Tax Residency
US federal income tax applies to:
- US citizens — always, on worldwide income, no matter where they live
- Green card holders (LPRs) — always, on worldwide income
- Tax residents — anyone passing the Substantial Presence Test
- Non-residents — only on US-source income
Substantial Presence Test: You are a tax resident in year X if:
- You were physically present in the US 31+ days in year X, AND
- (Days in year X) + (1/3 × days in year X-1) + (1/6 × days in year X-2) ≥ 183
Practical examples: If you spent 183+ days in 2026, you are a tax resident. If you spent 120 days in 2026, 120 in 2025 and 120 in 2024, the formula gives 120 + 40 + 20 = 180 — still under 183, so you are NOT a tax resident.
✈️ Closer Connection Exception: Even if you pass the formula, if you spent under 183 days in the current year AND have a "closer connection" to another country (tax home, permanent residence, family, banking), you can file Form 8840 to avoid US tax residency.
Federal Income Tax
US federal income tax is progressive — 10% on the first $11,600 up to 37% on income over $609,350 (2026 brackets, single filer). Deductions and credits can significantly reduce this.
State Income Tax
State tax is separate from federal. 9 states have NO income tax:
- Alaska, Florida, Nevada, New Hampshire (no wage tax), South Dakota, Tennessee (no wage tax), Texas, Washington, Wyoming
California and Hawaii have the highest state income taxes at 13.3% and 11% respectively. Most states are in the 4-8% range.
Social Security (FICA)
US wage earners pay 6.2% Social Security + 1.45% Medicare = 7.65% FICA. The employer matches it. Self-employed pay both halves (15.3%). Non-residents working in the US may owe this too, but totalization agreements with 30+ countries (UK, Germany, France, Italy, Japan, South Korea, Canada, Mexico, etc.) can exempt you if you pay into your home country's system.
Foreign Earned Income Exclusion (FEIE)
US citizens and green card holders living abroad can exclude up to $126,500 (2024, indexed annually) of foreign earned income from US federal tax. You must:
- Be a bona fide resident of a foreign country for a full tax year, OR
- Be physically present in a foreign country 330+ days in any 12-month period
- Your "tax home" must be in the foreign country
- You must file Form 2555 with your 1040
FEIE is the biggest tax break for Americans abroad but requires careful day-counting. It does NOT apply to US-source income, passive income, or US residents.
Tax Treaties
The US has tax treaties with 60+ countries. Treaties can reduce or eliminate double taxation by:
- Granting primary taxing rights to one country
- Providing foreign tax credits
- Reducing withholding tax on dividends, interest, royalties
- Exempting scholarships, pensions, students
Check your country's treaty on the IRS website. Treaties do NOT override US citizenship-based taxation — if you are American, you still file.
Filing Requirements
If you have any US tax obligation, the annual return is Form 1040 (individuals) or Form 1120 (corporations), due April 15. Automatic extensions available to June 15 for those abroad, October 15 on request. Key forms:
- Form 1040 — main individual return
- Form 2555 — FEIE claim
- Form 1116 — Foreign Tax Credit
- Form 8938 — Foreign Financial Assets (FATCA)
- FBAR (FinCEN 114) — foreign bank accounts over $10,000 total
- Form 5472 — foreign-owned US disregarded entities
⚠️ FBAR is a trap. If you have ANY foreign bank account with over $10,000 at any point in the year, you must file FBAR. Penalties start at $12,500 for non-willful failure and can be $100,000+ for willful failure.
What to Do
- Hire a specialist CPA — Greenback Taxes, Taxes for Expats, MyExpatTaxes are popular
- Track your US days — use an app like Trip Checker or a simple spreadsheet
- Keep receipts and records for 7 years
- File even if you owe nothing — missing returns are worse than owing
- Catch up program: If you are behind, the Streamlined Procedure lets you file 3 years of returns + 6 years of FBARs with reduced penalties
US tax is a deep rabbit hole. If you earn significant income or have international structures, always work with a qualified cross-border tax professional.
