Living abroad as a U.S. citizen brings new adventures—but also ongoing tax obligations. If you're an American expat living in Germany, France, Italy, Portugal, Japan, or anywhere else, you're still required to file a U.S. tax return each year.
At Solvent, LLC, we specialize in helping Americans overseas navigate the complex world of U.S. expat tax, from the Foreign Earned Income Exclusion (FEIE) to Social Security tax totalization agreements. Here’s what you need to know about filing requirements, avoiding double taxation, and how international agreements may help you reduce your tax burden.
1. Yes, You Still Have to File a U.S. Tax Return 🧾
Whether you are in the States or overseas, American citizens and green card holders have to file an annual tax return with the IRS if income is over the regular filing limit. That includes wages, self-employment income, rental income, capital gains—whether it's all earned in a foreign country.
2. Foreign Earned Income Exclusion and Foreign Tax Credit 💸
If you are working outside the United States, you may be eligible to take advantage of the Foreign Earned Income Exclusion (FEIE), which lets you exclude up to $126,500 (tax year 2024) of earned income from US taxation. To be eligible, you need to pass the Physical Presence Test or the Bona Fide Residence Test.
Or, alternatively (or in addition), you can also report a Foreign Tax Credit (FTC) if you have taxes to pay in your host country. This can offset U.S. tax on foreign income already taxed overseas.
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3. Social Security and Totalization Agreements 🤝
One of the most under-discussed topics is Social Security taxation, especially for freelancers, remote workers, or those hired by foreign companies. The U.S. has Totalization Agreements with many countries—Germany, France, Italy, Portugal, and Japan—to prevent Social Security double taxation.
Here’s how it works country by country:
Germany: The U.S.-Germany totalization agreement allows expats to pay into only one country's Social Security system, typically the country where they work. This is critical for self-employed professionals.
France: Under the U.S.-France agreement, you’re only subject to French social charges if you’re working for a French employer. This can impact Americans running small businesses in France.
Italy: The Italy-U.S. agreement allows credits earned in both countries to be combined to qualify for Social Security benefits, which is especially helpful for dual citizens.
Portugal: Portugal’s agreement is especially important for retirees and remote workers using the D7 visa or Digital Nomad visa. You can avoid U.S. self-employment tax by paying into Portugal’s social system, depending on your work status.
Japan: For expats employed by Japanese companies, the U.S.-Japan agreement often means you pay into the Japanese system and can later receive proportional U.S. benefits based on combined contributions.
4. Don’t Forget FBAR and FATCA Reporting 🏦
If you hold foreign bank accounts, brokerage accounts, or foreign pensions, you may be under obligation to report FBAR (FinCEN Form 114) and FATCA Form 8938. Even if you owe no taxes—and the penalties for failing to comply are draconian—these reports have to be filed.
5. State Tax Obligations Might Still Apply ⚠️
If you moved abroad but still have a tie to states like New York or California, you might still be considered a resident for tax purposes. Severing those ties appropriately—i.e., selling property, unregistering to vote, and changing your driver's license—is crucial in eliminating the unnecessary state taxes.
6. Need Help? Solvent, LLC Has You Covered 💼
We work with Americans living abroad—whether you're teaching English in Japan, running a business in Germany, retired in Portugal, or freelancing in Italy or France. As an Enrolled Agent, I can represent you before the IRS and help you stay compliant with confidence.
Let’s simplify your expat taxes.