Retirement Abroad and US Expat Taxes: What You Need to Know

Retiring abroad opens the door to new experiences, cultures, and opportunities.  But while you may leave U.S. soil behind, your obligations to the IRS will follow you wherever you go. The United States is one of the few countries that taxes its citizens based on worldwide income, regardless of where they live.

Understanding your tax responsibilities as an expat retiree is essential for managing your financial well-being and ensuring a smooth retirement abroad. In this guide, we’ll cover everything from how different types of income are taxed to tips for avoiding double taxation, leveraging treaties, and meeting reporting requirements.

Do Retired Expats Need to File U.S. Taxes?

Yes, U.S. citizens and Green Card holders must file a federal tax return annually, even after retiring overseas. Whether you’re drawing income from Social Security, pensions, or investments, the IRS expects a report of your worldwide income. Your filing obligation depends on three factors:

1. Gross Income: If your gross income exceeds the IRS thresholds (which vary by age and filing status), you must file. For example, in 2025, a single retiree over 65 must file if their income exceeds $17,000.
2. Age: Retirees aged 65 or older enjoy higher filing thresholds but are still subject to U.S. tax laws.
3. Filing Status: Whether you’re single, married filing jointly, or head of household impacts your filing obligations.

It’s also worth noting that you may need to file even if you owe no taxes. For example, filing may be necessary to claim a refund or report foreign accounts under compliance requirements like the Foreign Account Tax Compliance Act (FATCA) or the Foreign Bank Account Report (FBAR).

Filing Thresholds for 2025

The IRS determines your filing requirement based on gross income, age, and filing status. For 2025:

• Single taxpayers under 65: File if income exceeds $15,000.
• Married filing jointly, both under 65: File if income exceeds $30,000.
• Married filing jointly, both 65 or older: File if income exceeds $33,200.
• Head of Household under 65: File if income exceeds $22,500.
• Head of Household 65 or older: File if income exceeds $24,500.
• Qualifying Surviving Spouse under 65:  File if income exceeds $30,000.
• Qualifying Surviving Spouse 65 or older:  File if income exceeds $31,600

How Is Retirement Income Taxed for Expats?

The U.S. applies the same tax rules to retirees abroad as it does to those stateside, but there are additional considerations for expats. Here’s a breakdown of common types of retirement income:

1. Social Security Benefits

Your Social Security income may be taxable on your U.S. return. Up to 85% of these benefits could be subject to tax, depending on your provisional income (adjusted gross income + tax-exempt interest + 50% of your Social Security benefits):

• Below $25,000 ($32,000 for joint filers): Tax-free
• $25,000–$34,000 ($32,000–$44,000 for joint filers): Up to 50% taxable
• Over $34,000 ($44,000 for joint filers): Up to 85% taxable

Your host country may also tax your Social Security benefits unless a tax treaty is in place to prevent this.

2. Traditional IRAs and 401(k)s

Withdrawals are taxed as ordinary income. Unfortunately, these distributions don’t qualify for the Foreign Earned Income Exclusion (FEIE) because they are considered “unearned income.”

3. Roth IRAs

Roth IRA distributions are tax-free as long as the account has been open for five years and you’re over 59½. Unlike traditional accounts, these withdrawals won’t increase your taxable income.

4. Foreign Pensions

Foreign pensions often aren’t treated as favorably as U.S.-based retirement accounts. Contributions may not be deductible, and you could owe U.S. taxes on both contributions and growth. Some tax treaties provide relief, but this varies by country.

5. Dividends, Interest, and Capital Gains

Investment income, including dividends and stock sales, remains taxable in the U.S. Long-term capital gains benefit from lower tax rates, but you’ll still need to report them.

Avoiding Double Taxation When Retiring Abroad

If you’re living in a country that taxes worldwide income, you could face double taxation. Thankfully, the U.S. has provisions to help mitigate this.

1. Tax Treaties

The U.S. has signed tax treaties with more than 65 countries to prevent double taxation and clarify which country has the primary right to tax specific types of income. These treaties are especially helpful for retirees, as they often address how pensions, Social Security, and other retirement income are taxed.

