If you are a US citizen, no matter where you live, you are required to file a US tax return if their income exceeds the IRS threshold. The US follows a citizenship-based taxation system, which means global income is subject to US taxes.
In order to reduce the risk of double taxation you can use the Foreign Earned Income Exclusion (FEIE), Foreign Tax Credit (FTC), and tax treaties. Reporting requirements include FBAR (Foreign Bank Account Report) for overseas accounts and FATCA (Foreign Account Tax Compliance Act) compliance.
Failure to file can result in penalties. Expats should assess their tax liability, available exclusions, and country-specific treaties to stay compliant.
How Does the IRS Tax US Citizens Living Overseas?
As a US citizen living abroad, you are required to pay taxes on your worldwide income.
The key taxes the IRS Collect include:
1. US Federal Income Tax
You must file a US tax return if they meet the income threshold.
Taxable income includes: wages, self-employment earnings, rental income, capital gains, dividends, and retirement distributions.
Deductions & credits available:
Foreign Earned Income Exclusion (FEIE) – excludes up to $120,000+ (varies by year).
Foreign Tax Credit (FTC) – offsets US taxes with taxes paid abroad.
2. Self-Employment Tax
If you are self-employed (freelancers, contractors, business owners), you must pay Social Security and Medicare taxes (15.3%).
Some Totalization Agreements with foreign countries may exempt them from US self-employment tax.
3. Foreign Bank Account Reporting (FBAR & FATCA Compliance)
FBAR (Foreign Bank Account Report): Required if total foreign account balances exceed $10,000.
FATCA (Foreign Account Tax Compliance Act): Requires disclosure of foreign assets over specific thresholds.
4. State Taxes (If Applicable)
Some states (e.g., California, New York) may still tax expats if they maintain residency ties.
5. Other Potential Taxes
Capital Gains Tax: Applies to investment sales, property sales, stocks, or crypto gains.
Estate & Gift Tax: US citizens must follow IRS inheritance and gifting rules, even abroad.
Social Security Tax: US retirees abroad may still owe US tax on Social Security benefits, depending on tax treaties.
While the US has tax treaties with many countries, they do not eliminate tax filing obligations. You should assess which exclusions, credits, and treaties apply to avoid double taxation.
What Is Citizenship-Based Taxation?
Citizenship-based taxation means you must pay US taxes on your worldwide income, no matter where you live. Unlike most countries that tax based on residency, the US requires all citizens and Green Card holders to file a US tax return if their income exceeds IRS thresholds—even if you haven’t lived in the US for years.
How Is Residency-Based Taxation Different?
Residency-based taxation means you only pay taxes in the country where you live and earn income. Unlike US citizenship-based taxation, most countries tax individuals based on their residency status, not nationality.
If you move abroad under a residency-based system:
You stop paying taxes in your home country (unless you have income sourced there).
Only income earned within your new country is taxed, unless global income rules apply.
Tax residency rules vary by country, often based on days spent there or permanent ties.
Since the US does not use residency-based taxation, you must still file US taxes even if you live abroad permanently—something most other expats don’t face.
How Can You Determine If You Are a US Citizen for Tax Purposes?
You are considered a US citizen for tax purposes if you meet any of the following criteria:
Born in the US – Even if you’ve never lived there as an adult.
Born outside the US to at least one US citizen parent – You may have acquired citizenship at birth.
Naturalized as a US citizen – Through the immigration process.
Holding a valid US passport – If you travel with a US passport, you are a citizen.
Green Card holder (Permanent Resident) – Even if you live abroad, you are still taxed as a US person.
If you meet any of these conditions, you are required to file US taxes on your worldwide income, regardless of where you live. Accidental Americans (those unaware of their US citizenship) are also subject to these tax rules.
Were You Born in the US? Your Tax Responsibilities Explained
If you were born in the US, you are automatically a US citizen, even if you left as a child and never returned. As a citizen, you are required to file US taxes on your worldwide income, no matter where you live.
Your key tax obligations include:
Filing a US tax return if your income exceeds IRS thresholds.
Reporting foreign income, including wages, investments, and pensions.
Filing FBAR (Foreign Bank Account Report) if your foreign bank accounts exceed $10,000.
