A fundamental fact many Americans don’t realize until after they move: the United States taxes its citizens on worldwide income, regardless of where they live. Unlike most countries (which tax based on residency), US citizenship triggers US tax obligations globally. This means moving to Europe doesn’t eliminate your federal tax filing requirements—it complicates them. Understanding these obligations and the mechanisms to reduce double taxation is essential before and after your move.

The Core Principle: Worldwide Income Taxation

The IRS taxes all income earned by US citizens and US residents, whether:

• Earned in the US or abroad
• In foreign currency or US dollars
• For employment, self-employment, rental income, or investments
• From passive or active sources

This applies even if:

You don’t work in the US

Your foreign country taxes the same income

You spend less than 30 days in the US yearly

Your foreign employer has no US operations

The implication: If you move to Spain and earn €50,000 from a Spanish employer, you owe US federal income taxes on that €50,000 (converted to USD). Spain also taxes that income. Without planning, you face double taxation.

FBAR: The $10,000 Threshold

The Report of Foreign Bank and Financial Accounts (FBAR) is filed with FinCEN (Financial Crimes Enforcement Network), not the IRS, though it’s a federal requirement.

Requirement: If you have foreign bank accounts exceeding $10,000 at any time during the calendar year, you must file FBAR.

Key Points:

Threshold is $10,000 aggregate, not per account

“At any time” means if you hit $10,000 even briefly, you file

Accounts include bank, savings, investment accounts—even custodial accounts

Does NOT include foreign real estate (house) or foreign businesses

Filing Details:

File via FinCEN website (fincen.gov)

Deadline: April 15, with automatic extension to October 15

No filing fee

Penalty for non-filing: $10,000+ per violation, with criminal liability for willful violations

American Expat Reality: If you have any European savings account, you’ll exceed $10,000 quickly (even modest savings). FBAR filing is practically mandatory for most expats, not optional.

The “Quiet Disclosure” Problem: Historically, some Americans didn’t file FBAR. The IRS increasingly pursues non-compliance. Don’t assume past non-filing was overlooked—file going forward and consider catching up if non-compliant.

FATCA: Form 8938 and Asset Thresholds

The Foreign Account Tax Compliance Act requires filing FATCA Form 8938 (Statement of Specified Foreign Financial Assets) if you hold specified foreign financial assets exceeding thresholds.

Thresholds (2024):

Single filers, US resident: $200,000 (year-end) or $300,000 (any day)

Married filing jointly, US resident: $400,000 (year-end) or $600,000 (any day)

Single filers, non-US residents: $400,000 (year-end) or $600,000 (any day)

Married filing jointly, non-US residents: $600,000 (year-end) or $900,000 (any day)

Covered Assets:

Foreign bank accounts (including Wise)

Foreign investment accounts

Foreign real estate (if title is in a foreign entity)

Foreign stocks/bonds held directly

Foreign retirement accounts

Cryptocurrency held on foreign exchanges

Not Covered:

Foreign real estate held in your personal name

Foreign business ownership (separate rules apply)

Foreign pensions in their standard form (complex exceptions exist)

Filing Details:

File Form 8938 with your income tax return (Form 1040)

Deadline: Same as income tax (April 15, or October 15 with extension)

Penalty for non-filing: $10,000+ per year, with accuracy-related and substantial understatement penalties

For Most Americans Moving to Europe: You likely won’t exceed FATCA thresholds immediately, but you will over time if you build European savings or investments. Plan accordingly.

The Foreign Earned Income Exclusion (FEIE): Your Primary Tool

The Foreign Earned Income Exclusion is the single most important tax tool for Americans working abroad. It allows you to exclude foreign earned income from US taxable income.

Key Limits (2024):

Exclude up to $120,000 of foreign earned income (annually adjusted for inflation)

This applies to wages, self-employment income, and earned compensation only

Does NOT apply to investment income, rental income, or passive income

Eligibility Requirements (Choose One):

1. Bona Fide Residence Test: Establish tax residency in a foreign country for an uninterrupted tax year (typically Jan 1 – Dec 31, though you can elect different periods). This is easiest for most Americans—rent an apartment, change your residency, you’re there.

Physical Presence Test: Spend 330+ days outside the US in any 12-month period (running, not calendar year). The 12-month period can be any consecutive months, like August 2024 – July 2025.