For example, under the U.S.-Portugal tax treaty, pensions are typically taxed only in the country where the retiree resides. Similarly, U.S. Social Security benefits are exempt from Portuguese taxation, making Portugal a popular destination for retirees. Other countries with tax treaties, such as Germany, Canada, and the United Kingdom, also provide favorable provisions for retirement income.

However, each treaty has unique rules and conditions, so you must review the specifics for your host country. Treaties often outline how income types like pensions, dividends, and capital gains are taxed and which credits or exemptions apply.

2. Foreign Tax Credit (FTC)

The Foreign Tax Credit is one of the most effective ways to avoid double taxation. It allows you to reduce your U.S. tax liability by claiming a dollar-for-dollar credit for foreign taxes paid. This is especially useful if your host country taxes retirement distributions, investment income, or other sources of income.

For instance, if your host country taxes your U.S.-based pension at a rate of 15%, you can claim that amount as a credit against your U.S. tax liability. In many cases, the FTC fully offsets U.S. taxes, provided you don’t owe more to the IRS than you’ve paid in foreign taxes.

To claim the Foreign Tax Credit, you’ll need to file Form 1116 with your U.S. tax return. Be sure to keep detailed records of taxes paid abroad, as you’ll need this documentation to support your claim.

3. Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion allows U.S. citizens and Green Card holders living abroad to exclude a certain amount of foreign-earned income from U.S. taxation. For 2025, the maximum exclusion amount is $130,000, up from $126,500 in 2024.

However, it’s important to note that the FEIE applies only to earned income such as wages, salaries, or self-employment income. It does not cover passive income sources like pensions, Social Security benefits, or investment income. This makes it less relevant for retirees who are no longer working.

To qualify for the FEIE, you must meet one of the following tests:

• Physical Presence Test: You must be physically present in a foreign country for at least 330 full days within a 12-month period.
• Bona Fide Residence Test: You must be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year.

While the FEIE can’t be used to reduce taxes on retirement income, it remains a valuable tool for retirees who continue to work part-time or freelance while living abroad. To claim the exclusion, you’ll need to file Form 2555 with your tax return.

Social Security Abroad

If you’ve worked in the U.S. and earned at least 40 credits (equivalent to 10 years of work), you’re eligible to receive Social Security benefits, even if you retire abroad. However, the process of receiving benefits as an expat comes with important rules and limitations, depending on where you live.

Countries Where Social Security Benefits Are Prohibited

The U.S. restricts Social Security payments to residents of certain countries due to political or legal restrictions. If you reside in one of these countries, the SSA will withhold your payments until you move to an eligible country. For 2025, these restricted countries include:

• Cuba
• North Korea
• Azerbaijan
• Belarus
• Kazakhstan
• Kyrgyzstan
• Moldova
• Tajikistan
• Turkmenistan
• Uzbekistan

If you plan to relocate to one of these countries or already reside in one, your payments will be suspended. However, once you move to an eligible country, withheld benefits can typically be reinstated.

Countries That Do Not Tax Social Security Benefits

If maximizing your retirement income is a priority, consider moving to a country that does not tax U.S. Social Security payments. Some countries explicitly exempt these benefits from local taxes due to their tax laws or bilateral tax agreements. For 2025, countries that do not tax U.S. Social Security benefits include:

• Canada
• Egypt
• Germany
• Ireland
• Israel
• Italy
• Romania
• United Kingdom

Spousal and Survivor Benefits

Foreign spouses may qualify for spousal or survivor benefits if certain conditions are met. These typically include:

• The spouse’s country of residence has a totalization agreement with the U.S.
• The spouse is eligible under U.S. Social Security rules, which often require marriage duration requirements or proof of residency.

Countries with totalization agreements, such as France, Australia, and Japan, simplify the process of obtaining these benefits for foreign spouses. If a totalization agreement doesn’t exist, additional restrictions may apply.

To avoid delays, set up direct deposit and update your address with the Social Security Administration promptly.

