Taxes and Regulations for US Citizens Abroad

 The common rush stateside that comes with filing a federal tax return every April still comes to mind for US citizens living abroad, even though it may be tempting to think that you have avoided it. You are, however, still required to file a US federal tax return when you move to a new country. In this post, we'll explain why.

Is it necessary for Americans living abroad to pay taxes?

Regardless of where you live, if you are a US citizen living abroad, you must file a US federal tax return and pay US taxes on your worldwide income. Therefore, you are subject to the same income tax rules as stateside residents.


In the twenty-four sovereign states, the majority of them have some kind of tax planning technique that is either based on local jurisdiction, residence, or no-income income. It is noteworthy that only two countries share citizenship-based taxation methods, the United States and Eritrea.

How Citizenship-Based Taxation Still Pays for Taxes in the US

There is no doubt that the United States takes a relatively unique approach when it comes to taxes on individual income, compared to many other countries.


Generally, there are two types of income taxation: territorial-based and residence-based for countries that tax income.


In Singapore and Lebanon, individuals are taxed only on income earned within their borders. In Germany and France, residents are taxed on their local and foreign income, whereas non-residents are taxed only on their local income.

Is it Taxable to Work Overseas?

There are no differences in tax rates between foreign and domestic income when it comes to taxation in the United States.



The result of this is that Americans living abroad, or holders of the Green Card, will need to file a US federal income tax return in 2021 if they earn income in excess of the following minimum thresholds. This will apply regardless of the place where they earned that income (or what currency it was in).


As a result, even if you haven't lived in the US for the last year and all of your income has been derived overseas, the IRS will still expect you to file your tax return regardless of whether or not you have lived in the US at any point during the year. In addition to that, depending on where you lived before moving abroad, you may also have to file a state tax return. If I work overseas, I will also have to pay more taxes, and this may further complicate the issue.

What are my options for avoiding US taxes abroad?

In order to avoid US tax returns and paying US taxes abroad, you must renounce your US citizenship under current tax laws. Before considering renunciation of your US citizenship, make sure that you are aware of all the requirements and implications. Renunciation of your US citizenship is a serious and permanent decision.It is your responsibility to file a tax return and pay the associated taxes while living abroad if you are a US citizen or green card holder. The special tax credits, deductions, and exclusions available to Americans living abroad can help you avoid double taxation and reduce your US tax bill.

Keeping foreign income from being double taxed

Among the issues which arise with this tax system is the possibility of an individual being doubly taxed on their income earned – both by their current country of residence and by the United States. There may be a situation where an American living abroad full-time may qualify as a resident under another local tax system in which this scenario is particularly relevant.


There is a provision within the US tax code that is intended to prevent expats from experiencing such a negative consequence, referred to as the foreign earned income exclusion (FEIE). Under the 2021 FEIE, expats will be allowed to exclude $108,700 of their income earned abroad from their US tax obligations.


There are also provisions in the FEIE that can be used to mitigate double taxation, which is also worth noting. In the case of Americans who earn income abroad who have already paid or accrued tax in another country, it is possible for them to reduce their US tax obligations beyond the FEIE limit. As a result of this provision, even though only certain types of income are covered, and each foreign country has its own unique requirements, it remains complex, regardless of the fact that it only applies to certain types of income.

Is there a penalty for US citizens living abroad who do not file taxes?

A US citizen living abroad who fails to file their US taxes may face penalties, interest charges, or even criminal charges for failing to file. Late payments and late filings are also penalized by the IRS. If you do not file your US taxes knowingly—meaning you knowingly avoid your US tax obligations while living abroad—the IRS may impose penalties on you, which may result in serious legal consequences.


  • When a tax return is not filed on time, we charge 5% of the unpaid taxes for every month it is late, with a maximum of 25% for failure to file a tax return on time


  • In order to make up for the unpaid tax balance, you will receive a penalty of 0.5% for every month that you do not make payment, up to a maximum penalty of 25%.


  • As a result of unpaid taxes, the maximum penalty would be the amount of 25% of the  e tax that remains unpaid if you are more than 60 days.


In the event that Americans abroad were unaware they had to file US taxes while living overseas, the IRS does offer a way to get caught up penalty-free if they had never known. No matter how many years you’ve missed, the Streamlined Filing Procedures only require you to file the past three years of Federal tax returns and the past six years of Foreign Bank Account Reports, so becoming compliant is a simpler, less expensive process.

Are There Any Other Tax Requirements for Americans Living Abroad?

There are more things you must report to the IRS when you file your US expat taxes besides your earned income when you are a US expat. The IRS also requires that you disclose your foreign accounts and assets that cross a certain value threshold when you file your US expat taxes. Even your retirement contributions in foreign retirement accounts, which might seem tax-deferred, might be taxable as well!


There are some additional tax requirements for Americans living abroad which you should familiarize yourself with:


  • Financial Account Reporting (FBAR) is a requirement for foreign banks

  • Act concerning the compliance of foreign accounts with usa tax law 

  • Rules and Regulations Regarding Passive Foreign Investment Companies


It is important that you become familiar with all the tax information you need to report on your US tax return when you live abroad, especially when you file US taxes while living abroad.

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