Think about constructing a life overseas—new job, new dwelling, new group—solely to search out out the IRS nonetheless expects you to file U.S. taxes each single yr. For hundreds of thousands of Individuals abroad, that’s not a shock ready within the nice print—it’s the fact of citizenship-based taxation.
This taxation system implies that even if you happen to earn your total revenue overseas, maintain everlasting residency overseas, or haven’t lived within the U.S. for many years, you’re nonetheless on the hook for an annual U.S. tax return. The foundations even catch so-called “Unintentional Individuals”—individuals who might not notice their birthplace alone ties them to the IRS.
For expats, this shapes all the things: the way you report revenue, declare advantages, and keep away from paying tax twice. Figuring out the principles isn’t nearly compliance—it’s about defending your funds, what you are promoting, and your peace of thoughts.
📋 Key Updates for 2025
- The International Earned Earnings Exclusion (FEIE) elevated to $130,000 for the 2025 tax yr, offering important further tax aid for Individuals overseas.
- Many particular person Tax Cuts and Jobs Act (TCJA) provisions are nonetheless scheduled to run out after December 31, 2025; no everlasting extension has been enacted as of Sept. 11, 2025.
- A proposed invoice, the Residence-Primarily based Taxation for Individuals Overseas Act (H.R. 10468), launched in December 2024, would let U.S. residents residing overseas decide into residence-based taxation—however as of mid-2025, it has not grow to be regulation.
What’s citizenship-based taxation?
Beneath U.S. tax regulation, citizenship-based taxation (CBT) means Americans and sure U.S. individuals are taxed on their worldwide revenue—irrespective of the place they stay.
That features:
- Wages and salaries earned overseas.
- Capital positive aspects from promoting investments.
- Social Safety advantages and pensions.
- International funding revenue.
- And naturally, U.S.-source revenue like rental property or dividends.
This makes the U.S. uncommon. Most international locations comply with residence-based taxation, which implies they tax folks based mostly on the place they stay, not the passport they maintain. A Canadian residing in France pays French taxes, not Canadian ones. An American in France? They pay French taxes and nonetheless file with the IRS.
CBT applies to:
- U.S. residents (together with twin residents)
- Inexperienced card holders (lawful everlasting residents).
- Resident aliens residing within the U.S. for tax functions.
- Non-resident U.S. residents, even when they haven’t been stateside in years.
The result’s a double layer of tax obligations that expats have to handle rigorously—but in addition a possibility to make use of credit, exclusions, and tax treaties to keep away from paying twice.
💡 Professional Tip:
CBT isn’t nearly submitting your annual tax return—it’s additionally why many expats should file FBAR and FATCA experiences to reveal overseas financial institution accounts and investments.
Why the U.S. taxes residents overseas
It could really feel unfair that the IRS nonetheless cares about your revenue lengthy after you’ve arrange a brand new life overseas, however this rule has deep historic roots. The U.S. first launched citizenship-based taxation through the Civil Conflict, when lawmakers anxious that rich Individuals would possibly dodge taxes by transferring abroad. The regulation caught—and in the present day, the U.S. is the one nation that broadly enforces citizenship-based taxation. (Eritrea levies a 2% diaspora tax, however its scope and enforcement differ from U.S. CBT.)
The logic is easy: if you happen to’re a U.S. citizen, the federal government believes you must assist fund it, irrespective of the place your house base is. That’s why your U.S. tax obligations comply with you whether or not you’re working in London, retiring in Mexico, or working a enterprise in Singapore.
In recent times, enforcement has solely gotten more durable. To trace abroad belongings and curb tax evasion, the U.S. added further reporting necessities:
For expats, this implies double reporting—as soon as to your nation of residence (say, Canada or the UK) and once more to the IRS. Because of tax credit and exclusions, most don’t find yourself paying tax twice—however they do find yourself with twice the paperwork.
Tax obligations for U.S. residents overseas
Annually, U.S. residents overseas should do extra than simply file a federal tax return. Expats are additionally topic to particular reporting guidelines that make abroad accounts and belongings seen to the U.S. authorities:
- FBAR (International Financial institution Account Report): Required in case your mixed overseas checking account balances ever exceed $10,000 at any level through the yr.
- FATCA (International Account Tax Compliance Act): Requires reporting of specified overseas belongings in the event that they cross sure thresholds (beginning at $50,000 for people).
These necessities apply not solely to Americans, but in addition to inexperienced card holders and typically even non-citizens with U.S. ties. And the stakes are excessive—penalties for non-compliance can attain into the tens of 1000’s, usually dwarfing any precise tax legal responsibility.
💡 Professional Tip:
Even when exclusions or credit scale back your U.S. tax invoice to zero, submitting the fitting kinds on time protects you from penalties that might wipe out years of cautious financial savings.