Tax Residency
US federal income tax applies to:
- US citizens — always, on worldwide income, no matter where they live
- Green card holders (LPRs) — always, on worldwide income
- Tax residents — anyone passing the Substantial Presence Test
- Non-residents — only on US-source income
Substantial Presence Test: You are a tax resident in year X if:
- You were physically present in the US 31+ days in year X, AND
- (Days in year X) + (1/3 × days in year X-1) + (1/6 × days in year X-2) ≥ 183
Practical examples: If you spent 183+ days in 2026, you are a tax resident. If you spent 120 days in 2026, 120 in 2025 and 120 in 2024, the formula gives 120 + 40 + 20 = 180 — still under 183, so you are NOT a tax resident.
✈️ Closer Connection Exception: Even if you pass the formula, if you spent under 183 days in the current year AND have a "closer connection" to another country (tax home, permanent residence, family, banking), you can file Form 8840 to avoid US tax residency.
Federal Income Tax
US federal income tax is progressive — 10% on the first $11,600 up to 37% on income over $609,350 (2026 brackets, single filer). Deductions and credits can significantly reduce this.
State Income Tax
State tax is separate from federal. 9 states have NO income tax:
- Alaska, Florida, Nevada, New Hampshire (no wage tax), South Dakota, Tennessee (no wage tax), Texas, Washington, Wyoming
California and Hawaii have the highest state income taxes at 13.3% and 11% respectively. Most states are in the 4-8% range.
Social Security (FICA)
US wage earners pay 6.2% Social Security + 1.45% Medicare = 7.65% FICA. The employer matches it. Self-employed pay both halves (15.3%). Non-residents working in the US may owe this too, but totalization agreements with 30+ countries (UK, Germany, France, Italy, Japan, South Korea, Canada, Mexico, etc.) can exempt you if you pay into your home country's system.
Foreign Earned Income Exclusion (FEIE)
US citizens and green card holders living abroad can exclude up to $126,500 (2024, indexed annually) of foreign earned income from US federal tax. You must:
- Be a bona fide resident of a foreign country for a full tax year, OR
- Be physically present in a foreign country 330+ days in any 12-month period
- Your "tax home" must be in the foreign country
- You must file Form 2555 with your 1040
FEIE is the biggest tax break for Americans abroad but requires careful day-counting. It does NOT apply to US-source income, passive income, or US residents.
Tax Treaties
The US has tax treaties with 60+ countries. Treaties can reduce or eliminate double taxation by:
- Granting primary taxing rights to one country
- Providing foreign tax credits
- Reducing withholding tax on dividends, interest, royalties
- Exempting scholarships, pensions, students
Check your country's treaty on the IRS website. Treaties do NOT override US citizenship-based taxation — if you are American, you still file.
Filing Requirements
If you have any US tax obligation, the annual return is Form 1040 (individuals) or Form 1120 (corporations), due April 15. Automatic extensions available to June 15 for those abroad, October 15 on request. Key forms:
- Form 1040 — main individual return
- Form 2555 — FEIE claim
- Form 1116 — Foreign Tax Credit
- Form 8938 — Foreign Financial Assets (FATCA)
- FBAR (FinCEN 114) — foreign bank accounts over $10,000 total
- Form 5472 — foreign-owned US disregarded entities
⚠️ FBAR is a trap. If you have ANY foreign bank account with over $10,000 at any point in the year, you must file FBAR. Penalties start at $12,500 for non-willful failure and can be $100,000+ for willful failure.
What to Do
- Hire a specialist CPA — Greenback Taxes, Taxes for Expats, MyExpatTaxes are popular
- Track your US days — use an app like Trip Checker or a simple spreadsheet
- Keep receipts and records for 7 years
- File even if you owe nothing — missing returns are worse than owing
- Catch up program: If you are behind, the Streamlined Procedure lets you file 3 years of returns + 6 years of FBARs with reduced penalties
US tax is a deep rabbit hole. If you earn significant income or have international structures, always work with a qualified cross-border tax professional.