The United States taxes its citizens and residents (green card holders) based on worldwide income, regardless of where they live. If you meet the income filing thresholds, you must file a U.S. tax return.

For the latest standard filing thresholds, please refer to the official IRS website: IRS Filing Thresholds.

Important Notes:

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• Self-employed individuals must file if their net earnings exceed $400.

• Even if you owe no tax due to foreign exclusions or credits, you must file a return if your income exceeds the thresholds.

Expats have extended deadlines to account for living abroad:

• Regular Deadline: April 15, 2026

• Automatic Extension for Expats: June 15, 2026

• Further Extension: October 15, 2026 (must file Form 4868)

Form 1040: Your standard U.S. tax return for reporting income, exclusions, credits, and foreign tax details.

Understanding Earned and Unearned Income

The U.S. tax system distinguishes between earned and unearned income, and both types must be reported by U.S. expats.

• Earned Income: This includes wages, salaries, income from self-employment, and certain benefits like disability payments. If you work abroad, this is the income you actively earn through employment or freelance work.

• Unearned Income (Passive Income): This includes income you receive without actively working for it, such as investment earnings, rental income, retirement distributions, and, in some cases, Social Security benefits.

While many countries only tax income originating within their borders or earned by residents, the U.S. taxes worldwide income of its citizens and green card holders. Even individuals who have never lived in the U.S. may have tax obligations if they were born on U.S. soil or have an American parent.

Converting Income: Income earned in foreign currencies must be converted to U.S. dollars using consistent exchange rates, such as the U.S. Treasury's official rates.

Social Security and Medicare Contributions

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If you are working abroad, you may still owe Social Security and Medicare taxes

Employment Type Social Security Medicare Total Employees

6.2% 1.45% 7.65% Self-Employed

12.4% 2.9% 15.3% Self-Employed

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• Employees working for U.S.-based companies will generally have these taxes withheld automatically.

• Self-Employed Expats must pay the full 15.3% unless exempt under a Totalization Agreement with their host country.

Foreign Earned Income Exclusion (FEIE)

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Expats can exclude up to $120,000 of foreign earned income for the 2025 tax year if they meet one of the following conditions:

• Physical Presence Test: You must be physically present in a foreign country for at least 330 full days within a 12-month period.

• Bona Fide Residency Test: You must establish residency in a foreign country for an entire tax year.

Foreign Tax Credit (FTC)

If you pay taxes in your host country, the Foreign Tax Credit helps you avoid being taxed twice on the same income. You can claim a dollar-for-dollar credit for foreign taxes paid.

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Foreign Housing Exclusion

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Expats can deduct certain housing expenses, such as rent, utilities, and insurance, that exceed a specific base amount. This benefit is particularly useful for expats living in high-cost areas.

U.S. expats who are self-employed owe 15.3% self-employment tax (12.4% for Social Security and 2.9% for Medicare). This rate applies to self-employed expats unless their host country has a Totalization Agreement with the U.S., which can exempt them from paying U.S. Social Security taxes. Security and Medicare). However:

• If your country has a Totalization Agreement with the U.S., you may avoid paying U.S. Social Security taxes.

• You must still report self-employment income on your U.S. return.

• Some U.S. states, like California, Virginia, New York, and others, may require you to file a state return even if you live abroad. Check your state’s rules, as residency and filing requirements vary.

Failing to file taxes or required forms (FBAR, FATCA, etc.) can result in significant penalties:

• FBAR: Up to $10,000 per violation.

• Form 8938: Up to $50,000 for failure to file.

• Late Tax Filing: 5% of unpaid tax per month, up to 25% total.

The IRS offers programs like the Streamlined Filing Procedure for expats who are delinquent but meet non-willful criteria.

• Keep Accurate Records: Track foreign income, taxes paid, and residency details.

• Work with an Expat Tax Specialist: Professionals ensure compliance and identify deductions.

• Use Technology: Platforms like expat tax software streamline filings.

• File Early: Avoid last-minute stress and penalties.

The IRS offers online tools and resources for expats, such as:

• Taxpayer Assistance Centers (TACs) for international filers.

• The IRS’s Online Payment Agreement for expats needing payment plans.