How Do US Expat Taxes Work When You Move to Europe?

The United States taxes citizens on worldwide income no matter where they live, but most American expats in Europe owe zero US federal income tax thanks to the Foreign Earned Income Exclusion (FEIE), which lets you exclude up to $130,000 of earned income for 2025 ($132,900 for 2026), and the Foreign Tax Credit (FTC), which gives you a dollar-for-dollar credit for taxes paid to European governments. You still must file every year, plus report foreign bank accounts over $10,000 via FBAR.

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Here's the part nobody talks about during the "we're moving to Europe!" excitement: you're still going to file US taxes. Every year. For the rest of your life — or until you renounce your citizenship, which is a conversation for a very different article.

The United States is one of only two countries in the world (the other is Eritrea) that taxes its citizens on worldwide income regardless of where they live. That means if you're earning money while sipping cafe con leche in Valencia or working from a canal-side apartment in Amsterdam, the IRS still expects to hear from you.

The good news? Most American expats end up owing nothing — or close to it. The bad news? The paperwork to prove you owe nothing is its own special adventure.

Do you have to file US taxes while living abroad?

Let's get this out of the way: if you're a US citizen or green card holder, you are required to file a federal tax return every year your income exceeds the standard filing threshold. For the 2025 tax year (which you file in 2026), that threshold starts at $15,000 for single filers and $30,000 for married filing jointly, according to IRS guidelines updated under the One Big Beautiful Bill Act. If you're self-employed, the threshold drops to just $400 in net self-employment income.

Living abroad does not exempt you from this requirement. It doesn't matter if you haven't set foot in the US all year. It doesn't matter if you're paying taxes in Spain or Portugal or the Netherlands. The obligation follows your passport, not your address.

The silver lining is that the IRS provides several mechanisms specifically designed to prevent double taxation. Two of them — the Foreign Earned Income Exclusion and the Foreign Tax Credit — do most of the heavy lifting.

What is the Foreign Earned Income Exclusion (FEIE)?

The FEIE is probably the single most valuable tax tool for Americans living abroad. For the 2025 tax year (filed in 2026), it allows you to exclude up to $130,000 of foreign earned income from US federal income tax. For tax year 2026 (filed in 2027), that number increases to $132,900, as confirmed by the IRS in Revenue Procedure 2025-32.

If both you and your spouse qualify independently, you can exclude up to $260,000 combined for 2025, or $265,800 for 2026.

To qualify, you need to meet one of two tests:

The Physical Presence Test requires you to be physically present in a foreign country for at least 330 full days during any 12-month period. The 12-month period doesn't have to align with the calendar year — it can straddle two tax years as long as it starts or ends in the year you're claiming. This is the test most digital nomads and new expats use in their first year abroad.

The Bona Fide Residence Test requires you to establish genuine residence in a foreign country for at least one full calendar year. This is typically easier for people who've signed a lease, enrolled kids in school, and clearly planted roots. Importantly, holding a visa like Spain's Digital Nomad Visa or Portugal's D8 strengthens your case for bona fide residence, since you've gone through a formal immigration process to establish legal residency.

Here's the math that matters: a single expat earning $145,000 in 2025 can exclude $130,000 under the FEIE. The remaining $15,000 gets wiped out by the standard deduction ($15,000 for single filers under the updated 2025 figures). Result: $0 in federal income tax.

That "zero tax" sweet spot is real, and it's why roughly two out of three American expats end up owing nothing to the IRS.

What doesn't the FEIE cover?

The FEIE only applies to earned income — wages, salary, freelance income, business income from services you perform. It does not cover:

• Investment income (dividends, capital gains, interest)
• Rental income
• Pension or retirement distributions
• Social Security benefits
• Passive income from businesses where you don't materially participate

It also does not eliminate self-employment tax. If you're a freelancer or running your own business, you'll still owe the 15.3% self-employment tax (Social Security + Medicare) on your net business income, even if the FEIE wipes out your income tax. The US-Spain Social Security Totalization Agreement can help here — if you're paying into Spain's social security system, you may be exempt from US self-employment tax for the first two years with a Certificate of Coverage.

