Most countries let you go when you leave. The US taxes by citizenship, not residence. You can move to Lisbon, sell your car and forget your Costco card – the IRS still expects a return every spring.
This guide covers what changes when you move abroad as a US person, how to keep the IRS bill close to zero legally, why your state may not let go, and what expatriation costs. General information as of September 2026, not tax advice.
Who this guide is for#
US citizens moving abroad (including “accidental Americans” born in the US who grew up elsewhere), green card holders leaving – especially long-term residents with the card in at least 8 of the last 15 tax years – and anyone weighing renunciation. If you’re a European who just wants a US company, see the US LLC for Europeans instead.
Why moving abroad doesn’t end US tax residence#
US citizens are taxed on worldwide income, and so are resident aliens – including every green card holder under the “lawful permanent resident” test of §7701(b). The IRS says it plainly: the filing rules are generally the same whether you’re in the US or abroad.
| You are | US tax status ends when |
|---|---|
| US citizen | You formally relinquish citizenship (usually by renouncing at a US embassy or consulate). Days abroad don’t matter. |
| Green card holder | Your lawful permanent resident status is formally ended (e.g. Form I-407) or abandoned by final administrative or court decision – or, in some cases, when a treaty tie-breaker treats you as resident elsewhere. |
| Neither | You’re taxed under the substantial presence test (days in the US), like any other foreigner. |
The treaty tie-breaker doesn’t save citizens#
Normally a double tax treaty decides which country gets you (see tax residency). US treaties contain a “saving clause”: the US keeps the right to tax its citizens as if the treaty didn’t exist. The treaty still helps against double taxation, but it never turns a citizen into a non-resident.
Green card holders can claim treaty residence abroad. Careful: for a long-term resident, that claim can itself count as ending US residency for the exit tax rules.
Filing from abroad: the annual paperwork#
Living abroad adds forms rather than removing them:
- Form 1040. Same return as at home. Living abroad with your main place of work there gives you an automatic 2-month extension to June 15 – interest on unpaid tax still runs from April 15. Form 4868 extends filing to October 15.
- FBAR (FinCEN Form 114). Required if your foreign accounts together exceed $10,000 at any time in the year. Filed with FinCEN, due April 15 with an automatic extension to October 15. Local current, savings and pension accounts all count.
- Form 8938 (FATCA). Living abroad, you file if your specified foreign financial assets exceed $200,000 at year end or $300,000 at any time (single), or $400,000 / $600,000 (married filing jointly).
- Form 8621 (PFIC). Foreign funds and ETFs are usually “passive foreign investment companies”, taxed harshly with an interest charge, one form per fund. Classic mistake: buying a local UCITS ETF.
- Form 5471 / 8865 / 3520 for foreign companies, partnerships, trusts and large foreign gifts.
FEIE or foreign tax credit?#
Most expats owe little or no US income tax, thanks to two tools against double taxation.
Foreign earned income exclusion (Form 2555)#
The FEIE lets you exclude foreign earned income (salary, self-employment income – not dividends, interest, pensions or rent). The cap is $130,000 for 2025 and $132,900 for 2026, per person. On top comes a housing exclusion (a deduction if self-employed) for housing costs above 16% of the FEIE, generally capped at 30% ($39,870 in 2026), higher in expensive cities.
You qualify with a tax home abroad and one of two tests:
- Bona fide residence: you’re a resident of a foreign country for an uninterrupted period that includes a full tax year.
- Physical presence: you’re in foreign countries for at least 330 full days during any 12 consecutive months. A full day runs midnight to midnight; travel days over the ocean don’t count.
Two catches. First, income above the exclusion is taxed at the rate that would apply if the excluded income were still there (“stacking”). Second, if you revoke the FEIE after using it, you can’t claim it again for 5 tax years without IRS approval.
Foreign tax credit (Form 1116)#
The FTC credits foreign income tax against US tax on the same income; excess credits carry back one year and forward ten. In countries with higher taxes than the US – most of Western Europe – it usually wipes out US tax on your salary, and it also covers dividends, rent and pensions, which the FEIE never does. It also keeps your income “visible”, which can preserve IRA contributions.
In a zero-tax country like the UAE there’s nothing to credit, so the FEIE is your tool – and everything above $132,900 (plus housing) is taxed by the US. The part of the “move to Dubai, pay no tax” story nobody tells Americans.
Self-employment tax: the one the FEIE doesn’t touch#
The FEIE cuts income tax, not self-employment tax. Freelancing abroad, you owe 15.3% (12.4% social security, 2.9% Medicare) once net earnings reach $400 – unless a totalization agreement assigns you to the other country.
Your state may not let you go#
Federal tax follows your passport. State tax follows residence – and some states define that generously.
- California looks at domicile: the place you intend to return to. A temporary move abroad doesn’t change it. A safe harbor covers people abroad under an employment-related contract for at least 546 consecutive days – not if intangible income (e.g. investments) exceeds $200,000 in a contract year or tax avoidance is the main purpose, and visits back are limited to 45 days a year. Freelancers must show a real change of domicile.
