Go for Gold: Dealing with Taxes While Working Abroad

Key takeaways

• U.S. citizens must file a federal tax return — even while living and working abroad.
• The Foreign Earned Income Exclusion (FEIE) may let you exclude up to $130,000 of foreign-earned income if you qualify.
• The Foreign Tax Credit (FTC) can reduce double taxation — choosing between the two depends on your income and where you pay taxes.

I’m answering emails from a café in Milan, soaking up the Olympic buzz between meetings, when it hits me: I may be living abroad, but tax season doesn’t care where I am.

Working remotely from another country feels like freedom — new cities, new routines, a different time zone. But if you’re a U.S. citizen earning income overseas, one thing doesn’t change: you still have to deal with U.S. taxes. 

Whether you’re a digital nomad hopping countries or settling into long-term expat life, here’s what actually matters.

Why you still owe U.S. taxes while working abroad

The U.S. taxes its citizens on worldwide income. That means even if you’re living in Italy, Argentina, Croatia — anywhere else — you still need to file a federal tax return. 

Big global moments like the Olympics can make working abroad feel temporary and carefree. But if you’re earning income overseas, those filing rules still apply. 

Even if you’re paying taxes where you live and work, the IRS expects you to report that income in the U.S.

That’s where the stress kicks in. It can feel like you’re being taxed twice on the same money. Before you panic, know this: there are rules that can reduce that impact — you just need to understand how they work.

How the Foreign Earned Income Exclusion (FEIE) works

If you’re earning income abroad, the Foreign Earned Income Exclusion (FEIE) can let you exclude part of that income from U.S. taxes.

For the 2025 tax year, you may be able to exclude up to $130,000 per taxpayer.

To qualify, you generally must:

• Be physically present in a foreign country for at least 330 full days during any consecutive 12-month period (it doesn’t have to be a calendar year)
• Have a tax home outside the United States
• Earn income from work performed outside the U.S.

If you meet the requirements, the FEIE can reduce — and in some cases eliminate — the U.S. income tax you owe on foreign-earned wages. 

You automatically get a 2-month filing extension to June 15 if you’re living abroad. But interest still accrues on unpaid balances, so it’s usually smart to pay what you can by the April filing deadline.

How the Foreign Tax Credit (FTC) can reduce double taxation

The FEIE isn’t your only option.

The Foreign Tax Credit (FTC) lets you claim a dollar-for-dollar credit for income taxes you’ve paid to a foreign government.

Unlike the FEIE, which excludes certain foreign earned income, the FTC reduces your U.S. tax bill based on taxes already paid overseas.

Key differences to know:

• The FTC reduces your U.S. tax dollar-for-dollar based on foreign taxes paid
• The FEIE excludes qualifying foreign earned income from U.S. taxation
• You can use both — but not on the same income

When the FTC may make more sense:

• You’re paying higher income taxes in your host country
• Your foreign tax rate exceeds your U.S. tax rate
• You have children and may benefit more from the refundable Additional Child Tax Credit

The key is to choose strategically — not guess.

What to do next if you’re earning income overseas

If you’re earning income outside the U.S., don’t guess. Run the numbers before you file.

Compare how the Foreign Earned Income Exclusion and Foreign Tax Credit affect your situation so you can avoid overpaying or underpaying. TurboTax supports both the Foreign Earned Income Exclusion and the Foreign Tax Credit, so you can file with clarity instead of guesswork.