What is the FEIE trap for high earners?

One thing that catches people off guard: even though the FEIE excludes income from taxation, the IRS still uses your total income to determine your tax bracket on any non-excluded income. This is called "stacking," and it means that income above the exclusion limit gets taxed at the rate it would have been taxed at without the exclusion — not starting from the bottom bracket.

For earners above roughly $200,000, there's also the Alternative Minimum Tax (AMT) to watch for. The AMT doesn't recognize the FEIE the same way the regular tax system does, which can create an unexpected tax bill. If your income is in that range, this is where professional help pays for itself.

How does the Foreign Tax Credit (FTC) work?

The Foreign Tax Credit works differently from the FEIE. Instead of excluding income, it gives you a dollar-for-dollar credit for income taxes you've already paid to a foreign government. If you pay €15,000 in Spanish income tax and your US tax on that same income would have been $14,000, the credit completely eliminates your US liability on that income.

For Americans living in countries with tax rates higher than the US — which includes Spain under regular tax rates (30–47% progressive), Portugal's standard rates, and the Netherlands (up to ~49.5%) — the FTC often eliminates US tax entirely and may even generate excess credits you can carry forward to future years.

Should you use the FEIE or the FTC?

This is one of the biggest strategic decisions in expat tax planning, and the right answer depends on your specific situation:

FEIE tends to work better when:

• You live in a low-tax or no-tax jurisdiction
• Your income is under the exclusion limit
• You want the simplest possible filing

FTC tends to work better when:

• You live in a high-tax country (Spain, Netherlands, Portugal under standard rates)
• Your income exceeds the FEIE limit
• You want to preserve Foreign Tax Credit carryovers for future use

Important: if you elect FEIE and later revoke it, you cannot re-elect it for five years without IRS approval. This is known as the "revocation trap," and it means you should think carefully before choosing FEIE if your income or country situation might change.

Many expats with income above the FEIE threshold use a combined strategy: claim the FEIE for the first $130,000 (2025) of earned income, then apply the FTC to any remaining taxable income. Your tax professional can model both scenarios to find the optimal approach.

How does Spain's Beckham Law interact with US taxes?

If you're moving to Spain, there's an important interaction between US taxes and Spain's Beckham Law (formally the Regimen Especial de Trabajadores Desplazados). Under Beckham Law, qualifying new residents pay a flat 24% on income up to €600,000 for six years, instead of Spain's standard progressive rates of 30–47%.

This creates an interesting dynamic: because you're paying a lower rate in Spain, the Foreign Tax Credit may not fully cover your US liability. In this scenario, the FEIE might actually be more beneficial than the FTC, since it excludes the income entirely rather than crediting the (lower) Spanish tax against it.

The optimal structure depends on your income level, family situation, and whether you're employed or self-employed. This is precisely the kind of scenario where a cross-border tax specialist earns their fee. For a full walkthrough of how the Beckham Law works, who qualifies, and the critical 6-month application deadline, see our Beckham Law explainer.

What is FBAR and do you need to file one?

Beyond your tax return, there's another reporting requirement that catches many new expats completely off guard: the FBAR (Foreign Bank and Financial Accounts Report, officially FinCEN Form 114).

If the combined value of your foreign financial accounts exceeds $10,000 at any point during the calendar year, you must report all of those accounts to the Financial Crimes Enforcement Network (FinCEN). This is a separate filing from your tax return — it doesn't go to the IRS, and it has its own deadline.

The $10,000 threshold is aggregate, not per account. If you have €6,000 in a Spanish checking account, €3,000 in a savings account, and €2,000 in a Dutch brokerage account, you've exceeded the threshold and must report all three accounts.

The accounts that count include:

• Bank accounts (checking, savings)
• Brokerage and investment accounts
• Mutual funds held at foreign institutions
• Foreign retirement and pension accounts
• Life insurance policies with cash value
• Any account where you have signature authority, even if it's not in your name

What are FBAR deadlines and penalties?