The excellent news for expatriates is that the U.S. tax code does provide methods to cut back and even remove double taxation. The hot button is realizing which instruments apply to your scenario:
- International Earned Earnings Exclusion (FEIE): Utilizing Type 2555, you might be able to exclude as much as a set restrict of foreign-earned revenue from U.S. taxation. To qualify, you’ll want to fulfill both the Bodily Presence Check (330 days overseas in a 12-month interval) or the Bona Fide Residence Check (establishing your major dwelling overseas).
- International Tax Credit score (FTC): Claimed on Type 1116, this credit score means that you can offset U.S. taxes with revenue taxes already paid to a overseas authorities. It’s particularly helpful for higher-tax international locations the place the overseas tax invoice exceeds what you’d owe within the U.S.
- Tax treaties: The U.S. has treaties with many international locations that present aid for particular sorts of revenue, comparable to pensions, Social Safety, or funding revenue. These agreements differ by nation, so the main points matter.
Limitations to know:
- Self-employment revenue usually isn’t totally lined and should still set off U.S. tax (together with Social Safety contributions).
- Sure retirement plans and overseas monetary accounts don’t at all times obtain favorable remedy.
- FTCs might be carried again one yr or ahead as much as ten years, making them extra versatile for smoothing out tax payments.
💡 Professional Tip:
Don’t overlook the Little one Tax Credit score—qualifying expat households can declare it even whereas utilizing FEIE or FTC, which may result in actual refunds moderately than simply decreasing your legal responsibility.
Particular circumstances: Twin residents and inexperienced card holders
Citizenship-based taxation doesn’t simply have an effect on Individuals who transfer overseas. It additionally pulls in folks with ties to the U.S. who might not notice they’re on the IRS’s radar.
- Twin residents: For those who maintain each U.S. citizenship and one other passport, you’re topic to U.S. reporting guidelines even if you happen to stay solely within the different nation. Tax treaties may help scale back the chance of double taxation, however they don’t erase tax submitting necessities.
- Inexperienced card holders: A inexperienced card makes you a U.S. tax resident till you formally give up it by the correct course of. Residing overseas doesn’t cancel your IRS obligations—many long-term residents get caught by this rule.
- Unintentional Individuals: Born within the U.S. (or typically overseas to U.S. mother and father), these people might not even notice they’ve submitting necessities till a overseas financial institution asks for his or her U.S. tax ID below FATCA.
The complexity of those circumstances has fueled ongoing debates about reform, together with proposals just like the Individuals Overseas Act, which seeks to ease the burden for residents who stay and work in overseas international locations and plan to stay completely outdoors the U.S.
💡 Professional Tip:
For those who fall into certainly one of these classes, don’t ignore the problem—sorting it out early can prevent from years of again taxes, penalties, and anxious letters from the IRS.
Making citizenship-based taxation give you the results you want
U.S. residents and inexperienced card holders should file taxes irrespective of the place they stay, however that doesn’t at all times imply paying twice. The International Earned Earnings Exclusion, International Tax Credit score, and tax treaties can go a great distance towards decreasing the burden.
The hot button is staying compliant with out drowning in kinds. That’s the place Brilliant!Tax is available in—we specialise in serving to Individuals overseas file precisely, reduce double taxation, and preserve extra of what they earn.
Prepared for peace of thoughts along with your expat taxes? Attain out to Brilliant!Tax in the present day and allow us to deal with the arduous half.
Regularly Requested Questions (FAQs)
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Do Individuals actually must file U.S. taxes in the event that they stay overseas?
Sure. Beneath citizenship-based taxation, U.S. residents and inexperienced card holders should file a U.S. tax return yearly, even when all of their revenue is earned abroad.
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What revenue is taxed below citizenship-based taxation?
Worldwide revenue—together with wages, capital positive aspects, pensions, Social Safety, and funding revenue—is reportable to the IRS.
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Does citizenship-based taxation imply I’ll pay tax twice?
Not normally. Instruments just like the International Earned Earnings Exclusion (FEIE), International Tax Credit score (FTC), and tax treaties usually scale back or remove double taxation, although you continue to must file.
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Who else moreover U.S. residents is affected?
Inexperienced card holders and even “Unintentional Individuals” (these born within the U.S. or to U.S. mother and father) are topic to U.S. submitting necessities.
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What occurs if I don’t file my U.S. taxes whereas overseas?
Penalties might be steep. Non-compliance with tax returns, FBAR, or FATCA reporting can result in fines that far exceed the precise tax owed.
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Are there any efforts to vary citizenship-based taxation?
Sure. Proposals just like the Individuals Overseas Act have referred to as for reform, however as of 2025, the tax system stays in place.
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Do expats qualify for U.S. tax advantages just like the Little one Tax Credit score?
Sure—if eligibility guidelines are met, expats can nonetheless declare credit and exemptions just like the Little one Tax Credit score, which can lead to refunds even when no tax is owed.
