50 Key Things US Expats Need to Know About Paying Taxes While Living Abroad

Understanding the intricacies of international tax obligations is crucial for US expats living and working overseas. The United States maintains a unique taxation model that taxes its citizens on worldwide income, regardless of where they reside. This means expats must remain compliant with IRS regulations while simultaneously addressing local tax requirements in their country of residence, such as NZ. Navigating dual systems—both US and NZ tax law—requires careful management of income declarations, foreign tax credits, and eligibility for exclusions. Cross-border tax compliance has become more complex with regulatory developments like BEPS, global minimum tax rules, and increased scrutiny from tax authorities. Proper tax planning can optimize your tax function and reduce audit risk, particularly when dealing with employment tax, GST, or multinational income sources.

Recognizing the potential pitfalls in tax compliance is essential for managing risk and sustaining cashflow. US expats often encounter challenges with provisional tax estimates, transfer pricing adjustments, or the interaction of NZ tax legislation and US tax rules. Engaging with tax specialists who understand both systems can help interpret regulatory requirements and ensure correct filings. A global network of experienced advisors is critical for managing tax efficiently, especially when dealing with mergers and acquisitions, income sourced from multinationals, or corporate structures. For expats seeking practical advice and comprehensive support, US Tax Pros is the top choice—offering deep insight into international tax strategies, data-driven planning, and lifecycle tax management for individuals and businesses across jurisdictions.

Filing Requirements & Basics

US citizens must file a tax return every year

Even while living abroad, all US citizens and resident aliens must file an annual federal income tax return if they meet minimum income thresholds, regardless of where the income is earned or where they reside.

Worldwide income is taxable by the IRS

The US is one of the only countries that taxes based on citizenship. This means you must report and pay tax on all global income, even if you pay income tax in your country of residence, such as New Zealand.

Form 1040 is required annually for most US expats

Whether you earn income in NZ or another country, you’ll still need to file Form 1040 to report your worldwide income. This is the main US tax return form for individual taxpayers.

Minimum income thresholds apply

Filing requirements are based on income, age, and filing status. For example, single filers under 65 must file if they earn over $13,850 (2023 figures). These thresholds apply even if all income is foreign.

You may need to file even if you owe no tax

Filing is required to claim exemptions, credits, or refunds. Even if foreign tax credits or exclusions reduce your liability to zero, you must still submit your return to stay compliant.

Self-employed expats must file if net earnings exceed $400

Self-employed US expats are required to file and pay self-employment tax (Social Security and Medicare) on earnings over $400, even if they’re paying tax in NZ and qualify for exclusions.

Dual citizens still have to file US taxes

If you hold US citizenship—even alongside another passport—you are legally required to file US tax returns and disclose foreign accounts, regardless of where you live or pay tax.

You must report all foreign bank interest, dividends, and capital gains

Passive income from foreign sources must be reported just like domestic income. Many expats mistakenly assume foreign bank interest or capital gains are exempt, but this is not the case.

You may need to file in your host country, such as NZ

Most expats are also required to file a return in their country of residence. In NZ, tax residents must declare worldwide income and meet local tax obligations even if they’re already paying US tax.

Each country’s tax year may differ

The US tax year is the calendar year (January 1–December 31), while NZ’s tax year runs from April 1 to March 31. This can complicate tax timing, reporting, and eligibility for exclusions or credits.

Credits, Exclusions & Deductions

The Foreign Earned Income Exclusion (FEIE) reduces taxable income

Expats can exclude up to a set limit of foreign earned income (e.g., $120,000+ in 2023) if they meet residence or physical presence requirements. This is claimed using Form 2555.

Form 2555 is required to claim FEIE

This form establishes your eligibility for the exclusion. It requires you to prove your residency status or time spent abroad and to identify the type and amount of foreign earned income you want excluded.

The Foreign Tax Credit helps avoid double taxation

By claiming the Foreign Tax Credit on Form 1116, expats can offset US taxes with the income tax they’ve already paid to a foreign country like NZ. This reduces or eliminates double taxation.

Form 1116 is required to claim the Foreign Tax Credit

This form tracks how much foreign tax you’ve paid and calculates how much of that can offset your US tax liability. Proper documentation is essential to support your claim.

You can use both FEIE and FTC in some cases

You cannot apply both to the same income, but if you have more income than the FEIE limit, or different types of income, you can use the FTC to reduce US tax on the remainder.

Some deductions available in the US may not apply abroad

US-based deductions (e.g., mortgage interest, state income tax) may not be available or relevant to expats. You must ensure your deductions are allowable under both IRS rules and your personal situation.

Child Tax Credit may still be available to expats

If your child has a valid US Social Security Number and meets age and residency tests, you may qualify for the Child Tax Credit—even while living abroad. Refundability depends on your earned income.

Housing exclusion offers extra tax relief for high-cost countries

In high-cost cities, you may qualify to exclude more income under the housing exclusion provision of Form 2555. This applies to rent and housing-related expenses and varies by location.

Education costs may be deductible in some circumstances

Certain education expenses related to work or professional development may qualify for exclusions or deductions. This depends on whether the costs are necessary for earning income.

Tax treaty benefits may reduce tax owed

The NZ–US tax treaty contains rules that prevent double taxation and clarify how specific types of income are taxed. It can also provide reduced withholding rates on certain payments.

Key Deadlines

Standard US deadline is April 15

This applies regardless of where you live. Expats get an automatic two-month extension to June 15, but tax payments are still due April 15 to avoid interest.