Reporting Requirements for Retired Expats

If you’re a retired expat, staying compliant with U.S. tax laws requires more than just filing your annual tax return. Additional reporting requirements apply to foreign bank accounts and financial assets.

FBAR: Foreign Bank Account Report (FinCEN Form 114)

The FBAR, or FinCEN Form 114, is required if the total value of all your foreign bank accounts exceeds $10,000 at any point during the year. This is not limited to personal accounts. It also includes joint accounts, business accounts, and any accounts where you have signature authority, even if you don’t own the funds.

To file the FBAR, you must submit it electronically through the BSA E-Filing System. The deadline for the 2025 filing is April 15, with an automatic extension to October 15 if you need more time. Unlike your regular tax return, the FBAR is filed separately and does not require submission to the IRS.

Failing to file the FBAR can result in severe financial penalties. For unintentional violations, the penalty can go up to $14,489 per violation in 2025. If the violation is determined to be willful, the penalty is much harsher and could be up to 50 percent of the account balance or $145,490 per violation, whichever is greater.

FATCA: Foreign Account Tax Compliance Act (Form 8938)

FATCA reporting is required for expats who own foreign financial assets above certain thresholds. Form 8938 is submitted as part of your annual tax return and covers a broader range of assets than the FBAR.

For 2025, you must file Form 8938 if the total value of your foreign financial assets exceeds:

• $200,000 at the end of the year, or $300,000 at any time during the year for single filers living abroad.
• $400,000 at the end of the year, or $600,000 at any time during the year for married couples filing jointly and living abroad.

These thresholds are lower if you live in the U.S., so be sure to confirm your filing requirement based on your residency. Foreign financial assets that need to be reported include bank accounts, brokerage accounts, foreign pensions, and certain insurance contracts.

If you fail to file Form 8938, you could face a minimum penalty of $10,000. Continued non-compliance could lead to additional penalties of up to $50,000, plus potential criminal charges in extreme cases.

State Taxes: Can You Cut Ties?

Even after you’ve moved abroad, some U.S. states may still consider you a resident for tax purposes and continue to impose state income taxes. States like California, New York, and Virginia are particularly aggressive in taxing former residents. These states often use broad definitions of residency and may claim you still have ties to their jurisdiction if you haven’t taken specific steps to sever those connections.

Who Can State Taxes Affect?

States can impose taxes on certain individuals even if they live abroad. This typically applies if you:

• Maintain property in the state, such as a home you own but don’t rent out.
• Have a valid driver’s license or state ID issued by that state.
• Are registered to vote in the state.
• Have financial ties, such as active bank accounts or investments associated with the state.
• List a state address as your official mailing address, such as on legal documents or tax forms.

If you fail to take action to sever these ties, the state may argue that you’re still a resident, making you liable for state income taxes even if you haven’t set foot in the state for years.

How to Sever Ties with a State

To ensure a clean break and avoid state taxes while living abroad, it’s important to take deliberate steps to cut ties. Here are the most effective actions to take:

1. Cancel Your Voter Registration: If you’re still registered to vote in the state, it can be used as evidence of your intent to return, even if you don’t vote. Cancel your voter registration and, if necessary, register in a no-tax state before moving abroad.

2. Surrender Your Driver’s License: Holding a driver’s license from a state suggests ongoing residency. Turn it in and obtain a license from a no-tax state, or let it lapse if you no longer need one.

3. Sell or Rent Out Property: Owning a home in the state may indicate residency unless it’s rented out to someone else. If you can’t sell the property, make sure to lease it to show that it’s not available for your personal use.

4. Close State-Based Bank Accounts: If you maintain bank accounts tied to the state, it can imply a financial connection. Switch to national or online banks to avoid this issue.

5. Establish Residency in a No-Tax State Before Moving Abroad: States like Florida, Texas, Nevada, and Washington have no income taxes. Moving to one of these states and establishing residency there before relocating overseas can help you avoid lingering tax obligations.

6. Update Your Mailing Address: If you’re using a state address (such as a family member’s home) as your official mailing address, it could signal that you still have ties to that state. Use a P.O. box or an international address instead.

