2025 US Expat Tax Guide: Rules, Obligations & Exclusions Explained
Nearly two out of three expats who file owe $0 in US taxes (IRS data, 2016-2021)—here’s exactly why and how it works for you.
If you’re reading this, someone just told you that you need to file US taxes while living abroad. Your stomach probably dropped. Your first thought was likely: “How much is this going to cost me?”
Here’s the answer that will surprise you: most likely nothing.
Despite what you might fear about double taxation, the US tax system includes powerful protections specifically designed to prevent Americans abroad from paying taxes twice on the same income. While you do need to file to claim these protections, the vast majority of expats discover they owe little or nothing in actual US taxes.
The Two Protections That Save You Money
The US government recognizes a simple reality: you’re already paying taxes where you live. Rather than pile additional taxes on top, the system offers two powerful shields to protect your foreign income.
Protection #1: The Foreign Earned Income Exclusion ($126,500 Shield)
For the 2024 tax year, you can exclude up to $126,500 of foreign earned income from US taxation entirely. If you’re married and both spouses work abroad, that’s up to $253,000 combined. (This amount is adjusted by the IRS annually based on inflation; for the 2025 tax year, the amount is $130,000)
What this means: Your foreign salary up to $126,500 is invisible to the US tax system.
To qualify: Be in foreign countries for 330 days out of any 365-day period, OR live abroad as a genuine resident for at least one full calendar year.
Most expats easily meet one of these requirements.
Who doesn’t love a tax break? Download our easy-to-use excel calculator to get an estimate of how the foreign earned income exclusion can save you money.
Protection #2: The Foreign Tax Credit (Dollar-for-Dollar Shield)
The Foreign Tax Credit gives you a direct credit for every dollar you pay in foreign income taxes. Pay $20,000 in German taxes? You get a $20,000 credit against any US taxes owed.
What this means: If you live in a country with taxes equal to or higher than US rates, this credit often eliminates your US tax bill completely.
Real Examples: Why You’ll Probably Owe Nothing
Sarah earns $90,000 in Singapore:
- Singapore income tax: $0
- US tax before exclusion: ~$12,000
- Foreign Earned Income Exclusion applied: Excludes the entire $90,000
- US tax owed: $0
Marcus earns $110,000 in Germany:
- German taxes paid: ~$28,000
- US tax before credits: ~$18,000
- Foreign Tax Credit applied: $18,000
- US tax owed: $0
Jennifer and Tom (married) earn $200,000 combined in the UK:
- UK taxes paid: ~$45,000
- US tax before credits: ~$32,000
- Foreign Tax Credit applied: $32,000
- US tax owed: $0
This is why nearly 2 out of 3 expats end up owing nothing to the US.
“But I Still Have to File, Right?”
Yes, and here’s why that’s actually good news.
Filing your US tax return is how you officially claim these protections. Think of it as paperwork that confirms you owe nothing, rather than a bill that demands payment.
You must file if your worldwide income exceeds:
- Single: $14,600
- Married filing jointly: $29,200
- Head of household: $21,900
Why filing works in your favor:
- You officially claim your exclusions and credits
- You often get refunds if any US taxes were withheld
- You create legal protection against future questions
- You get extra time—your deadline is June 15, not April 15 (Automatic 2-month extension)
Dreading the last minute scramble pulling together your tax documents? Despair no more! This simple checklist lists the documents you need to have on hand when preparing to file.
Which Protection Should You Use?
Use the Foreign Earned Income Exclusion if you:
- Live in a low-tax or no-tax country
- Earn under $126,500
- Want the simplest approach
Use the Foreign Tax Credit if you:
- Live in a high-tax country
- Pay foreign taxes equal to or higher than US rates
- Want to maintain eligibility for refundable credits
Many expats use both: Exclusion for the first $126,500, then Foreign Tax Credit for any excess income.
Your Biggest Worries (And Why They’re Overblown)
“I’ll owe massive back taxes.” Remember: Two out of three expats owe $0. The protections usually eliminate any tax liability on foreign income.
“The penalties will destroy me financially.” The IRS offers specific amnesty programs for people unaware of their obligations. In 2023, they approved 86% of applications and waived over $6 million in penalties.
“This is too complicated for me.” While expat taxes have complexity, most situations follow predictable patterns. The two main tools cover the vast majority of cases.
What If You’re Behind on Filing?
Don’t panic. The Streamlined Filing Compliance Procedures let you catch up without devastating penalties if your non-filing wasn’t intentional. You need to:
- File your last three tax returns
- File six years of foreign account reports
- Certify that your non-compliance was non-willful
- Pay any taxes owed (usually zero)
The Next Steps for Your US Taxes for Expats
If you’ve never filed and you’re worried:
- Take a deep breath—the exclusions probably protect you
- Consider the streamlined procedures to get current without penalties
- Remember: most expats owe nothing once they file properly
If you’ve been filing but paying more than expected:
- Review whether you’re using the optimal strategy
- Consider professional help to maximize your protections
They can help you file your expat taxes correctly and on time. With Greenback Tax Services, you pay a flat fee with no surprises or hidden costs.
Many of Greenback’s CPAs and Enrolled Agents are expats themselves, and because they live in 14 time zones, they experience firsthand the challenges of living abroad. They have the knowledge and patience to help you navigate the complicated US tax system, as well as your local rules.
We have focused exclusively on expat taxes since the company was founded in 2009. If you’re ready to be matched with the right Greenback accountant for your situation, click the Get Started button below.
If you have general questions about US expat taxes or working with Greenback, contact our amazing Customer Success Champions.