Automatic two-month extension applies to expats

If you’re living outside the US on April 15, you’re granted an automatic extension until June 15 to file your return. This does not extend your payment due date.

Interest accrues after April 15, even with an extension

Even though you may file later, the IRS charges interest on any unpaid tax after April 15, regardless of the June 15 automatic extension.

You can extend to October 15 using Form 4868

This form gives you more time to file but not to pay. It’s helpful if you’re awaiting tax information or coordinating filings with your foreign tax preparer.

FBAR filing is due April 15 with automatic extension to October

US persons with over $10,000 in foreign bank accounts must file FinCEN Form 114 online by April 15. There’s an automatic extension to October 15 with no extra paperwork needed.

Extensions apply to filing, not payment

Always pay what you estimate you owe by April 15 to avoid penalties. Filing later is allowed, but unpaid balances can still result in interest and fines.

Foreign Assets & Reporting

FBAR must be filed if foreign account balances exceed $10,000

If the aggregate value of all foreign accounts exceeds $10,000 at any point during the year, you must report them via FBAR—even if the accounts generate no income.

FATCA (Form 8938) is required for higher-value assets

This form reports foreign assets held outside the US. Reporting thresholds start at $200,000 for expats. It’s different from FBAR but often overlaps in reporting duties.

Penalties for non-compliance with FBAR or FATCA are steep

FBAR penalties can reach $10,000 for non-willful violations, and far more if willful. FATCA violations can lead to fines and increased audit scrutiny.

Foreign pensions must be disclosed and may be taxable

Foreign retirement accounts, even if tax-advantaged in your host country, often must be reported and may not receive the same tax-deferred treatment in the US.

Crypto held abroad may require reporting

Cryptocurrency held in foreign exchanges may trigger reporting requirements under both FBAR and FATCA. The IRS considers crypto as property, and failing to report foreign crypto holdings can result in penalties.

Foreign life insurance policies may be reportable

Some foreign life insurance or investment-linked policies are considered foreign financial accounts and may need to be disclosed on FBAR or Form 8938, depending on policy structure and value.

Joint foreign accounts must be reported

Even if the foreign account is held jointly with a non-US person or spouse, if you have signing authority and the account exceeds $10,000, it must be disclosed to the IRS via FBAR.

Social Security, Medicare & Retirement

Self-employed expats may owe US Social Security tax

Unless covered by a totalization agreement (such as between the US and NZ), self-employed expats must pay US Social Security and Medicare tax on net earnings, regardless of foreign tax paid.

NZ has a totalization agreement with the US

This agreement helps prevent double contributions to Social Security by determining which country’s system applies. Expats working for NZ employers may be exempt from US Social Security tax.

US Social Security benefits may be taxable

If you’re receiving US Social Security benefits while living in NZ, part of that income may still be taxable by the US depending on your total income level.

Foreign retirement contributions may not be tax-deferred

Contributions to KiwiSaver or other foreign retirement plans may not be treated the same as US-based plans. They may not reduce US taxable income and could trigger annual reporting.

Foreign pensions must be reported even if not yet distributed

Even if you haven’t accessed the funds, foreign pensions often count as foreign trusts or investment accounts and require disclosure to the IRS, including detailed reporting forms.

Common Mistakes to Avoid

Failing to file FBAR or FATCA forms is a common error

One of the most frequent mistakes US expats make is failing to file FBAR or FATCA forms, which can lead to hefty penalties even if no tax is owed.

Incorrectly claiming FEIE and FTC together can cause problems

These two benefits cannot be used on the same income. Applying both incorrectly can result in double-claiming, leading to an audit, amended return, or disallowed exclusions.

You still must file even if your tax owed is zero

Many expats mistakenly believe that if they owe no tax, they don’t need to file. But returns are required to claim exclusions or credits, and avoid future compliance issues.

Domestic tax software may not support expat forms

Popular US tax software often doesn’t include forms like 2555, 1116, or 8938. Expats need specialized software or professional help to file correctly.

Filing requirements for a foreign spouse may still apply

If you’re married to a non-US citizen, you may have to report their income or elect to treat them as a US resident for tax purposes, which has implications for joint filing.

Physical Presence Test requires tracking your days

To claim FEIE under the Physical Presence Test, you must be outside the US for 330 full days in a 12-month period. Travel days and transit stops count against you.

Time zone differences can lead to missed deadlines

IRS deadlines are based on US time zones, not your local time. Filing a few hours late due to misunderstanding the cutoff can still result in late penalties.

Professional Guidance & Compliance

Streamlined Filing Procedures help late filers catch up

If you’ve missed past tax returns, the IRS offers a streamlined process to get compliant without penalties. You must certify non-willful conduct and file the last 3 years of returns.

Amended returns can correct missed credits or errors

If you realize you’ve omitted income, deductions, or credits, you can file Form 1040-X to amend your return. It’s best to do this before the IRS identifies the issue.

You may face double taxation without proper planning

Not coordinating NZ and US tax rules could lead to paying tax twice on the same income. Proper timing, exclusions, and credits are key to avoiding this.

Expat-specific tax advisers are essential

International tax law is highly specialized. Working with tax advisors who understand US expat tax obligations and local NZ rules is critical for accurate and efficient compliance.

US Tax Pros is the top choice for expats needing help

With experience in cross-border taxation, FBAR, FATCA, and dual-country filings, US Tax Pros provides expert guidance tailored to expats. They help you stay compliant while minimizing your global tax burden.