US Expat Taxes in Europe: FEIE, FTC, FBAR and FATCA Explained

US expat taxes work on a simple principle with complicated edges: the United States taxes its citizens and green card holders on worldwide income, wherever they live. Moving to Europe doesn't end your filing obligation. What changes is that you also become a tax resident of your new country, and the US gives you tools to avoid paying twice: the foreign earned income exclusion (FEIE), the foreign tax credit (FTC) and tax treaties.

This guide explains each tool, the foreign account reports (FBAR and FATCA Form 8938), Social Security totalization and common traps. It is general information from IRS sources, not tax advice. Tax rules and thresholds change, and your facts matter, so talk to a qualified US expat tax professional.

The basics: you still file

A US citizen or resident alien abroad generally must file a federal return if their income is above the normal filing threshold, and income you exclude under the FEIE still counts when deciding whether you must file, according to the IRS. Taxpayers living abroad get an automatic extension to June 15 to file, though any tax owed still accrues interest from April. State tax can also follow you. Some states (for example those with strict domicile rules) may treat you as a resident until you break ties, so check your former state.

UK, Canadian and Australian citizens are in a different position: those countries tax based on residence, not citizenship, so leaving ends most obligations once you are non-resident. The US is the unusual one.

Tool 1: Foreign earned income exclusion (FEIE)

The FEIE lets you exclude foreign earned income from US tax up to an annual cap. For 2026 the cap is $132,900, set under IRS Rev. Proc. 2025-32. You file Form 2555 and need:

• Foreign earned income (wages or self-employment income for work done abroad)
• A tax home in a foreign country
• Either bona fide residence (a full tax year as a resident of a foreign country) or the physical presence test (330 full days in foreign countries in any 12-month period)

Limits to know:

• It covers earned income only. Pensions, dividends, interest, capital gains and rental income aren't earned income.
• It reduces income tax, not self-employment tax, unless a totalization agreement says otherwise.
• Choosing it can affect other benefits, such as the ability to contribute to an IRA, because excluded income isn't counted as compensation for that purpose.
• In high-tax countries it can be less beneficial than the foreign tax credit, and the two interact.

Many European countries tax earners at rates above US rates, which makes the FTC the better tool. Which one fits depends on your country, income and goals, so run the numbers.

Tool 2: Foreign tax credit (FTC)

The FTC lets you credit income taxes paid to a foreign government against your US tax on the same income. You file Form 1116. Because many European countries have higher top income tax rates than the US, the FTC often reduces your US bill to zero on that income and can generate carryover credits. It also applies to passive income, where the FEIE doesn't. See our country pages for tax summaries, for example Germany, France and Portugal.

Tool 3: Foreign housing exclusion

If you pay housing costs abroad, you may be able to exclude or deduct part of them on top of the FEIE (Form 2555). The limits are tied to location, and some European cities have higher caps.

Tax treaties and the "saving clause"

The US has income tax treaties with most European countries. Treaties decide which country can tax which type of income and often reduce withholding on dividends or pensions. But the "saving clause" in US treaties generally lets the US tax its citizens as if the treaty didn't exist, with exceptions. In practice, treaties help you avoid double tax on pensions and Social Security rather than letting you opt out of US filing. Our country pages note whether there is a treaty with the US, for example Spain and Italy.

Tool 4: Social Security totalization

Totalization agreements prevent paying social security taxes to two countries at once and let you combine work periods to qualify for benefits. The US has them with many European countries; the Social Security Administration publishes the list. If you work as an employee abroad for a local employer you generally pay into the local system. If you are self-employed, the rule usually follows where you live. Check the SSA list before you assume an agreement exists, since some countries, including a few popular with nomads, may not have one.

Foreign account reports: FBAR and FATCA

These are information reports, separate from your tax bill. Penalties for missing them can be far larger than the tax owed.

FBAR (FinCEN Form 114). Required if the combined value of your foreign financial accounts exceeded $10,000 at any time during the year. It is filed electronically with FinCEN, not the IRS, due April 15 with an automatic extension to October 15. That includes European bank accounts, brokerage accounts and some pension accounts.

FATCA Form 8938. Filed with your tax return if your specified foreign financial assets exceed IRS thresholds. For taxpayers living abroad, the IRS lists $200,000 at year-end or $300,000 at any time for single filers, and $400,000 and $600,000 for married couples filing jointly.

Other forms to watch. Form 3520 for large foreign gifts or foreign trusts, Form 8621 for PFICs, and forms for foreign corporations if you own a business.

FATCA at the bank. The FATCA law also pushes foreign banks to identify US customers. That is why some European banks hesitate to open accounts for Americans. See opening a bank account in Europe.

The PFIC trap

Many European mutual funds and ETFs count as passive foreign investment companies (PFICs) for US tax, which brings punitive tax treatment and extra forms. Americans abroad are often advised to avoid European-domiciled funds and hold US-listed investments instead. Ask your tax professional before you invest locally.

Retirement accounts and pensions

Contributions to a US IRA or 401(k) can continue if you have eligible income, but excluded earned income can limit IRA contributions. Foreign pensions and local retirement plans can have complicated US treatment. If you are retiring, see retire in Europe for how pensions and Social Security are handled.

Local tax: becoming resident

Most European countries tax residents on worldwide income, often defined by 183 days in the country or a "habitual residence" test. Some offer special regimes for newcomers, such as Spain's inbound worker regime or Portugal's IFICI, and these interact with the US system. A regime that cuts local tax can leave you owing more to the US, since the FTC only credits tax actually paid. Digital nomad permits can create tax residence; see digital nomad visas in Europe.

What if I'm behind on filing?

The IRS has Streamlined Filing Compliance Procedures for non-willful failures to file and report. The rules and eligibility are detailed, so see a professional before filing. Do not ignore the issue.

Practical steps

1. Keep records of days in and out of the US and each foreign country.
2. Decide between FEIE and FTC with a professional, year by year.
3. Track every foreign account balance for FBAR and FATCA.
4. Keep a US address and tax-ready paperwork.
5. Check your former state's rules.
6. Budget for tax prep: expat returns cost more than a domestic return.

Rules change. Confirm with the IRS or a qualified advisor. For the wider move, see how to move to Europe and the moving checklist.