The FBAR is due April 15, with an automatic extension to October 15 (no form required for the extension). For 2025 accounts, the filing deadline is April 15, 2026.

The FBAR is filed electronically through FinCEN's BSA E-Filing System — not through the IRS, and not attached to your Form 1040. This is a separate website, separate login, separate filing. Many people miss it simply because they don't know it exists.

The penalties for failing to file are severe: up to $16,536 per violation for non-willful failures (meaning you genuinely didn't know about the requirement), and up to $165,353 or 50% of the account balance for willful violations. Criminal penalties can reach $500,000 and up to 10 years imprisonment in extreme cases.

The penalty structure sounds terrifying, and it's designed to be. In practice, the IRS has amnesty programs for people who simply didn't know about the requirement. The Streamlined Filing Compliance Procedures allow qualifying expats to file up to 3 years of back tax returns and 6 years of FBARs without penalties, as long as your failure to file was non-willful. The IRS approved 86% of streamlined applications in 2023 and waived over $6 million in penalties.

If you're reading this and realizing you should have been filing FBARs — don't panic, but do act. Get compliant before the IRS contacts you, and the process is far less painful.

What is FATCA and how is it different from FBAR?

As if FBAR wasn't enough, there's also FATCA (Foreign Account Tax Compliance Act) reporting on Form 8938. This goes to the IRS (unlike the FBAR, which goes to FinCEN) and has higher thresholds:

For Americans living abroad, Form 8938 is required when your specified foreign financial assets exceed:

• $200,000 on the last day of the tax year, or $300,000 at any time (single or married filing separately)
• $400,000 on the last day of the year, or $600,000 at any time (married filing jointly)

Yes, you may need to file both FBAR and Form 8938 for the same accounts. They go to different agencies, have different thresholds, and cover slightly different categories of assets. It's confusing by design — or at least it feels that way. FATCA reporting is also why opening a European bank account as an American is more complicated than it should be — our guide to banking in Europe covers which banks actually accept Americans.

Do you still owe state taxes after moving abroad?

Moving abroad doesn't automatically sever your state tax obligations. Some states — notably California, New York, Virginia, and New Mexico — are notoriously "sticky" and may continue to claim you as a tax resident even after you've left the country, especially if you maintain property, a driver's license, voter registration, or bank accounts in the state.

The simplest states for expats are those with no income tax: Florida, Texas, Nevada, Wyoming, Tennessee, Washington, and a few others. If you're currently a resident of a high-tax state, establishing residency in a no-income-tax state before your international move can save significant money over time.

Each state has its own rules for what constitutes "breaking" residency. Some require filing a specific form, others simply look at your factual connections to the state. Research your state's specific requirements — or better yet, consult a tax professional who understands multi-state and international moves.

What are the key tax deadlines for 2026?

If you're filing for the 2025 tax year:

April 15, 2026 — Tax payment deadline (interest starts accruing on unpaid balances after this date, even if you have an extension to file). Also the initial FBAR deadline.

June 15, 2026 — Automatic filing extension for Americans living abroad. No form required — you qualify automatically if your tax home is outside the US on April 15.

October 15, 2026 — Extended filing deadline (requires filing Form 4868 by June 15). Also the FBAR automatic extension deadline.

Keep in mind: extensions are for filing, not for paying. If you owe taxes, they're due April 15 regardless of when you actually file.

How much does expat tax preparation cost?

Most American expats spend between $500 and $1,500 per year on professional tax preparation, depending on complexity. If you have foreign business entities, rental properties, or complex investment structures, expect the higher end.

Is it worth hiring a specialist? For most people moving to Europe — absolutely. The interaction between US obligations, local country taxes, tax treaties, and reporting requirements creates enough complexity that a cross-border specialist typically saves more than they cost. The FEIE alone is worth $130,000 in excluded income; filing Form 2555 incorrectly — or missing your deadline — means forfeiting that exclusion entirely for the year.

Look for a CPA or enrolled agent who specifically handles US expat taxes. General practitioners who primarily handle domestic returns may not be familiar with Form 2555, treaty provisions, or the nuances of coordinating US and foreign tax obligations.

