Do Americans Abroad Really Have to File US Taxes? Yes — Here’s Why

It surprises almost everyone: the United States is one of only two countries in the world (the other is Eritrea) that taxes its citizens based on citizenship rather than residence. If you hold a US passport or a green card, the IRS considers you a US taxpayer — whether you live in Boston, Barcelona, or Bali.

What Citizenship-Based Taxation Means in Practice

Every year, US citizens and permanent residents must file a federal income tax return (Form 1040) if their worldwide income exceeds the standard filing thresholds. Worldwide means exactly that: your salary from a German employer, rental income from a Portuguese apartment, and freelance income from clients anywhere on Earth all count.

The thresholds are the same ones that apply to Americans at home — roughly the standard deduction for your filing status. One important exception: if you’re self-employed, the filing threshold drops to just $400 of net earnings.

Filing Is Not the Same as Owing

Here’s the good news that the scary headlines skip: a filing obligation is not a tax bill. The US tax code contains powerful tools built specifically to prevent double taxation:

• The Foreign Earned Income Exclusion (FEIE) lets you exclude a six-figure amount of foreign earnings from US tax ($130,000 for the 2025 tax year, adjusted annually).
• The Foreign Tax Credit gives you a dollar-for-dollar credit for income tax you pay to your country of residence.
• Tax treaties with dozens of countries resolve which country gets to tax pensions, Social Security, and other specific income types.

Because most European countries tax income at rates equal to or higher than the US, the majority of Americans abroad who file correctly end up owing the IRS nothing at all.

It’s Not Just the Tax Return

Living abroad usually adds reporting obligations rather than removing them. If your foreign financial accounts combined exceeded $10,000 at any point in the year, you must file an FBAR (FinCEN Form 114). Larger balances can trigger FATCA reporting on Form 8938. These are information reports, not taxes — but the penalties for skipping them are far harsher than most tax penalties.

What If You Didn’t Know?

You’re in extremely good company — and the IRS knows it. The Streamlined Filing Compliance Procedures allow expats whose non-filing was non-willful to catch up with just three years of returns and six years of FBARs, penalty-free. It’s the single best route back to compliance, but it’s only available if you come forward before the IRS contacts you.

Disclaimer: This article is general information, not tax, legal, or financial advice. Rules and thresholds change annually — confirm current figures with official sources or a qualified professional. eTaxNexus is a digital brand of Mega Commercial Enterprises Limited, registered in Ireland, Company Number 726999.