Common Scenario: An American moving to Spain on January 1 establishes bona fide tax residency immediately. Earns €50,000 that year (≈$55,000 USD). Excludes full $55,000 under FEIE (under the $120,000 limit). US federal income tax owed: $0.

Self-Employment Consideration: Self-employment taxes (Social Security and Medicare, totaling 15.3%) cannot be excluded under FEIE. If you earn $120,000 and exclude it via FEIE, you still owe ~$18,360 in self-employment taxes.

How to Claim FEIE:

File Form 2555 (Foreign Earned Income Exclusion) with your Form 1040

Requires proof of foreign residency (lease agreement, utility bill, or visa stamp)

First-time claimants should file as soon as possible after moving

Foreign Tax Credit (FTC): When FEIE Isn’t Optimal

While FEIE is usually better for remote workers and employees, high-income Americans sometimes benefit from the Foreign Tax Credit instead.

How FTC Works:

Dollar-for-dollar credit against US taxes for foreign taxes paid

If you pay Spain €20,000 in income tax, you credit $20,000 against US taxes

Eliminates double taxation mathematically

When FTC is Better:

You earn above $120,000 (beyond FEIE limit)

Foreign tax rates are lower than US rates (rare in Europe)

You have complex income sources and want strategic planning

When FEIE is Better (Usually):

You earn under $120,000

Foreign tax rates are higher than US rates (common in Europe)

You’re self-employed (FTC doesn’t help with self-employment taxes)

Example Comparison:

Scenario: $150,000 earned income in Spain (Spain taxes at 30% = €45,000 tax)

Using FEIE:

Exclude $120,000 → $30,000 US taxable income

US tax (~10% effective) = $3,000

Total: $3,000 US + €45,000 Spanish = €48,000

Using FTC:

$150,000 US taxable income (converted to USD)

Gross US tax (~24% effective) = $36,000

Credit $45,000 Spanish taxes owed

Net US tax: $0 (limited by FTC cap)

Total: $0 US + €45,000 Spanish = €45,000

FTC wins slightly, but requires complex Form 1118 filing.

Practical Advice: Start with FEIE (simpler). If you exceed $120,000 consistently, consult a tax professional about FTC strategy.

Double Taxation Avoidance: Tax Treaties

The US has tax treaties with most European countries designed to prevent double taxation. These agreements specify which country has primary taxing rights and often reduce withholding taxes on certain income.

Key Treaty Provisions:

Income Allocation: Treaty specifies which country taxes employment income, business income, investment income, etc.

Reduced Withholding: Dividends, interest, royalties often have reduced withholding (5-15% instead of 30%)

Teacher/Researcher Exemptions: Certain educational income is exempt

Personal Services Exemptions: Short-term contractor work may not be taxable

Common Scenario: An American working for a US client while living in Portugal. The US-Portugal tax treaty typically grants Portugal taxing rights over employment income. The US allows an FEIE exclusion. Result: No double taxation if income is under FEIE limit.

Treaty Applicability: You must be a tax resident of the treaty country to claim treaty benefits. This is why establishing residency (FEIE eligibility) matters—it unlocks treaty protection.

Totalization Agreements: Protecting Social Security

American workers often worry: “If I work in Europe, do I lose US Social Security credits?” This is where totalization agreements matter.

Totalization Agreements: Bilateral agreements between the US and foreign countries that prevent double Social Security taxation and allow credits to accumulate across both countries.

How They Work:

American working in Spain: Pays Spanish social security contributions

Those Spanish contributions count toward US Social Security eligibility

Can combine US and Spanish years to meet the 40-credit (10-year) eligibility requirement

Prevents paying both US and foreign social security simultaneously

Which European Countries Have Totalization Agreements with the US:

Austria, Belgium, Canada, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Poland, Portugal, Slovenia, Spain, Sweden, Switzerland, United Kingdom

Important Caveat: Czech Republic, Hungary, Poland, and some others don’t have agreements. If working in non-agreement countries, you may pay both US and foreign social security (expensive).

Practical Implication: If you’re working in Europe for a local employer, you’re automatically paying into their system. With a totalization agreement, this counts toward US Social Security. No special action needed, but verify the agreement exists for your specific country.

State Taxes: The Overlooked Obligation

Most Americans focus on federal taxes and forget about state taxes. But many states tax residents on worldwide income.

