Do Dual Citizens Pay Taxes in Both Countries? Expert Guide (2025) 

Dual citizens must file US taxes on worldwide income, but most owe nothing to the US. According to the IRS, over 60 countries have tax treaties with the United States, and combined with powerful exclusions and credits, approximately 75% of American dual citizens living abroad end up with zero US tax liability. 

Here’s the relief you need: While dual citizenship taxes can seem overwhelming, the US tax system provides multiple protections against double taxation. Between the Foreign Earned Income Exclusion, Foreign Tax Credit, and international tax treaties, most dual citizens can eliminate their US tax bill entirely while staying compliant. 

This guide explains exactly how dual citizenship and taxes work, what you need to file, and how to avoid paying taxes twice. 

Do Dual Citizens Pay Taxes in Both Countries? 

In reality, Most dual citizens must file tax returns in both countries, but that doesn’t mean you’ll pay taxes to both. 

As a US citizen, you must report your worldwide income to the IRS, regardless of where you live—this is called citizenship-based taxation. Meanwhile, your country of residence likely uses residency-based taxation, meaning they tax your income because you live there. 

This creates the potential for double taxation, but the US provides powerful tools to prevent it. 

When Dual Citizens Must File US Taxes 

You must file a US tax return if your income exceeds these thresholds (2025 tax year): 

• Single: $15,000 
• Married Filing Jointly: $30,000 
• Married Filing Separately: $5 
• Head of Household: $22,500 

Good News About Double Taxation 

While you may file in both countries, you rarely pay full taxes to both. Here’s why: 

1. Tax Treaties Provide Protection The US has income tax treaties with over 60 countries that determine which country has primary taxing rights for different types of income. 

2. Powerful US Tax Benefits Even without treaties, the US offers exclusions and credits that typically eliminate double taxation. 

3. Most Expats Owe Zero According to tax professionals, approximately 75% of American expats—including dual citizens—end up owing no US taxes after applying available benefits. 

Three Main Protections Against Double Taxation 

The US provides three primary tools to prevent dual citizens from paying taxes twice on the same income: 

1. Foreign Earned Income Exclusion (FEIE) 

What it does: It excludes up to $130,000 of foreign-earned income from US taxation (2025 tax year). 

Who qualifies: US citizens who meet either of the following: 

• Physical Presence Test: Present in foreign countries for 330+ days in any 12-month period 
• Bona Fide Residence Test: Legal resident of a foreign country for an entire tax year 

Example: Maria, a dual US-Mexico citizen living in Tulum, earns €80,000 ($88,000) working for a Mexican company. She can exclude the entire amount using the FEIE, owing $0 in US taxes. 

Married couples benefit: Each spouse can claim the full exclusion, potentially excluding up to $260,000 combined. 

2. Foreign Tax Credit (FTC) 

What it does: Provides a dollar-for-dollar credit for income taxes paid to foreign governments. 

When to use it: Often better than FEIE if you: 

• Live in a high-tax country 
• Earn more than the FEIE exclusion limit 
• Have significant passive income 

Example: James, a dual US-German citizen, earns $150,000 in Germany and pays $45,000 in German taxes. He can use the Foreign Tax Credit to offset $45,000 of US taxes, often eliminating his entire US bill. 

3. Tax Treaties 

What they do: US tax treaties determine which country has primary taxing rights for specific types of income. 

Common treaty benefits: 

• Reduced withholding rates on dividends and interest 
• Exemptions for certain types of income 
• Tie-breaker rules for dual residents 

Important limitation: Most treaties contain “saving clauses” that preserve the US’s right to tax its citizens as if the treaty didn’t exist. 

Real-World Examples: Dual Citizens Who Owe $0 

Example 1: Low-Tax Country Strategy 

Sarah: Dual US-UAE citizen working in Dubai 

• Income: $120,000 UAE salary 
• UAE taxes: $0 (UAE has no income tax) 
• US strategy: FEIE excludes $120,000 
• Result: $0 owed to any country 

Example 2: High-Tax Country Strategy 

David: Dual US-Swedish citizen living in Stockholm 

• Income: $100,000 Swedish salary 
• Swedish taxes: $35,000 paid 
• US strategy: Foreign Tax Credit for $35,000 
• Result: $0 US taxes owed (credit eliminates liability) 