Practical Tax Tips for Retirees Abroad

Here are additional tips to help you make the most of your retirement while staying tax-compliant:

1. Research the Tax Rules of Your Host Country

Before making the big move, learn how your host country taxes retirement income like pensions, Social Security, or investments. Some countries tax worldwide income, while others may only tax income earned locally. If your chosen destination has a tax treaty with the U.S., this could help you avoid double taxation or reduce your tax burden. For example, countries like Portugal, Canada, and Germany have tax treaties with the U.S. that provide favorable terms for retirees.

2. Consider the Cost of Health Insurance and Tax Benefits

Healthcare is a key part of retirement planning, especially when living abroad. Many retirees opt for private international health insurance. In some cases, the premiums and medical expenses you pay out-of-pocket may be tax-deductible in the U.S., helping to reduce your taxable income. Be sure to keep detailed records of all your healthcare expenses.

3. Plan Your Estate and Gift Taxes Carefully

U.S. estate and gift tax laws apply to all citizens, no matter where they live. At the same time, many countries have their own inheritance or estate taxes. If you plan to pass on assets, take the time to understand both U.S. and local tax laws to avoid unexpected liabilities. Updating your will and estate plans to align with your host country’s legal requirements can save your family from complications later. Additionally, watch out for gift taxes when transferring money to family members—it’s easy to trigger taxes unintentionally without proper planning.

4. Make Use of Foreign Housing Deductions (If You Qualify)

If you’re still working part-time during retirement, you might qualify for the Foreign Housing Exclusion or Deduction, which can lower your U.S. tax liability. Eligible expenses include rent, utilities, and maintenance. While this benefit doesn’t apply to non-working retirees, it’s worth keeping in mind if you plan to take on freelance or consulting work abroad.

5. Be Mindful of Currency Exchange and Tax Implications

Currency fluctuations can impact how much you actually receive from U.S.-based accounts or retirement distributions. If the exchange rate changes significantly, it could also create taxable gains. Keep detailed records of all currency exchanges and withdrawals to avoid surprises at tax time. If possible, consider using a multi-currency account to simplify your finances.

6. Understand Local Residency Rules to Avoid Extra Taxes

Some countries automatically classify you as a tax resident if you spend a certain amount of time there, even if you didn’t intend to establish permanent residency. Tax residency could mean paying taxes on your worldwide income, not just local earnings. Research the residency rules in your host country, and if necessary, limit the time you spend there to avoid being classified as a resident.

7. Regularly Review FATCA and FBAR Requirements

Your financial situation may change over time, and so will your reporting obligations. For example, if you open additional foreign bank accounts or investments, you may need to file updated FBAR and FATCA forms. Regularly reviewing these requirements ensures you stay compliant with U.S. regulations and avoid penalties.

8. Open a Local Bank Account Wisely

A foreign bank account can make everyday transactions much easier, but it also comes with reporting obligations under U.S. tax laws. Choose a bank in a country that has favorable reporting terms under FATCA. Be sure to monitor account balances to ensure they stay below thresholds that could complicate your reporting.

9. Consider Retirement-Friendly Countries

Some countries actively attract retirees with tax-friendly policies. For instance, Portugal offers the Non-Habitual Residence (NHR) program, which provides significant tax breaks on foreign income for up to 10 years. Similarly, countries like Panama and Costa Rica exempt foreign income from local taxes entirely. Exploring these programs could make your retirement dollars go further.

10. Plan for Long-Term Tax Implications of Dual Citizenship

If you hold dual citizenship or plan to acquire it, be aware that it may add complexity to your tax obligations. Some countries require you to file taxes even if you don’t live there full-time. For example, U.S. citizens remain subject to U.S. taxes regardless of where they live. Consider how dual citizenship might affect your tax liability and reporting requirements.

Enjoy Peace of Mind in Your Retirement Abroad

Planning your retirement abroad is exciting, but understanding your tax obligations is key to making it stress-free. With the right guidance, you can protect your income and focus on what truly matters-enjoying this new chapter.
Get started by downloading our free U.S. Tax Guide to Retiring Abroad. It’s your first step toward a confident and worry-free retirement.