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.
