Moving abroad doesn't necessarily mean leaving your U.S. tax obligations behind. Unlike most countries, the United States operates a system of citizenship-based taxation, meaning U.S. citizens generally remain subject to U.S. income tax filing requirements even when they live and work overseas.

For Americans relocating to Italy, France, Spain, Portugal, or elsewhere, this often creates confusion. If you're already paying income taxes in your new country of residence, do you still need to file a U.S. tax return? And if you do, will you actually owe taxes to the IRS?

The short answer is that most U.S. citizens living abroad must continue filing U.S. tax returns, but filing does not necessarily mean owing additional U.S. income tax.

Tax provisions such as the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC) can help reduce or eliminate double taxation. However, the outcome depends on where you live, how much you earn, the type of income you receive, and your overall financial circumstances.

Understanding the difference between filing requirements and actual tax liability is essential for Americans planning an international move or already living overseas.

Do U.S. Citizens Have to File Taxes While Living Abroad?

Yes. U.S. citizens generally have to report their worldwide income to the Internal Revenue Service (IRS), regardless of where they live.

This is known as citizenship-based taxation. Unlike countries that primarily tax individuals based on their tax residence, the United States generally continues to tax its citizens on income earned anywhere in the world.

For example, an American who moves from New York to Florence and begins working for an Italian employer may have to report that employment income on a U.S. federal tax return, even if the income is also reported and taxed in Italy.

The same general principle applies to Americans living in other countries, including France, Spain, Portugal, Germany, and the United Kingdom.

Depending on income levels and individual circumstances, Americans abroad may also have additional filing and reporting obligations involving foreign bank accounts, investments, business interests, and other financial assets.

Importantly, filing a U.S. tax return does not automatically mean paying U.S. income tax on the same income twice.

If You Pay Taxes Abroad, Do You Still Owe U.S. Taxes?

Not necessarily. The United States provides several tax provisions intended to help Americans living overseas avoid or reduce double taxation.

Two of the most important are the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC).

The Foreign Earned Income Exclusion (FEIE) allows qualifying Americans living abroad to exclude a certain amount of foreign earned income from U.S. federal income tax, provided they meet the applicable eligibility requirements.

To qualify, individuals generally must have a foreign tax home and satisfy either the bona fide residence test or the physical presence test.

For the 2026 tax year, the maximum Foreign Earned Income Exclusion is $132,900 per qualifying person. The amount is adjusted periodically for inflation.

The Foreign Tax Credit (FTC) allows eligible taxpayers to claim a credit for qualifying income taxes paid or accrued to a foreign government. This can reduce U.S. income tax liability on income that is also subject to foreign taxation.

The Foreign Tax Credit is particularly relevant for Americans living in countries with relatively high income tax rates, where foreign income taxes may offset some or all of the corresponding U.S. tax liability.

The FEIE and FTC work differently, and choosing between them—or determining how they can be used together—requires an understanding of the taxpayer's income, residence, and broader financial situation.

Neither provision automatically eliminates every U.S. tax obligation.

When Do Americans Living Abroad Actually Owe U.S. Taxes?

Although many American expats can significantly reduce their U.S. income tax liability, there are several situations in which additional U.S. taxes may still be due.

1. You're Self-Employed or Run a Business Abroad

Self-employed Americans living overseas should pay particular attention to the distinction between income tax and self-employment tax.

The Foreign Earned Income Exclusion may reduce regular U.S. income tax on qualifying foreign earned income. However, it does not automatically eliminate U.S. self-employment tax.

The IRS generally requires qualifying self-employed individuals to include excluded foreign earned income when calculating net earnings for self-employment tax purposes.

This means an American freelancer, consultant, or business owner living in Italy or another foreign country could qualify for the FEIE and still owe U.S. self-employment tax.

Social Security totalization agreements between the United States and certain foreign countries may affect which country's social security system applies. The result depends on the individual's circumstances and the applicable agreement.

2. You Receive Income That Doesn't Qualify for the Foreign Earned Income Exclusion

The FEIE is not a blanket exemption for all income earned or received while living abroad.

It generally applies to qualifying foreign earned income, such as wages and certain self-employment income for services performed in a foreign country.

Other types of income are treated differently.

Examples include:

• Investment income, including dividends, interest, and capital gains.
• Rental income from real estate.
• Pension and annuity payments.
• Certain retirement distributions.
• Other passive or unearned income.

These income sources generally do not qualify for the Foreign Earned Income Exclusion, although other tax provisions, deductions, or credits may apply.

For Americans with investment portfolios, rental properties, retirement accounts, or multiple income streams, understanding how each category is treated is particularly important.