Complying with FATCA (Foreign Account Tax Compliance Act) if you have significant foreign assets.
If you don’t want to be taxed as a US citizen, renouncing your citizenship is the only way to exit the system, but this comes with legal and financial implications.
Can Citizenship Through Parents Affect Your Tax Status?
Yes, if one or both of your parents were US citizens when you were born, you may have automatically acquired US citizenship, even if you were born and raised abroad. This means you could be subject to US tax obligations, including:
Filing a US tax return if your income exceeds IRS thresholds.
Paying taxes on worldwide income, even if you’ve never lived in the US.
Filing FBAR (Foreign Bank Account Report) if your foreign accounts exceed $10,000.
Complying with FATCA for foreign financial assets.
To confirm your status, check if your parents met the physical presence requirement in the US before your birth. If you are a US citizen, you must either comply with tax rules or formally renounce citizenship to avoid US tax obligations.
What Is an Accidental American and Do They Owe Taxes?
An Accidental American is someone who is a US citizen by birth but may not realize it, often because they were:
Born in the US but left as a child and never returned.
Born abroad to a US citizen parent and automatically acquired citizenship.
Even if you’ve never lived in the US, as a US citizen, you are still required to file US taxes and report worldwide income. This includes:
Filing a US tax return if your income exceeds IRS thresholds.
Paying US taxes on foreign earnings, though credits and exclusions may apply.
Filing FBAR (Foreign Bank Account Report) if your foreign accounts exceed $10,000.
Complying with FATCA for reporting foreign financial assets.
If you want to avoid US tax obligations, the only way out is to formally renounce US citizenship, but this process includes legal and financial considerations.
Does Working Abroad Mean You Pay Taxes in Both Countries?
Yes, as a US citizen working abroad, you are required to file US taxes on your worldwide income, even if you also pay taxes in your country of residence. However, whether you owe taxes to both countries depends on:
Foreign Earned Income Exclusion (FEIE) – Allows you to exclude up to a set amount of foreign income ($120,000+ in 2024) from US taxes.
Foreign Tax Credit (FTC) – Offsets US tax liability by crediting taxes paid to a foreign government.
Tax Treaties – Some countries have agreements with the US to prevent double taxation.
Even if you don’t owe US taxes, you still need to file a US tax return and report foreign accounts (FBAR, FATCA) if you meet the thresholds. Proper tax planning can help minimize double taxation.
How Does Earning Foreign Income Affect Your US Taxes?
As a US citizen, you must report all foreign income to the IRS, even if you live and work abroad. However, certain provisions can help reduce or eliminate double taxation:
Foreign Earned Income Exclusion (FEIE) – Excludes up to $120,000+ (2024) of foreign-earned income if you meet residency or physical presence tests.
Foreign Tax Credit (FTC) – Provides a dollar-for-dollar credit for taxes paid to a foreign country, reducing US tax liability.
Tax Treaties – Some countries have agreements with the US to prevent double taxation on certain types of income.
Self-Employment Tax – If you’re self-employed, you may owe US Social Security and Medicare taxes unless a Totalization Agreement applies.
Even if no US taxes are due, you must still file a tax return and report foreign accounts (FBAR) if they exceed $10,000.
Do You Need to Report Foreign Bank Accounts Under FATCA?
Yes, if you are a US citizen with foreign financial accounts, you may need to report them under FATCA (Foreign Account Tax Compliance Act).
You must file Form 8938 if your total foreign financial assets exceed:
$200,000 (single) / $400,000 (married) at year-end if you live abroad.
$50,000 (single) / $100,000 (married) at year-end if you live in the US.
What FATCA Covers:
Foreign bank and investment accounts.
Foreign pensions, mutual funds, and life insurance with cash value.
Certain ownership interests in foreign businesses or trusts.
Failure to comply with FATCA can lead to substantial IRS penalties, so it’s essential to check whether you meet the reporting thresholds.
What Happens if You Are Self-Employed Abroad?
If you are self-employed abroad as a US citizen, you still have US tax obligations on your worldwide income. Key considerations include:
1. Self-Employment Tax
You must pay US Social Security and Medicare taxes (15.3%) on your net earnings.