The Bottom Line

Moving to Europe doesn't mean escaping US taxes — but it also doesn't mean paying them twice. The FEIE and FTC are powerful tools that eliminate US tax liability for most expats. The real danger isn't the tax bill itself; it's the reporting requirements (FBAR, FATCA, state obligations) that many people discover too late.

Start thinking about your US tax structure before you move, not after. A few hours with a cross-border tax specialist before departure can save you from years of catch-up filings and unnecessary stress. Tax treatment varies significantly between European visa programs — our comparison of Spain, Portugal, and the Netherlands includes a tax breakdown for each country.

Considering a move to Europe? Our free eligibility assessment checks your situation against three visa programs in about 5 minutes.

Ready to prepare your documents? Our platform generates your complete visa application package — pre-filled forms, cover letters, and a step-by-step checklist. Start your free assessment →

Frequently Asked Questions

Do American expats really owe zero US federal income tax?

Most do. A single expat earning up to $145,000 in 2025 can exclude $130,000 via the FEIE, with the remaining $15,000 covered by the standard deduction — resulting in $0 federal income tax. Roughly two out of three American expats owe nothing to the IRS, though they must still file a return to claim the exclusion.

What is the FBAR threshold for 2026?

If the combined value of all your foreign financial accounts exceeds $10,000 at any point during the calendar year, you must file an FBAR (FinCEN Form 114). The threshold is aggregate — not per account. The filing deadline is April 15, with an automatic extension to October 15.

Can you use both the FEIE and Foreign Tax Credit?

Yes. Many expats with income above the FEIE limit use a combined strategy: exclude the first $130,000 (2025) of earned income via FEIE, then apply the Foreign Tax Credit to any remaining taxable income. However, you cannot apply the FTC to income already excluded by the FEIE.

Do you still owe state taxes after moving to Europe?

It depends on your state. States like California, New York, Virginia, and New Mexico are "sticky" and may continue claiming you as a resident. No-income-tax states (Florida, Texas, Nevada, Wyoming, Tennessee, Washington) are the simplest to leave cleanly. Consider establishing residency in a no-tax state before your international move.

What happens if you forgot to file FBAR?

The IRS offers the Streamlined Filing Compliance Procedures for expats who non-willfully failed to file. You can submit 3 years of back tax returns and 6 years of FBARs without penalties. The IRS approved 86% of streamlined applications in 2023. Act before the IRS contacts you — voluntary disclosure is far less painful.

Does the FEIE eliminate self-employment tax?

No. The FEIE only eliminates federal income tax on earned income — it does not affect the 15.3% self-employment tax (Social Security + Medicare). Freelancers and business owners still owe SE tax on net business income. The US-Spain Totalization Agreement may provide relief for the first two years if you're paying into Spain's social security system.

How much does an expat tax preparer cost?

Most American expats pay $500–1,500/year for professional tax preparation. The cost depends on complexity — foreign business entities, rental properties, and multiple country filings push toward the higher end. A cross-border specialist typically saves more than their fee by optimizing your FEIE/FTC strategy.

This article is for informational purposes only and does not constitute tax advice. Tax laws are complex and change frequently. Consult a qualified tax professional for advice specific to your situation.

Planning your move to Europe? Our free eligibility assessment helps you understand which visa pathway fits your situation — including the tax implications of each destination.

Sources:

• IRS, "Figuring the Foreign Earned Income Exclusion," irs.gov (updated 2026)
• IRS, Revenue Procedure 2025-32 (2026 inflation adjustments)
• IRS, "Report of Foreign Bank and Financial Accounts (FBAR)," irs.gov
• IRS, "Comparison of Form 8938 and FBAR Requirements," irs.gov
• FinCEN, "Report Foreign Bank and Financial Accounts," fincen.gov
• Greenback Tax Services, "IRS 2026 Tax Inflation Adjustments," greenbacktaxservices.com (Feb 2026)
• Taxes for Expats, "FBAR Penalties in 2026," taxesforexpats.com (Feb 2026)