Ever wondered how your U.S. passport affects your taxes when you’re living overseas? Read on and you’ll learn exactly what you owe, which breaks you can claim, and the extra rules you’ll need to follow—plus smart tips most guides don’t mention.

Worldwide Income and Annual Filing

If you hold a U.S. passport or Green Card, the IRS taxes you on every dollar you earn, no matter where you live.
– You must file Form 1040 each year, even if all your income is foreign-sourced, as explained in the IRS guidance for U.S. citizens and resident aliens abroad.
– Missing the April 15 deadline can trigger penalties, though you get an automatic two-month extension living overseas.

Key Exclusions and Credits

You’re not powerless against double taxation. The IRS offers:

1. Foreign Earned Income Exclusion (FEIE)
   You can exclude up to $120,000 of foreign wages in 2024 by meeting the bona fide residence or physical presence test, as detailed by the Tax Foundation’s overview of the Foreign Earned Income Exclusion.

2. Foreign Housing Exclusion
   A portion of your rent or housing expenses can be excluded if you qualify under the bona fide residence or physical presence test—see KPMG’s explanation of the foreign housing exclusion for examples of allowable expenses.

3. Foreign Tax Credit (FTC)
   Claim up to your U.S. tax liability for foreign taxes paid by filing Form 1116—learn more from Investopedia’s guide to the Foreign Tax Credit.

“Using those credits and exclusions together can wipe out your U.S. tax bill on foreign income,” tax expert Jane Miller said.

Reporting Foreign Accounts and Investments

Staying compliant means more than just your 1040.

• FBAR: If you hold over $10,000 in foreign accounts at any point, you must file FinCEN 114. See the FinCEN instructions for reporting foreign bank accounts.
• FATCA: Form 8938 is required if your overseas assets exceed certain thresholds—refer to the U.S. Treasury’s overview of FATCA requirements.
• PFIC Rules: Passive investment vehicles abroad can trigger complex tax traps; a quick primer is available on Wikipedia’s PFIC page.
• Net Investment Income Tax (NIIT): A 3.8% surtax on unearned income over $200,000 single/$250,000 married—see the Corporate Finance Institute’s NIIT guide.

Citizenship- vs. Residence-Based Tax Systems

Most countries tax residents only; the U.S. taxes citizens everywhere. Transitioning to a residence-based system could save Americans billions in compliance costs globally, according to the OECD’s public consultation on residence-based taxation.

Dual Citizens and Accidental Americans

Holding two passports comes with quirks:

• Dual citizens must file U.S. returns, yet tax treaties often prevent double taxation.
• “Accidental Americans”—those born in the U.S. but raised abroad—still owe U.S. taxes despite never feeling ‘American.’ The pitfalls are outlined by TaxConnections’ guide to accidental American tax traps.

Streamlined Compliance for Non-Filers

If you’ve fallen behind, the IRS Streamlined Filing Compliance Procedures can help you catch up without steep penalties—see TurboTax’s summary of the Streamlined Filing Compliance Procedures.

Renouncing Citizenship and the “Exit Tax”

Thinking of cutting ties? If your net worth exceeds $2 million or you’ve averaged over $190,000 income for five years, you could be a “covered expatriate” and face a mark-to-market exit tax on your assets. The rules are detailed in a Morgan Lewis analysis of the expatriation tax.

Totalization Agreements and Social Security

To avoid paying Social Security taxes in both countries, the U.S. has agreements with over 30 nations. Check whether your country of residence is covered on the Social Security Administration’s totalization agreements page.

Gift and Estate Tax on International Assets

Owning property abroad can trigger U.S. gift and estate taxes. In 2024, you get a $13.61 million unified exemption, but anything above that may owe up to a 40% tax—see NerdWallet’s breakdown of the unified credit for gift and estate taxes.

Digital Nomads and Special Visas

Planning to hop countries on a remote-work visa? Some visas require tax residency after 183 days. Always map out how local rules intersect with your U.S. returns; a detailed look is available in PwC’s Digital Nomad Tax Guide.

The Globe-Trotting Taxpayer’s Playbook

You’ve got a lot to juggle, but you don’t have to go it alone. By combining exclusions, credits, and treaty benefits—and knowing when to seek help—you can keep your global life both rich in experience and clear of unexpected tax bills.