3. You Live in a Lower-Tax Country

Where you relocate can have a significant impact on your U.S. tax position.

The Foreign Tax Credit generally depends on qualifying foreign income taxes paid or accrued. If you live in a country where your effective income tax rate is relatively low, you may not have enough foreign tax credits to offset your entire U.S. income tax liability.

For example, an American living in a country with relatively low income taxes may have a different U.S. tax outcome from someone living in Italy, France, or another higher-tax jurisdiction.

This is one reason why tax planning should take place before relocating, rather than assuming that paying taxes in your new country will automatically satisfy your U.S. obligations.

4. Your Income Exceeds the Foreign Earned Income Exclusion Limit

The Foreign Earned Income Exclusion has an annual maximum.

For the 2026 tax year, the maximum exclusion is $132,900 per qualifying person.

If your qualifying foreign earned income exceeds this amount, the excess may remain subject to U.S. income tax, although the Foreign Tax Credit and other applicable provisions may further reduce your liability.

Married couples may each qualify for their own exclusion if both independently meet the requirements.

Higher-earning professionals, executives, entrepreneurs, and remote workers should therefore consider how their total compensation is treated under U.S. and foreign tax rules.

5. You Have Multiple Income Sources or a More Complicated Financial Picture

The more financially complex your life becomes after relocating, the more important it is to understand how U.S. and foreign tax systems interact.

Consider an American living in Italy who receives a combination of:

• Salary from an Italian employer.
• Income from a U.S. rental property.
• Dividends and capital gains from an investment portfolio.
• Income from a foreign business.
• Stock options or equity compensation.
• Distributions from U.S. or foreign retirement accounts.

Each income category can have different U.S. tax treatment, and some may also be subject to specific foreign reporting requirements.

International tax treaties, foreign tax credits, retirement account rules, and the classification of income can all influence the final result.

This is why one American expat's experience is not necessarily a reliable indicator of what another American will owe.

Do Americans Living Abroad Still Have to Report Foreign Bank Accounts?

Yes. U.S. tax filing and foreign financial account reporting are separate obligations.

One of the most important additional requirements is the Foreign Bank Account Report (FBAR).

U.S. persons generally must file an FBAR when the aggregate value of their foreign financial accounts exceeds $10,000 at any point during the calendar year. This reporting requirement applies even when the accounts generate no taxable income.

FBAR reporting is submitted separately from the annual federal income tax return.

Some Americans abroad may also have to file Form 8938 under the Foreign Account Tax Compliance Act (FATCA), depending on the value and nature of their specified foreign financial assets and their filing status and residence.

These reporting requirements are important for Americans opening bank accounts, purchasing property, establishing businesses, or building financial lives overseas.

Failing to understand the distinction between income tax obligations and foreign asset reporting can create unnecessary compliance risks.

The Biggest Misconception About U.S. Taxes for Expats

The most common misunderstanding we hear from Americans relocating overseas is:

"I live in Italy now and pay taxes there, so I don't need to file in the United States."

This assumption can lead to significant problems.

The more useful question isn't simply:

"Do I have to pay U.S. taxes?"

Instead, Americans living abroad should ask:

"What do I still need to file with the IRS, what income must I report, and how do the U.S. and my new country's tax systems work together in my particular situation?"

These are very different questions.

You may ultimately owe little or no additional U.S. income tax after applying the appropriate exclusions and credits. But that does not necessarily eliminate your obligation to file a U.S. tax return or report foreign financial accounts and assets.

Understanding these obligations before and after an international move can help prevent unexpected tax liabilities, reporting penalties, and costly mistakes.

How Tavola International Helps Americans Living Abroad Navigate U.S. Taxes

For Americans relocating overseas, understanding the U.S. tax system is only one part of a much larger financial transition.

Your U.S. tax obligations need to be considered alongside the tax rules of your new country of residence, particularly if you're moving to a country such as Italy, where local tax residency, employment income, investments, property ownership, and international tax treaties can all influence your financial position.

Tavola International helps Americans living abroad understand their U.S. tax obligations and how those obligations fit into their lives overseas.

Whether you're preparing to relocate, have recently moved abroad, or have been living internationally for several years, getting the right guidance can help you understand what needs to be filed, which tax provisions may apply, and where additional planning may be beneficial.

Moving abroad shouldn't mean moving into tax uncertainty. Understanding your obligations on both sides of the Atlantic is an important step toward building a financially secure life overseas.

This article is intended for general informational purposes and does not constitute legal, tax, or financial advice. U.S. expat tax obligations depend on individual circumstances. Consult a qualified tax professional regarding your specific situation.