Security and Medicare

This surprises many digital nomads.

There are exceptions through certain treaties, but this is complex and depends on the country and situation.

FBAR and Foreign Account Reporting

This is one of the most commonly missed requirements.

If you have foreign financial accounts that exceed certain thresholds, you may need to file:

• FBAR (FinCEN Form 114)
• FATCA disclosures (Form 8938)

This includes:

• foreign bank accounts
• investment accounts
• some digital accounts
• joint accounts

Even if the money is already taxed abroad.

Failure to file these can result in severe penalties.

State Taxes Do Not Automatically Go Away

Moving abroad does not always end your state tax obligations.

Some states are aggressive about maintaining tax residency.

Before leaving the US, you should:

• understand your state’s residency rules
• cut ties properly if possible
• document your move

This is especially important for states like California, New York, and Virginia.

Common Tax Mistakes Americans Abroad Make

Here are mistakes that cost people money and stress:

• assuming living abroad means no US taxes
• not filing because income is low
• missing FBAR reporting
• misunderstanding tax treaties
• ignoring self employment tax
• assuming an accountant understands expat taxes

US expat taxes are a specialized area.

Do You Need a Tax Professional

Many Americans abroad benefit from working with a tax professional who specializes in expat taxes.

This is especially helpful if you:

• have a business
• are self employed
• earn income in multiple countries
• have investments
• have foreign bank accounts
• live in a country with complex tax rules

Not all accountants understand international taxation.

What Leaving the US Actually Changes

Leaving the US can change:

• cost of living
• healthcare access
• lifestyle and pace
• work flexibility

But it does not automatically change your tax filing obligations.

Understanding this upfront prevents surprises later.

Planning Ahead Makes Everything Easier

If you are planning to leave the US, the best time to think about taxes is before you go.

Understand:

• how your income will be taxed
• which exclusions or credits apply
• what records to keep
• how to avoid penalties

Taxes do not need to be scary, but they do need to be respected.

Final Thoughts

Leaving the US does not mean leaving US taxes behind.

As a US citizen or green card holder, you are still part of the US tax system no matter where you live.

The good news is that there are legal ways to reduce or eliminate double taxation if you understand the rules and file correctly.

Clarity is power.