US Taxes Abroad in 2025: What Every American Expat Needs to Know About the New Rules
US Taxes Abroad in 2025: What Every American Expat Needs to Know About the New Rules
Living abroad as an American? Lucky you! You get to enjoy foreign cultures, exotic foods, and the delightful privilege of still filing US taxes every year. Because nothing says "freedom" quite like Uncle Sam following you to the ends of the earth with a 1040 form, right?
But here's some actually good news for once: 2025 brings some significant changes that might make your expat tax life a little less nightmarish. And by "might," I mean "definitely will" – assuming you know what you're doing.
The Big Changes: What's New in 2025?
Foreign Earned Income Exclusion Gets a Raise
The Foreign Earned Income Exclusion (FEIE) just got a nice bump up to $130,000 for 2025, up from $126,500 in 2024. For those keeping score at home, that's an extra $3,500 you can exclude from US taxation – enough to buy a few nice dinners in whatever expensive European city you're probably complaining about on Instagram.
If you're married and both spouses qualify, you can exclude up to $260,000 combined. That's not chump change, even by expat standards.
The "One Big Beautiful Bill Act" – Yes, That's Really What They Called It
On July 4, 2025 (because apparently irony is dead), Congress passed the "One Big Beautiful Bill Act." Despite the cringe-worthy name, this legislation actually did some good things for expats:
Made Tax Cuts and Jobs Act provisions permanent – no more wondering if your tax benefits will disappear after 2025
Killed the Section 899 surtax – a proposed "revenge tax" that would have punished Americans living in certain countries
Permanently increased the Child Tax Credit to $2,200 per child
Made the higher standard deductions permanent: $15,750 for single filers, $31,500 for married couples
Foreign Housing Exclusion Also Got Some Love
The foreign housing exclusion base amount increased to $20,800 for 2025, with a general maximum of $39,000. If you're living somewhere ridiculously expensive (looking at you, Singapore and Zurich), higher limits still apply.
Who Qualifies for These Goodies?
The Physical Presence Test vs. The Bona Fide Residence Test
You've got two ways to qualify for the FEIE, and both have their quirks:
Physical Presence Test: Be outside the US for 330 days out of any 365-day period. Sounds simple until you start obsessively counting days like you're planning a prison break.
Bona Fide Residence Test: Be a bona fide resident of a foreign country for an entire tax year. This one's trickier to define but can be more flexible once you qualify.
The Reality Check: What Does This Mean for Your Wallet?
Here's the thing that might shock you: most American expats owe $0 in US taxes. According to IRS data, nearly two out of three expats who file end up owing nothing. The combination of FEIE and foreign tax credits usually does the trick.
Lower-Income Expats: You're Probably Fine
If you're earning under $130,000 from foreign sources, the FEIE likely covers you completely. Add in the standard deduction, and you might not even need to stress about this stuff. (But you still have to file – sorry, them's the rules.)
Higher-Income Expats: It Gets Complicated
Earning more than the FEIE limit? Welcome to the world of foreign tax credits. These let you credit foreign taxes paid against your US tax liability. The math gets messy, but the result is often still minimal US taxes owed – especially if you're paying decent taxes in your host country.
Self-Employment: The Gift That Keeps on Giving
Here's where it gets fun (and by fun, I mean expensive): self-employment tax still applies even if you live on Mars. Social Security and Medicare taxes don't care about your exotic location unless your host country has a totalization agreement with the US.
Filing Requirements: Because Freedom Isn't Free (of Paperwork)
What You Still Need to Report
Living abroad doesn't get you out of reporting your worldwide income. That includes:
All wages and salary (foreign and domestic)
Self-employment income
Rental property income
Investment gains and dividends
That cryptocurrency you forgot about
FBAR and Form 8938: The Fun Never Ends
Got foreign bank accounts? Congratulations, you get extra forms! If your foreign accounts total more than $10,000 at any point during the year, you need to file an FBAR. And if you meet certain thresholds, you also get to file Form 8938. Because apparently one form reporting your foreign accounts isn't enough.
Check out our detailed guide on FBAR requirements:
https://www.egantax.com/blog-1-1/the-fbar-because-who-doesnt-like-extra-paperwork
Special Situations and Pro Tips
Married Couples: Double the Fun
If you're married, you can often double your exclusions and benefits. Both spouses can claim the FEIE if both qualify, potentially excluding $260,000 of combined income. Just make sure you both actually qualify – the IRS isn't known for their sense of humor about these things.