- New York tests domicile and statutory residence (a permanent place of abode for substantially all of the year plus 184 or more days in the state; any part of a day counts). Keeping the Brooklyn apartment “for visits” undermines a change of domicile.
- Other states have their own tests and audit habits. Check yours before you leave, not after the first letter.
What helps: sell or lease out the home long-term, move your belongings, update licence and voter registration, document your foreign address. If you genuinely set up life in a state without income tax (Florida, Texas and a few others) before going abroad, that can be a clean domicile. A Florida mailbox while you live in Porto is not domicile; it’s an audit waiting to happen.
Expatriation: the only real exit#
How renouncing works#
You renounce in person before a US consular officer abroad and sign an oath; the State Department then approves a Certificate of Loss of Nationality (CLN). The fee was $2,350; a final rule cut it to $450 with effect from 13 April 2026. Get another citizenship first – statelessness is a very bad idea (see second passports).
Green card holders end their status with Form I-407. For long-term residents (8 of the last 15 tax years), the same exit tax rules apply as for citizens.
Form 8854 and the covered expatriate test#
With your final return you file Form 8854 (skipping it: $10,000 penalty). You’re a covered expatriate under §877A if any one of these applies:
| Test | 2026 threshold |
|---|---|
| Average annual net income tax for the 5 years before expatriation | More than $211,000 (2025: $206,000) |
| Net worth on the expatriation date | $2 million or more (not inflation-indexed) |
| Compliance certification | You can’t certify on Form 8854 that you met all US tax obligations for the 5 prior years |
The third test catches people who were never rich, just behind on filings – get compliant first. Exceptions exist for dual citizens from birth who are taxed as residents of the other country and weren’t US residents for more than 10 of the last 15 years, and for those renouncing before age 18½ with no more than 10 years of US residence. Both still need 5 compliant years.
What the exit tax does#
If you’re covered, all your worldwide assets count as sold at market value on the day before expatriation. Gains above the exclusion ($890,000 for 2025, $910,000 for 2026) are taxed. Special rules:
- Tax-deferred accounts (IRAs, 529 plans, HSAs and similar) are treated as fully paid out – taxed as income, without early-withdrawal penalties.
- Eligible deferred compensation from US payors (e.g. a 401(k)) isn’t taxed now; 30% is withheld from later payouts instead.
- Gifts and bequests from a covered expatriate to US persons are taxed forever under §2801 at the top gift/estate rate (40%), paid by the recipient, above $19,000 a year (2026). With kids in the US, often the biggest cost.
Compared with Germany: the German exit tax (§6 AStG) hits only shareholdings of 1% or more and is triggered by moving. The US version hits almost everything you own – but only when you give up the passport or long-term green card, and only if you’re covered.
What stays taxable after you expatriate#
As a non-resident alien, you still pay US tax on US-source income:
- Dividends and other passive US income: 30% flat withholding, reduced by a treaty with your new country of residence.
- US real estate: rent is taxable, and on a sale FIRPTA generally makes the buyer withhold 15% of the price.
- US estate tax: on US-situs assets such as US property and US shares, wherever the account is held; a return is due above $60,000. Treaties can soften this.
- US work or business income stays taxable.
Social security and health insurance#
- Social security benefits can usually be paid abroad; a few countries (e.g. Cuba, North Korea) are excluded or restricted.
- Totalization agreements prevent double contributions and combine work periods. The US has them with Germany, Portugal, Italy, Spain, Switzerland, the UK and others – but not with many low-tax destinations such as the UAE. Posted workers use a certificate of coverage to stay in one system.
- Medicare generally doesn’t pay abroad. You need local or international health insurance – and should weigh the Part B late-enrollment penalty if you might return.
Banks and brokers#
- US brokers often restrict or close accounts with a foreign address – sometimes hold-only. Ask before you move.
- Foreign banks must report US persons under FATCA, and some refuse Americans. (The US uses FATCA instead of the OECD’s CRS.)
- Your address. Keeping a relative’s US address while you live abroad misleads the broker and creates state residency evidence you don’t want. Be honest and pick expat-friendly providers.
- Retirement accounts (401(k), IRA) can usually stay, but may not be tax-deferred in your new country.
More: banking abroad.
Your exit, step by step
Get compliant first
Five years of complete returns, FBARs and information forms. Behind? Catch up via the IRS streamlined procedures first.
Pick your destination and your tool
High-tax country: likely FTC. Zero-tax country: FEIE plus a plan above the cap. Try the Jurisdiction Finder and country guides.
Break state residence cleanly
Home, licence, voter registration, belongings, mail – documented.
Clean up your portfolio
No foreign funds (PFICs), a broker that keeps expats, a plan for US property.
Decide on citizenship later, not in a rush
Second citizenship, net worth, 5-year compliance and family gift plans checked – then the consulate appointment.
The traps#
Traps we see all the time
“I moved, so I stopped filing.”
Missing returns can turn a modest expat into a covered expatriate.
The forgotten FBAR.
Local accounts plus a pension easily pass $10,000. Penalties can bite even with no tax due.
European ETFs.
PFIC taxation and one Form 8621 per fund.