Some countries have Totalization Agreements that may exempt you from US self-employment tax if you contribute to the foreign country’s social security system.
2. Income Tax Reporting
You must file a US tax return and report self-employment income.
You may qualify for the Foreign Earned Income Exclusion (FEIE) to exclude up to $120,000+ (2024).
You can claim the Foreign Tax Credit (FTC) if you pay taxes to a foreign country.
3. Business Structure & Tax Impact
If you operate through a foreign business entity, additional reporting like Form 5471 (for foreign corporations) or Form 8865 (for partnerships) may be required.
FATCA may apply if you have foreign business bank accounts.
Will Your Foreign Employer Withhold US Taxes?
No, in most cases, a foreign employer will not withhold US taxes from your paycheck. Unlike US employers, foreign companies are not required to deduct US federal income tax, Social Security, or Medicare taxes from your wages.
How Do Dual Tax Treaties Help US Citizens Avoid Double Taxation?
Dual tax treaties help ensure you don’t pay taxes twice on the same income by clarifying which country has the right to tax specific earnings. If you pay taxes abroad, you can often claim the Foreign Tax Credit (FTC) to offset your US tax liability. Some treaties also exempt certain types of income from US taxation or reduce tax rates on pensions, dividends, and self-employment income. However, even if a treaty applies, you still need to file a US tax return to claim the benefits and remain compliant with IRS regulations.
What Is a Dual Tax Treaty and How Does in the US, and withdrawals are generally taxable in both countries.
Foreign Tax Credits (FTC) – You can offset UK taxes paid on pension withdrawals against US tax liability.
Social Security Agreement – If you’ve contributed to both systems, you may be eligible for totalized benefits under the agreement.
FBAR & FATCA Reporting – UK pension accounts may need to be reported to the IRS if they meet threshold requirements.
Proper tax planning and treaty elections (Form 8833) can help minimize tax liability on UK pensions.It Work?
A dual tax treaty is an agreement between the US and another country to prevent double taxation and clarify tax rules for citizens and residents working or earning income abroad. These treaties outline which country has the primary right to tax specific types of income, such as wages, pensions, and investments. They also allow you to claim tax credits, exemptions, or reduced tax rates on certain income sources. While a tax treaty can lower your tax burden, you must still file a US tax return to report your income and claim treaty benefits properly.
How Can Foreign Tax Credits Reduce Your Tax Burden?
The Foreign Tax Credit (FTC) allows you to reduce your US tax bill by claiming a credit for taxes paid to a foreign country. If you pay income tax abroad, you can use the FTC to offset the equivalent amount on your US return, lowering or even eliminating your US tax liability. This prevents double taxation on the same income. However, the credit only applies to income taxed by both countries and cannot be used for excluded income under the Foreign Earned Income Exclusion (FEIE). To claim it, you must file Form 1116 with your US tax return.
Do Tax Treaties Exempt Certain Income Types?
Yes, tax treaties can exempt or reduce taxes on specific income types, depending on the agreement between the US and the foreign country. Common exemptions and reductions include:
Pensions & Social Security – Some treaties prevent double taxation on retirement income.
Dividends & Interest – Reduced or eliminated withholding tax rates may apply.
Capital Gains – Certain treaties exempt gains from US taxation if taxed abroad.
Self-Employment Income – Some treaties allow exemptions or reduced tax rates.
Government & Diplomatic Income – Wages from foreign government jobs may be tax-exempt.
To claim an exemption, you must file a US tax return and often submit Form 8833 to document your treaty benefits. Each treaty has different rules, so it’s important to check how yours applies.
How Do You Claim Tax Treaty Benefits on a US Return?
Below is how to claim tax treaty benefits:
File Form 8833 – Attach this form to your Form 1040 if claiming treaty benefits.
Report Exempt Income – List treaty-exempt income properly, even if not taxable.
Claim Foreign Tax Credits (if applicable) – Use Form 1116 if taxes were paid abroad but not fully exempt under the treaty.
Maintain Documentation – Keep records of income, foreign taxes paid, and treaty eligibility for IRS compliance.
Which Countries Have the Best Dual Tax Treaties for Expats?