Example 3: Mixed Income Strategy 

Lisa: Dual US-Canadian citizen in Toronto 

• Earned income: $90,000 (uses FEIE) 
• Investment income: $20,000 (uses FTC for Canadian taxes paid) 
• Result: $0 US taxes through combined strategies 

Step-by-Step: Filing as a Dual Citizen 

Step 1: Determine Your US Filing Requirements 

• Calculate your worldwide income 
• Check if you exceed filing thresholds 
• Remember: Filing requirements apply even if you owe nothing 

Step 2: Choose Your Tax Strategy 

FEIE is often best if: 

• You live in a low-tax country 
• Your earned income is under the exclusion limit 
• You want to preserve credits for future use 

FTC is often best if: 

• You live in a high-tax country 
• Your income exceeds the FEIE limit 
• You have significant passive income 

Step 3: File Required US Forms 

• Form 1040: Your main tax return
• Form 2555: To claim the Foreign Earned Income Exclusion
• Form 1116: To claim the Foreign Tax Credit
• FinCEN Form 114 (FBAR): If foreign accounts exceed $10,000 total
• Form 8938 (FATCA): If foreign assets exceed specific thresholds 

Step 4: File in Your Country of Residence 

Follow local tax laws and filing requirements, which vary by country. 

Step 5: Coordinate Between Countries 

• Use tax treaty benefits where applicable 
• Avoid double-claiming the same credits 
• Keep detailed records of all foreign taxes paid 

Common Challenges and Solutions 

Challenge 1: Currency Conversion 

• Problem: Converting foreign income to US dollars for reporting
• Solution: Use IRS-approved exchange rates and maintain consistent conversion methods 

Challenge 2: Different Tax Years 

• Problem: Your residence country may have different tax years than the US
• Solution: Work with professionals familiar with both systems to align reporting 

Challenge 3: Complex Income Types 

• Problem: Business income, rental properties, or investments complicate filing
• Solution: Professional guidance ensures proper treatment under both tax systems 

Challenge 4: State Tax Obligations 

• Problem: Some US states continue to tax former residents living abroad
• Solution: Understand your specific state’s rules and consider severing ties properly 

Frequently Asked Questions 

Can I Use Both FEIE and FTC? 

Yes, but not on the same income. You can use FEIE for earned income and FTC for passive income, or use FEIE up to the limit and FTC for excess income. 

What If I’m Behind on Filing? 

The Streamlined Filing Compliance Procedures help non-compliant taxpayers catch up without penalties if non-filing was non-willful. 

Do I Lose US Benefits If I Use Foreign Tax Credits? 

No. Using legitimate tax benefits doesn’t affect your US citizenship rights or access to consular services. 

What About Retirement Planning? 

Dual citizens can contribute to retirement accounts in both countries, but coordination is essential to maximize benefits and minimize taxes. 

When Should I Consider Professional Help? 

Consider professional assistance if you have: 

• Complex business or investment income 
• Property in multiple countries 
• Large foreign asset holdings 
• Questions about treaty benefits 

Planning Strategies for Dual Citizens 

For Soon-to-Be Expats 

Before you move: 

1. Understand your destination country’s tax system 
2. Plan your US tax strategy (FEIE vs. FTC) 
3. Consider the timing of your move for tax purposes 
4. Research applicable tax treaties 

For Current Expats 

Optimize your situation: 

1. Review your current tax strategy annually
2. Consider income timing and realization strategies 
3. Plan for major financial decisions (home purchases, investments) 
4. Stay informed about tax law changes in both countries 

For Retirees 

Special considerations: 

1. Social Security taxation varies by country 
2. Retirement account distributions may face different treatment 
3. Estate planning becomes more complex with dual citizenship 
4. Consider the impact of currency fluctuations on fixed incomes 

Your Next Steps 

If you’re a new dual citizen, start by understanding both countries’ filing requirements and deadlines. Most situations are more manageable than they initially appear. 

If you’re already filing: Review whether you’re using the optimal strategy. Many dual citizens can reduce their tax burden by switching between FEIE and FTC based on changing circumstances. 

If you’re behind on filing: Don’t panic. Streamlined Procedures often allow you to catch up without penalties, and most dual citizens discover they owe little or nothing anyway. 

Get Help with Your Dual Citizen Taxes from Greenback!

Ready to get your dual citizen taxes done right? No matter how late, messy, or complex your return may be, we can help. Knowing that your taxes were handled correctly in both countries, you’ll have peace of mind. 

If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.