For many Americans living abroad, the question of whether they need to file US taxes can be confusing. Unlike most other countries, the United States taxes its citizens based on citizenship rather than residency.
Even if you live and work overseas, you may still be required to file a US tax return. Understanding your tax obligations is crucial to avoid penalties and ensure compliance with the Internal Revenue Service (IRS).
The US Tax System and Citizenship-Based Taxation
The US is one of the few countries that imposes taxes based on citizenship rather than residency. This means Americans must report their worldwide income to the IRS, regardless of where they live.
If you earn income, the IRS expects you to file a tax return, whether you live in Canada, Germany, or Australia.
Navigating these requirements can be complex, but services like Expat Tax Online simplify the process. They specialize in helping US expats understand their tax obligations, file returns accurately, and take advantage of applicable deductions and credits.
Stay compliant and stress-free with expert guidance tailored to your expat tax needs.
Who Needs to File a US Tax Return?
As a US citizen or green card holder, you must file a U.S. tax return if your income exceeds the minimum filing threshold, which varies based on your filing status and age. For the tax year 2025, the income thresholds are:
- Single filers and married filing separately: US$0 - US$11,925
- Married filing jointly: US$0 - US$23,850
- Head of household: US$0 - US$17,000
So, even if you don’t owe taxes, you must file a return if your income meets these thresholds.
Foreign Earned Income Exclusion (FEIE)
One key tax benefit available to US expats is the Foreign Earned Income Exclusion (FEIE). This allows qualifying expats to exclude a certain amount of their foreign-earned income from U.S. taxation. The exclusion amount for the 2025 tax year is US$130,000 per person.
To qualify for the FEIE, you must meet one of two tests:
- Physical Presence Test: You must be physically present in a foreign country for at least 330 full days in a 12-month period.
- Bona Fide Residence Test: You must be a bona fide resident of a foreign country for an entire tax year.
If you qualify, you can claim the exclusion using Form 2555 when filing your tax return.
Foreign Tax Credit (FTC)
The Foreign Tax Credit (FTC) helps prevent double taxation by allowing Americans abroad to offset their US tax liability with taxes paid to a foreign government. If you pay income taxes abroad, you can claim the FTC using Form 1116, reducing or eliminating the taxes owed to the IRS.
Additional Reporting Requirements for US Expats
In addition to filing a tax return, Americans may have additional reporting obligations:
- Foreign Bank Account Report (FBAR): If you have foreign bank accounts with a total balance exceeding US$10,000 at any time during the year, you must file FinCEN Form 114.
- Foreign Account Tax Compliance Act (FATCA): If your foreign financial assets exceed US$200,000 (single filers) or US$400,000 (married filing jointly) at year-end, you must file Form 8938 with your tax return.
Failure to comply with FBAR and FATCA reporting requirements can result in hefty penalties.
Tax Filing Deadlines for US Expats
US expats have extra time to file their tax returns:
- Regular Deadline: April 15
- Automatic Extension for Expats: June 15
- Extended Deadline (if requested): October 15
Expats who owe taxes must still pay by April 15 to avoid penalties.
Consequences of Not Filing
Failing to file a U.S. tax return or required forms can result in severe penalties:
- Failure to File Penalty: 5% of monthly unpaid taxes (up to 25%).
- Failure to Pay Penalty: 0.5% of unpaid taxes per month.
- FBAR Penalties: Up to US$12,921 per violation (or more for willful violations).
- FATCA Penalties: Up to US$50,000 for failure to file Form 8938.
How to Get Caught Up if You Haven’t Filed
If you’re behind on filing US tax returns, the IRS Streamlined Foreign Offshore Procedures allows expats to catch up penalty-free if they can certify that their failure to file was non-willful. This program requires:
- Filing the last three years of tax returns.
- Filing six years of FBARs (if applicable).
- Submitting a statement explaining why you failed to file.
This is one of the best options for expats who need to get back into compliance. If you're an expat and haven’t filed, it’s never too late to catch up. Understanding what the IRS requires is the first step to staying compliant and protecting your financial future.
Final Thoughts
US expats must stay informed about their tax obligations to avoid penalties and unnecessary stress. It is indeed an obligation for every US citizen or green card holder to file taxes even when they’re abroad. And while the system can be complex, taking advantage of exclusions like the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC) can significantly reduce tax liability.
If you're unsure about your filing requirements, consulting a tax professional who specializes in expat taxation can help ensure compliance and maximize your benefits.