Some US tax treaties offer stronger protections, reducing double taxation through foreign tax credits, pension exemptions, and lower withholding rates. The best include:
United Kingdom – Strong tax credit system, pension exemptions, and social security benefits.
Canada – Avoids double taxation on retirement income and provides clear tax residency rules.
Germany – Offers business income exemptions and structured foreign tax credits.
France – Reduces withholding taxes on dividends, wages, and social security benefits.
Australia – Provides tax credits, pension exemptions, and reduced withholding tax rates.
Netherlands – Ensures strong protections for self-employment and investment income.
Japan – Avoids double taxation on employment income and capital gains.
Switzerland – Prevents dual taxation on social security and investment earnings.
Spain – Offers favorable taxation on pensions and reduced US withholding tax rates.
Belgium – Provides tax credits and limits taxation on foreign-earned wages.
While these treaties reduce tax burdens, US expats must still file a US tax return and claim benefits properly.
What Happens If a Country Has No Dual Tax Treaty with the US?
If your country has no tax treaty with the US, you may face full taxation in both countries without automatic relief. This means you must pay US taxes on your worldwide income while also meeting local tax obligations. However, you can still reduce double taxation by claiming the Foreign Tax Credit (FTC) or using the Foreign Earned Income Exclusion (FEIE). Without a treaty, careful tax planning is essential to avoid overpaying.
Top 10 Worst Countries for US Expats for Tax Purposes
Some countries make it harder for US expats due to high local taxes, lack of a US tax treaty, and complex reporting rules. These countries often increase the risk of double taxation and compliance burdens:
France – High taxes, complex residency rules, and limited US tax treaty benefits.
Italy – High income tax rates, wealth tax, and strict foreign asset reporting.
Spain – Heavy taxation on worldwide income and limited treaty protections.
Brazil – No US tax treaty, high local tax rates, and strict financial reporting.
China – No US Social Security agreement, difficult tax residency rules, and strict banking controls.
India – Complex tax laws, double taxation risk on self-employment, and aggressive IRS scrutiny.
Mexico – Global taxation, strict residency rules, and potential double taxation on business income.
South Africa – No US tax treaty, high taxes, and strict capital controls affecting expats.
Argentina – Extreme taxation, no tax treaty, and economic instability impacting finances.
Thailand – No tax treaty, foreign income taxation risks, and unclear residency tax laws.
Expats in these countries may struggle with double taxation, high compliance costs, and limited US tax relief options. Strategic tax planning is essential to minimize financial burdens.
Do You Have to Pay Taxes in Both Countries Without a Treaty?
Yes, if your country does not have a tax treaty with the US, you may be taxed on the same income by both governments. The US taxes your worldwide income, regardless of where you live, while your country of residence may also tax you based on local laws.
How Can You Minimise Double Taxation in Non-Treaty Countries?
If you live in a country without a tax treaty with the US, you may face double taxation, but you can reduce your tax burden by:
Claiming the Foreign Tax Credit (FTC) – Offsets US taxes by crediting taxes paid to your resident country (File Form 1116).
Using the Foreign Earned Income Exclusion (FEIE) – Excludes up to $120,000+ (2024) of foreign-earned income (File Form 2555).
Strategic Tax Planning – Timing income, managing deductions, and structuring assets to reduce tax liability.
Self-Employment Considerations – If self-employed, check if your country has Totalization Agreements to avoid US Social Security taxes.
Even without a treaty, these tax provisions help reduce double taxation, but you must still file a US tax return annually.
What Are the Common Pitfalls for Expats in These Countries?
Living in a non-treaty country or one with complex tax laws can lead to costly mistakes. Common pitfalls include:
Double Taxation – Paying full taxes to both the US and your resident country without proper planning.
Missed Foreign Tax Credits (FTC) or Exclusions (FEIE) – Failing to claim available tax relief, leading to overpayment.
Self-Employment Tax Issues – Owing US Social Security and Medicare taxes unless a Totalization Agreement applies.
FBAR & FATCA Non-Compliance – Forgetting to report foreign bank accounts (if over $10,000) or foreign assets, risking heavy IRS penalties.
State Tax Residency – Not severing ties properly with high-tax US states like California or New York, leading to unexpected state tax bills.