Timing Matters
The tax year you first claim FEIE matters more than you might think. If you're using the physical presence test, your 330-day period doesn't have to align with the calendar year. This gives you some flexibility in planning, but also some complexity in execution.
State Taxes: The Plot Thickens
Federal taxes are just part of the story. Some states will happily continue taxing you even after you move abroad. Others are more reasonable. Know your state's rules before you pack your bags.
Planning Ahead: What Smart Expats Do
Keep Meticulous Records
Track your days outside the US like your tax liability depends on it (because it does). Apps, calendars, passport stamps – use whatever works, but document everything.
Understand Your Host Country's Tax System
The better you understand both tax systems, the better you can optimize your situation. Some countries have favorable tax treaties with the US that can help reduce your overall burden.
Don't Wait Until the Last Minute
April 15th is still your deadline, but you get an automatic two-month extension to June 15th just for living abroad. You can extend further to October 15th if needed. Use this time wisely instead of panicking at the last second.
The Bottom Line
The 2025 changes are genuinely good news for American expats. The increased FEIE limits, permanent tax provisions, and elimination of the Section 899 surtax all work in your favor. Most expats will continue to owe little or no US taxes while enjoying the benefits of living abroad.
But – and this is important – you still need to file. The IRS doesn't care that you're living your best life in Bali or building your startup in Berlin. The paperwork must flow.
If all this seems overwhelming (and honestly, why wouldn't it?), consider getting professional help. The rules are complex, the stakes are high, and the penalties for getting it wrong are not fun.
Need expert help with your expat taxes?
https://www.egantax.com/contact
The expat life comes with many perks – just make sure tax compliance isn't the thing that ruins the party.
The Foreign Earned Income Exclusion: How to Avoid Paying Uncle Sam for your Tan Lines
So, you’ve decided to live the dream—working from a beach in Bali, a café in Paris, or maybe just somewhere with better weather than your hometown. The problem is, just because you’ve escaped to a foreign land doesn’t mean Uncle Sam is going to let you off the hook. Nope… the IRS doesn’t care if you’re enjoying a sunset cocktail in Mexico or getting lost in the hustle of Tokyo. They want their cut of your money. But don't worry, there's a little something called the Foreign Earned Income Exclusion (FEIE) that could save your little bacon—if you know how to work it.
What is the FEIE, and Why Should You Care?
In plain English, the Foreign Earned Income Exclusion (FEIE) is a magical little loophole that allows U.S. citizens or residents working abroad to exclude up to $130,000 (for 2025) of earned income from U.S. taxation. Yes, you read that right. Up to $130,000! That’s nearly enough to pay for a nice vacation home in the country you’ve been living in—or, let’s be real, enough for several trips to the beach (and maybe a few margaritas).
But how does it work? Well, the FEIE is designed to prevent you from being taxed twice: once by the country where you live, and once by Uncle Sam. Since the U.S. is one of the very few countries that taxes its citizens on worldwide income, this little gem can be a lifesaver for expats.
Do You Qualify?
Now, before you get too excited and start imagining yourself as a tax-free nomad, there are some hoops to jump through. Here’s what you need:
Your Tax Home Must Be Abroad
This means you can't just take a vacation and claim to live in Paris while working remotely from your living room in Ohio. You need to actually be residing in another country (and working there, not just sightseeing).The Physical Presence Test
If you thought you could just waltz into your new country and call it a day, think again. To qualify for the FEIE, you must be in a foreign country for at least 330 full days out of any 12-month period. Yep, no slacking off. It's basically a long vacation… with a lot of work.Earned Income Only
This is not a loophole to get out of paying taxes on your investment income, dividends, or that sweet, sweet inheritance your great aunt left you. Only earned income qualifies. So, if you’ve got a side hustle that’s generating income in your new country, it counts—just not your passive income from those sweet dividend stocks.
How Much Can You Exclude?
Let’s talk numbers. For 2025, you can exclude up to $130,000 of your foreign earned income. If you’re married and your spouse also works abroad, they can claim the exclusion too, potentially doubling the amount. You’re welcome!
But, hold your horses—this isn’t a “free ride” to never file U.S. taxes again. If you’re making more than $130,000, you’ll still be taxed on the excess amount. And remember, you can’t just forget about U.S. tax filing altogether. You’ll still need to submit your taxes, including the necessary forms like Form 2555, which sounds like the name of a robot from a 1980s sci-fi movie, but it’s actually the one that gets you your tax-free money.
What’s the Catch?