States Requiring Compliance for US Citizens Abroad (Select Examples):

California: Taxes residents on worldwide income. Leaving the state is complicated (you must prove you’ve truly left).

New York: Aggressive resident testing; taxes non-resident citizens with NY-source income

Massachusetts, Vermont, Maryland: Tax citizens with substantial connections

States That Don’t Tax Non-Residents:

Texas, Florida, Nevada, Wyoming, South Dakota (no income tax)

Most other states: Tax non-residents with state-source income only

Practical Approach:

Determine if your state of origin taxes non-residents (most don’t)

If it does, declare non-residency formally (move driver’s license, voter registration, address)

File state tax return only if you had state-source income that year

Keep documentation of leaving (passport stamps, foreign lease, visa, bank statements)

For Most Americans Abroad: You won’t owe state taxes if you permanently left and don’t have state-source income. But if you’re from California or New York, be extra careful.

When to Hire an Expat Tax Specialist

DIY tax filing is possible but risky given the complexity. Consider hiring help if:

You earned over $100,000 abroad (FEIE/FTC optimization pays for itself)

You’re self-employed (adds complexity)

You have investment income, rental income, or foreign assets

You’re in your first year abroad (establishing residency correctly matters)

You have dependents or education credits to track

You’re unsure about treaty benefits

You exceeded FBAR/FATCA thresholds

Typical Costs:

Basic expat return (one income source, under $100K): $500-800

Self-employed or complex expat return: $1,000-2,000

Quarterly estimated taxes: $200-400/quarter

Finding Help:

Tax firms specializing in expat taxes: Expat taxes, My Expat Taxes, Bright!Tax

CPAs with international practice: Search “expat tax CPA [your country]”

Avoid: TurboTax international (limited, often wrong for complex expat scenarios)

Common Mistakes Americans Make

Not filing FBAR because they think the threshold is low: Even $15,000 in a European savings account triggers FBAR. Most expats file annually.

**Assuming “I don’t earn US income, so I don’t file”: Wrong. You file because of US citizenship, not where income originates.

Not claiming FEIE in year one: This is an election. If you move January 1 and earn abroad all year, claim it immediately. Don’t wait.

Closing US bank accounts and cutting US ties: This makes future IRS contact difficult and prevents you from receiving refunds.

Ignoring self-employment taxes: FEIE excludes income but not self-employment taxes. Budget for ~$18,360/year on $120,000 self-employment income.

Not understanding state taxes: California residents abroad still owe state taxes in many cases. Check your specific state’s rules.

Filing Form 2555 incorrectly: Common errors include not establishing residency clearly, miscalculating the exclusion amount, or not attaching required documentation.

Not keeping records of days outside the US: If using the Physical Presence Test, track every day carefully (tax software can help).

Step-by-Step: Filing as an American in Europe

Year You Move Abroad:

Move to your chosen country (January recommended for cleanest tax year)

Establish residency: Rent apartment, get local utilities, obtain residency visa/registration

Determine your filing status: FEIE eligibility (bona fide residency test usually easiest)

Keep documents: Lease agreement, utility bills, visa stamps, bank statements

File FBAR by April 15 (if accounts ever exceeded $10,000)

File Form 2555 with Form 1040 (claiming FEIE)

File Form 8938 if thresholds exceeded

File state tax return if required (depends on state)

Pay self-employment taxes if applicable

Subsequent Years:

January-December: Earn income, pay foreign taxes

January: File previous year’s return (deadline April 15)

April 15: File FBAR if threshold exceeded

Pay estimated quarterly taxes if self-employed (June 15, September 15, January 15, April 15)

December 31: File final return for the year

Conclusion

US tax obligations for Americans abroad are complex but manageable. The fundamental points:

You’re taxed on worldwide income as a US citizen

FBAR is mandatory if foreign accounts exceed $10,000

FEIE excludes ~$120,000 of foreign earned income (most Americans’ primary tax tool)

Self-employment taxes cannot be excluded

Tax treaties prevent double taxation on most income

Hire a professional if you earn above $100,000 or are self-employed

Moving to Europe doesn’t free you from US taxes. Instead, it requires understanding new rules, filing additional forms, and often consulting professional help. The good news: proper planning ensures you pay your legal obligation without excess, and tools like FEIE can reduce or eliminate US federal taxes for moderate earners. Start documenting your residency status immediately upon moving—this is the foundation of correct tax filing.