Unrecognized Business Structures – Using a foreign corporation or partnership without filing required US tax forms (Form 5471, 8865), triggering IRS penalties.
https://bambridgeaccountants.com/tax-for-us-citizens-living-abroad
What Types of Income Are Not Recognized in Dual Tax Treaties?
Not all income is covered by US tax treaties, meaning you may still owe US taxes even if you pay foreign taxes. Common exclusions include rental income, capital gains, dividends, pensions, and self-employment earnings. Without treaty protection, you may need to claim the Foreign Tax Credit (FTC) or use tax planning strategies to avoid double taxation.
Do Tax Treaties Cover Rental Income and Property Gains?
Most US tax treaties do not fully exempt rental income or property gains from US taxation. The US requires you to report and pay taxes on worldwide real estate income, even if it’s taxed abroad. However, some treaties help reduce double taxation by clarifying which country has primary taxing rights or allowing foreign tax credits.
For example, the US-Germany tax treaty allows Germany to tax rental income from German properties first, while the US provides a Foreign Tax Credit (FTC) to offset taxes paid in Germany. However, capital gains from selling foreign property may still be taxable in both countries. To avoid double taxation, expats must claim tax credits or exemptions where applicable.
How Are Dividends and Investment Income Taxed?
As a US citizen living abroad, you must report and pay US taxes on dividends, interest, and capital gains, even if they are earned in another country. Most US tax treaties do not fully exempt investment income, but they may reduce withholding tax rates on dividends and interest.
For example, under the US-UK tax treaty, dividends paid by UK companies to US expats are subject to a 15% withholding tax instead of the standard UK rate. However, you must still report this income on your US tax return and may use the Foreign Tax Credit (FTC) to offset double taxation. Capital gains, unless specifically excluded in a treaty, remain fully taxable by the US.
Do Pension and Social Security Benefits Get Double Taxed?
Pensions and Social Security benefits can be taxed by both the US and your country of residence, but tax treaties often help reduce or eliminate double taxation.
US tax treaties with countries like Canada, the UK, and Germany specify which country has without a treaty, you may owe taxes in both countries but can often use the Foreign Tax Credit (FTC) to offset double taxation.
Some treaties exempt Social Security benefits from US taxation, such as the US-Canada tax treaty, which allows Canada to tax its residents’ Social Security while the US does not.
To avoid overpaying, check your country’s tax treaty and file correctly to claim treaty benefits.
Is Cryptocurrency Considered Taxable Income Under Treaties?
Most US tax treaties do not specifically address cryptocurrency, meaning crypto earnings are generally subject to US taxation regardless of where you live. The IRS treats cryptocurrency as property, meaning:
Capital gains tax applies when you sell, trade, or use crypto for purchases.
Mining and staking rewards are considered taxable income.
Foreign tax credits (FTC) may help offset foreign taxes on crypto earnings, but treaties rarely provide direct exemptions.
If your resident country also taxes crypto, you may face double taxation unless local laws or tax credits reduce your liability. Always report crypto transactions on your US tax return (Form 8949 & Schedule D) to stay compliant.
What If You Are a US Citizen on Temporary Assignment Abroad?
If you’re on a temporary work assignment abroad, you still have US tax obligations, including filing a US tax return and reporting worldwide income. Depending on the length of your stay, you may qualify for tax benefits like the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC) to reduce double taxation. However, you may still owe US Social Security and Medicare taxes unless a Totalization Agreement applies. Proper tax planning is essential to avoid unexpected liabilities.
How Do Short-Term Work Assignments Impact US Taxes?
If you’re on a short-term work assignment abroad, you must still report all income to the IRS and may owe US taxes on foreign earnings. However, your tax treatment depends on the length of your stay:
Less than a year – You generally do not qualify for the Foreign Earned Income Exclusion (FEIE) but can use the Foreign Tax Credit (FTC) if you pay foreign taxes.
Over a year – You may qualify for FEIE, allowing you to exclude up to $120,000+ of foreign-earned income.
Social Security & Medicare – If your country lacks a Totalization Agreement, you may still owe US self-employment or payroll taxes.
Even for short assignments, filing a US tax return and reporting foreign bank accounts (FBAR) is required.
