Expat & Currency
Expat Taxes: FEIE, Foreign Tax Credit & State Tax
The US taxes citizens on worldwide income, wherever you live. The good news: a few key rules usually keep you from being taxed twice.
This is education, not tax advice. Cross-border tax is complex — use this to ask better questions, then confirm with a qualified professional.
The two big tools
- FEIE (Foreign Earned Income Exclusion). Lets qualifying expats exclude a large chunk of earned income from US tax. It applies to wages and self-employment — not to investment income or withdrawals.
- FTC (Foreign Tax Credit). Credits the income tax you pay to your host country against your US bill, so the same dollar isn't taxed twice. Often the better tool for retirees living on investments.
State tax: the quiet win
Federal tax follows you abroad, but state tax often doesn't. Establishing residency away from a high-tax state before you go can save thousands a year — a frequently missed lever in expat planning.
Federal
Follows you
Host country
Credit/treaty
State
Often $0
For retirees, the FTC and a clean break from a high-tax state usually matter more than the FEIE — because withdrawals and dividends aren't “earned income” the FEIE can exclude.
Don't forget the paperwork
- FBAR / FATCA: foreign accounts above certain thresholds must be reported, even when no tax is owed.
- Tax treaties: may reduce host-country tax or change which country taxes what.
- Special regimes: some countries offer time-limited flat-tax deals worth modeling.
Model the after-tax number
What funds your retirement is spending power after tax. Build your host-country and US tax treatment into the plan so your odds reflect what you'll actually keep.
Key takeaways
- The US taxes worldwide income; the FEIE and FTC prevent double taxation.
- Retirees living on investments usually lean on the FTC, not the FEIE.
- Leaving a high-tax state can save thousands a year.
- Mind FBAR/FATCA reporting and any tax treaty or special regime.