Like anything in life, there’s always a catch. Here are a couple of things to keep in mind:
Self-Employment Tax
If you’re self-employed, don’t start celebrating just yet. The FEIE doesn’t exempt you from self-employment tax (currently 15.3%). So, if you're running your own show and earning that sweet foreign cash, you're still on the hook for Social Security and Medicare contributions. But hey, at least you’re getting those sweet benefits, right? (Like when you’re old and need a walker, or... whenever that is.)State Taxes
Some states (looking at you, California) aren’t so keen on letting you off the hook just because you’ve gone abroad. They might still want a piece of the action, so don’t forget to check what your state has to say about it. You don’t want to find out the hard way that you're on the hook for some extra state taxes.
Final Thoughts: Don’t Let Taxes Ruin Your Fun
So, there you have it! The Foreign Earned Income Exclusion is a fantastic way to save on U.S. taxes while you’re living your best life abroad. But remember, you’ve still got to play by the rules—keep good records, file the right forms, and, for goodness’ sake, don’t try to pass off a vacation as "work" just because you’re on Zoom from a beach chair (the IRS is way smarter than that).
If you’re going to work abroad, you might as well keep more of your hard-earned cash for that sweet second home or just for more piña coladas. And if you can manage to do all that without Uncle Sam noticing, well... now that’s the dream.
The FBAR - Because Who Doesn’t Like Extra Paperwork
What Is FBAR? (And Why You Should Care)
Ah, FBAR. Foreign Bank Account Reporting. Doesn’t that sound like a great time. It’s the government’s little way of making sure that you’re not hiding money under your mattress or, heaven forbid, in a foreign bank account somewhere. Because clearly, the IRS has nothing better to do than to track every U.S. citizen who dares to have a bank account outside of the United States. But if you’re one of the lucky few that have foreign bank accounts, then buckle up for a wild ride through the world of FBARs.
FBAR isn’t just some random IRS form—it’s a requirement. You’re required to file it if you have any foreign bank accounts totaling more than $10,000 at any point during the year. So, if you’re that person with the Cayman Islands account or that overseas savings account (because who doesn’t have one?), congrats! You’re about to join the illustrious club of “People Who Have to Deal with FBAR.”
But here’s the kicker: you don’t get to just pop it onto your regular tax return. Nope, this is its own separate form that you have to file with the Financial Crimes Enforcement Network (FinCEN), which sounds super official, right? The IRS likes to make sure they keep it extra special for you.
Let’s Talk Penalties (Because Who Doesn’t Love Them?)
Now, let’s get to the best part: the penalties. Oh, you thought you could just forget about FBAR? Maybe just slip under the radar, right? Wrong. If you forget to file, or if you make a mistake, the IRS will kindly remind you with penalties up to $10,000 per year. And if you’re really unlucky and they decide you were “willfully” negligent? Buckle up, because the penalties could go as high as $100,000—or 50% of your highest account balance. It’s like playing Russian roulette with your finances, except the gun is pointed at your bank account.
Filling Out FBAR: It’s Like a Puzzle, But With Your Money
If you’ve ever filled out a form and thought, “Hey, this seems straightforward,” prepare to be disappointed. FBAR is a whole different beast. First, you’ll need to list all your foreign bank accounts. Easy enough, right? But then you’ll need to report the maximum balance of each account for the year, down to the last penny. Don’t round, don’t guess. If you’re wrong, guess what? Penalties. It’s like the IRS is daring you to mess up. “Go ahead,” they say, “try to get this right without wanting to throw your computer out the window.”
And if you have more than one account? Well, now you get the honor of entering the details for each account. Sounds fun, right? It’s almost like they want you to become best friends with your financial statements.
Why Do You Have to Do This?
But why, you might ask, should you even bother? It’s not like you’re hiding your money for nefarious purposes, right? Sure, maybe you just have a little savings in a foreign account because you can. But no, no, no. The government’s going to make sure that you’re not doing anything sneaky. Because nothing says “patriot” like reporting your foreign savings to Uncle Sam. Who wouldn’t want to share that extra little bit of personal financial information?
The End Goal: More Paperwork for You
So, why does FBAR exist? Because the government has nothing better to do than make sure every penny in every foreign bank account is accounted for. Sure, you could try to “forget” about it, but if you do, the IRS will find you. They’ll catch you. And when they do, they’ll shower you with penalties that will make you wish you had spent the 15 minutes filling out the form in the first place.
In conclusion, FBAR is basically the gift that keeps on giving. More paperwork, more stress, and a whole lot of fun in navigating government bureaucracy. So, if you have foreign bank accounts, congratulations! You get to file FBAR every year, because who wouldn’t want to take the time to report their overseas funds to the IRS? It’s not like you have anything else you’d rather do with your time.