Are You Eligible for the Foreign Earned Income Exclusion (FEIE)?
You may qualify for the Foreign Earned Income Exclusion (FEIE) if you live and work abroad and meet one of the following tests:
Bona Fide Residence Test – You are a tax resident of a foreign country for an entire calendar year.
Physical Presence Test – You spend at least 330 full days in a foreign country within a 12-month period.
If eligible, you can exclude up to $120,000+ (2024) of foreign-earned income from US taxation, but you must still file a tax return (Form 2555) to claim it. Unearned income, such as dividends, rental income, or capital gains, does not qualify for FEIE.
ou’re on a temporary work assignment abroad, you still have US tax obligations, including filing a US tax return and reporting worldwide income. Depending on the length of your stay, you may qualify for tax benefits like the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC) to reduce double taxation. However, you may still owe US Social Security and Medicare taxes unless a Totalization Agreement applies. Proper tax planning is essential to avoid unexpected liabilities.
Do You Still Have to Pay State Taxes While Abroad?
It depends on your last state of residence before moving abroad. Some states, like California, New York, and Virginia, continue to tax expats unless they prove they have severed residency ties. This includes:
Maintaining a US address, driver’s license, or voter registration
Earning income from a US-based employer or business
Owning property or financial accounts in the state
If your state does not require non-residents to file taxes, you may not owe. However, it’s important to formally cut residency ties to avoid unexpected tax bills.
How Do US Tax Rules Differ by Country?
US tax rules apply worldwide, but how they interact with local tax laws varies by country. Some nations have tax treaties and foreign tax credits that help reduce double taxation, while others lack agreements, leading to higher tax burdens. Key differences include tax rates, residency rules, Social Security agreements, and reporting requirements
What Are the Tax Rules for US Citizens Living in Germany?
If you’re a US citizen living in Germany, you’ll need to file taxes in both countries since Germany taxes residents on worldwide income, and the US taxes all its citizens, no matter where they live. The US-Germany tax treaty helps prevent double taxation, allowing you to claim foreign tax credits and exemptions. However, you may still need to report foreign bank accounts (FBAR) and comply with FATCA. Understanding German residency rules and Social Security agreements can help you manage your tax obligations effectively.
How Does the Germany-US Tax Treaty Work?
The Germany-US tax treaty helps prevent double taxation by clarifying which country has the right to tax specific income. It allows foreign tax credits to offset taxes paid in Germany against US tax liability. Certain income, like pensions, dividends, and business profits, may be taxed at reduced rates or exempt in one country. The treaty also covers residency rules and tax exemptions for students, teachers, and researchers. To benefit, you must claim treaty provisions on your US tax return, often using Form 8833.
Does Germany Tax US Income?
Germany taxes worldwide income if you are a German tax resident (living there for 183+ days per year). This means your US income, including wages, investments, and pensions, may be taxable in Germany. However, the Germany-US tax treaty helps prevent double taxation by allowing foreign tax credits or exemptions on certain income. Non-residents are only taxed on German-sourced income, such as local employment or rental earnings.
How Do Social Security Agreements Between Germany & US Affect You?
The Germany-US Totalization Agreement prevents double taxation on Social Security contributions and determines which country’s system you pay into.
If you work short-term in Germany (under 5 years), you typically continue paying US Social Security.
If you work long-term in Germany, you contribute to Germany’s system and may be exempt from US Social Security.
For retirees, the agreement ensures benefit eligibility in both countries, with some US Social Security benefits remaining taxable in Germany.
To claim benefits or exemptions, you may need to obtain a Certificate of Coverage from the IRS or German authorities.
What Are the Tax Rules for US Citizens Living in Canada?
US citizens in Canada must file taxes in both countries since the US taxes are based on citizenship and Canada on residency.
How Does the Canada-US Tax Treaty Work?
The Canada-US tax treaty prevents double taxation by determining which country has taxing rights over specific income. It allows US citizens in Canada to claim foreign tax credits to offset taxes paid to the CRA against their US tax liability. The treaty also reduces withholding taxes on dividends, pensions, and Social Security benefits and provides residency rules to avoid dual taxation. To benefit, you must apply treaty provisions on your US tax return, often using Form 8833.
