US Expat Tax Filing Guide for Americans Living Abroad

You Moved to Berlin for a Job Paying EUR 80K — You Still Have to File US Taxes

This surprises many people who move abroad: the United States taxes its citizens on worldwide income, regardless of where they live. The US and Eritrea are the only two countries in the world with citizenship-based taxation rather than residence-based taxation.

Moving to Germany and paying German income tax does not eliminate your US filing obligation. But two mechanisms — the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit — mean most expats owe little or no US tax beyond what they've already paid to their host country.

The Foreign Earned Income Exclusion: $130,000 for 2026

The FEIE lets you exclude up to $130,000 (indexed for inflation; verify the exact 2026 figure) of foreign-earned income from your US taxable income. On EUR 80,000 (~$88,000 USD at 1.10 exchange rate), your entire income falls under the exclusion limit. Result: your US federal tax on that income is $0, after exclusion.

The FEIE applies to "earned income" — wages, salaries, and self-employment income. It does not apply to passive income: interest, dividends, capital gains, rental income, or pension payments. If you have $10,000 in US dividend income while living in Berlin, that's still taxable by the US.

You claim the FEIE using Form 2555, filed with your regular Form 1040. The form requires:

• Your foreign tax home address and employer details
• The dates you were physically present outside the US
• Your chosen qualification test (bona fide residence or physical presence)

Qualifying for the FEIE: Two Tests

You must meet one of two tests to claim the FEIE.

Bona Fide Residence Test You're a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year. Moving to Germany in March 2025 and remaining through December 31, 2026 qualifies you for the full 2026 exclusion. This test is based on facts and circumstances — your intent to live abroad long-term, local integration, housing, etc. A tourist visa doesn't qualify; a work permit or permanent residency does.

Physical Presence Test You're physically present in a foreign country (or countries) for at least 330 full days in any 12-month period that begins or ends in the tax year. Days of arrival and departure to/from the US don't count as full foreign days.

For new expats in their first year abroad, the physical presence test is often easier to meet since the 12-month period doesn't have to align with the calendar year. A 12-month period starting May 1, 2026 can support a partial-year exclusion on your 2026 return.

What You Still Owe Even With Full Exclusion

The FEIE reduces your income tax to $0 on excluded income — but self-employed expats still owe self-employment tax (15.3%) on excluded income unless a totalization agreement applies. The US has totalization agreements with Germany and 30+ other countries that prevent double Social Security taxation. As a US citizen working for a German company and paying into the German social insurance system, you're exempt from US self-employment tax on that income.

Check whether your host country has a totalization agreement with the US before assuming you're exempt.

The Foreign Tax Credit: Your Alternative to FEIE

If your foreign tax rate exceeds the US rate (common in high-tax European countries), the Foreign Tax Credit (Form 1116) may serve you better than the FEIE.

Germany's top income tax rate is 45% on income above €277,826, with an effective rate of roughly 25-30% at EUR 80,000. The US top rate is 37%, with an effective rate closer to 18-22% at equivalent income. German taxes paid generally exceed or equal US taxes owed — making the Foreign Tax Credit sufficient to eliminate US liability without using the FEIE.

You cannot use both the FEIE and Foreign Tax Credit on the same income. Many expats strategically apply FEIE to income in lower brackets and use the Foreign Tax Credit for higher-bracket income.

Filing Deadlines and Extensions for Expats

US citizens living abroad automatically get a 2-month extension to June 15 to file and pay (no Form 4868 required). You can request an additional extension to October 15 using Form 4868. Note: this is a filing extension, not a payment extension — interest accrues from April 15 on any unpaid balance.

FBAR: If you have foreign bank accounts with combined balances exceeding $10,000 at any point during the year, you must file FinCEN Form 114 (FBAR) by April 15, with automatic extension to October 15. Penalties for non-compliance are severe — up to $10,000/year for non-willful violations.

FATCA/Form 8938: If foreign financial assets exceed $200,000 on December 31 (single filer living abroad), file Form 8938 with your 1040. Different threshold from FBAR, different form, both required.

Renouncing US Citizenship: The Exit Tax

Some long-term expats eventually renounce US citizenship to eliminate the ongoing filing burden. The IRS imposes an "exit tax" on covered expatriates — those with $2M+ in net worth or an average net tax liability exceeding $190,000 for the 5 years before expatriation (2026 figure; inflation-adjusted).

The exit tax treats all of your worldwide assets as if sold the day before expatriation. Any unrealized gains above a $866,000 exclusion (2026 estimate; indexed annually) are taxed at capital gains rates. This prevents wealthy Americans from avoiding US capital gains tax by moving assets to lower-tax countries before realizing them.

Renouncing citizenship also incurs a $2,350 State Department fee and requires filing Form 8854 with your final return. It's a permanent, irrevocable decision that eliminates all future US filing obligations — but also eliminates US passport rights.

For most expats earning a foreign salary under $130,000, the FEIE zeroes out US tax and the filing burden is manageable with expat tax software ($100-$300/year) or an expat-focused CPA ($500-$1,500/year). Renunciation makes economic sense only at significantly higher wealth levels.

This article provides general tax information for educational purposes. Tax situations vary — verify specifics with a licensed tax professional.