The sticky state.
California or New York may still call you resident while you live in Lisbon.
Dubai and the FEIE cap.
Zero local tax isn’t zero US tax above $132,900 – and self-employment tax still applies.
Renouncing with US heirs.
§2801 makes every later gift to US family expensive, for life.
Your 12-month plan#
Leaving the USA: from 12 months to day zero
Tick them off – your progress is saved in this browser only.
List accounts, funds, property, retirement accounts and future income. Check 5 years of filings.
Compare local tax, visas and totalization; model FEIE vs FTC in our tax calculator.
Replace problem assets and confirm your broker keeps expat clients.
Apply for residence – see digital nomad visas and move abroad.
Health insurance quote, Medicare decision, certificate of coverage if posted abroad.
Sell, let long-term or end your lease; update licence and voter registration. Tell banks, brokers and the IRS your new address.
Log days for the physical presence test with our day tracker.
Form 1040 by June 15 (pay by April 15), FBAR, 8938, 2555 or 1116, and a part-year state return.
Worked example: covered expatriate in 2026#
Illustrative numbers only. Maya, a US citizen long settled in Portugal (Portuguese by naturalization, not birth), renounces in 2026 with a net worth of $2.6 million – so she’s covered.
| Asset | Value | Tax basis | Treatment |
|---|---|---|---|
| US stock portfolio | $1,500,000 | $600,000 | Deemed sold: $900,000 gain |
| Apartment in Lisbon | $700,000 | $500,000 | Deemed sold: $200,000 gain |
| Traditional IRA | $400,000 | – | Treated as fully distributed: $400,000 income |
| Total deemed gain (portfolio + apartment) | $1,100,000 | ||
| Minus 2026 exclusion | –$910,000 | ||
| Taxable mark-to-market gain | $190,000 (plus $400,000 IRA income) |
She pays tax on $190,000 of gains plus the IRA income at normal US rates – not on $2.6 million. The bigger hit may come later: anything she leaves her US-based son above the annual exclusion is taxed at 40% under §2801. Below $2 million with clean filings, she wouldn’t be covered at all.
FAQ#
Do I have to file US taxes if I live abroad?
Yes, if your income is above the normal filing thresholds – wherever you live. Many owe nothing after the FEIE or foreign tax credit, but the return is still due.
Is the FEIE or the foreign tax credit better?
In higher-tax countries, usually the credit, which also covers investment income. In zero- or low-tax countries, usually the FEIE, for earned income up to $132,900 (2026). Model both: revoking the FEIE locks you out for 5 years.
Does renouncing US citizenship cost $2,350?
Not anymore. The State Department cut the fee for the Certificate of Loss of Nationality from $2,350 to $450 with effect from 13 April 2026. Tax costs, such as the exit tax for covered expatriates, are separate.
Will I pay exit tax when I renounce?
Only if you’re a covered expatriate: net worth of $2 million or more, average net income tax above $211,000 (2026) over 5 years, or no clean 5-year compliance certification. Even then, the first $910,000 of deemed gains (2026) is excluded.
Can I give up US citizenship to avoid taxes?
You can renounce for any reason, and many do because of the filing burden. But the exit tax exists exactly for wealthy leavers, and you must be fully compliant first. Renouncing is avoidance with a price tag, never a way around taxes you already owe.
Everything here is general information, not tax or legal advice – and a mistake on Form 8854 can’t be undone. Want your move or exit checked? Book a strategy session.
Sources#
- IRS – US citizens and resident aliens abroad
- IRS – Publication 54, Tax guide for US citizens and resident aliens abroad
- IRS – Automatic 2-month extension for taxpayers abroad
- IRS – Figuring the foreign earned income exclusion
- IRS – Physical presence test
- IRS – Foreign housing exclusion or deduction
- IRS – Rev. Proc. 2025-32, inflation adjustments for 2026
- IRS – Comparison of Form 8938 and FBAR requirements
- IRS – About Form 8621 (PFIC)
- IRS – Self-employment tax
- IRS – Totalization agreements
- IRS – Expatriation tax
- IRS – About Form 8854
- IRS – Nonresident aliens (FDAP withholding)
- IRS – FIRPTA withholding
- IRS – Estate tax for nonresidents with US assets
- 26 USC §877 – expatriation to avoid tax (covered expatriate tests, long-term residents)
- 26 USC §877A – tax responsibilities of expatriation
- 26 USC §911 – citizens or residents living abroad
- 26 USC §904 – foreign tax credit limitation and carryover
- 26 USC §2801 – gifts and bequests from expatriates
- 26 USC §2001 – estate tax rates
- 26 USC §7701(b) – definition of resident alien
- FinCEN – Report of Foreign Bank and Financial Accounts (FBAR)
- Federal Register – CLN fee reduced to $450 (final rule, 13 March 2026)
- US Department of State – Relinquishing US nationality abroad
- USCIS – Form I-407
- California FTB – Publication 1031, guidelines for determining resident status
- New York State – Nonresident and part-year resident FAQs
- Social Security Administration – International programs and totalization agreements
- Social Security Administration – Payments outside the US