Do Dual Residents Need to File in Both Countries?
Yes, dual residents of the US and Canada must file tax returns in both countries, but the Canada-US tax treaty helps prevent double taxation. You can use foreign tax credits (FTC) to offset taxes paid in one country against the other. The treaty also includes tie-breaker rules to determine your primary tax residency. Even if you pay no US tax, you must still file a US return and report foreign accounts (FBAR & FATCA) if thresholds are met.
How Do Canadian Retirement Accounts Affect US Taxation?
Canadian retirement accounts like RRSPs (Registered Retirement Savings Plans) and TFSAs (Tax-Free Savings Accounts) have different tax treatment under US law.
RRSPs – The Canada-US tax treaty allows tax deferral, meaning growth inside the account is not taxed by the US until withdrawn. You must file Form 8891 (historically) or elect treaty benefits on Form 8833 to claim this deferral.
TFSAs & RESPs – Unlike in Canada, these are not tax-exempt in the US, meaning earnings inside them may be taxable and reportable.
US Reporting – RRSPs and other accounts may require FBAR (if exceeding $10,000) and FATCA reporting.
Proper treaty elections and tax planning can help reduce US tax exposure on Canadian retirement savings.
What Are the Tax Rules for US Citizens Living in the UK?
As a US citizen living in the UK, you must file taxes in both countries since the US taxes based on citizenship and the UK taxes based on residency. The US-UK tax treaty helps prevent double taxation by allowing foreign tax credits (FTC) and treaty exemptions on certain income.
How Does the UK-US Tax Treaty Work?
The UK-US tax treaty helps prevent double taxation by defining which country has the right to tax specific income and allowing foreign tax credits (FTC) to offset taxes paid in one country against the other.
Key provisions include:
Residency & Tie-Breaker Rules – Determines which country you are primarily taxed in.
Foreign Tax Credits – Allows tax paid in the UK to offset US tax liability and vice versa.
Reduced Withholding Taxes – Lowers tax rates on dividends, interest, and royalties.
Pension & Social Security Exemptions – Ensures fair tax treatment of UK pensions and US Social Security benefits.
To claim treaty benefits, you may need to file Form 8833 with your US tax return and apply relevant exemptions in the UK.
How Is US Income Taxed in the UK?
If you are a UK tax resident, your US income (such as wages, dividends, rental income, or pensions) is generally taxable in the UK. However, the UK-US tax treaty helps prevent double taxation by allowing you to:
Claim Foreign Tax Credits (FTC) – Offset US taxes paid against UK tax liability.
Apply Tax Treaty Exemptions – Certain income, like US Social Security benefits, may be taxed only in the US.
Use the Remittance Basis (if eligible) – Non-domiciled UK residents may only pay UK tax on foreign income if brought into the UK.
To avoid double taxation, ensure proper tax filings in both the US and UK and claim applicable treaty benefits.
What Are the Tax Implications of UK Pensions for US Citizens?
As a US citizen with a UK pension, your pension income is subject to US taxation, but the UK-US tax treaty helps reduce double taxation.
Tax Treatment – UK pension contributions are tax-free in the UK but not in the US, and withdrawals are generallyd: February 2025</span>\n </div>\n \n</div>\n<div class="bio-outer">\n <div class="bio">\n <div class="bio-img">\n\n <img src="/s/alistair.png" alt="Our founder alistair bambridge">\n </div>\n <div class="bio-text">\n <span class="bio-author"><span class="fw-bold">Author:</span> Alistair Bambridge CTA, AAT, EA, CPA</span>\n <span class="bio-desc"><span class="fw-bold">Bio:</span> Alistair is a chartered accountant with over 20 years of experience dealing in US & UK Taxation</span>\n </div>\n </div>\n</div>\n<style>\n .index-section {\n padding: 40px 20px; \n background-color: #18392B;\n }\n\n .index-section__inner {\n max-width: 700px; \n margin: auto; \n }\n\n .index-list {\n \n }\n\n #index-list li {\n border: 1px solid #fff; \n color: #fff; \n font-weight: bold; \n padding: 10px; \n width: 100%; \n list-style-type: none; \n margin-bottom: 10px; \n border-radius: 10px; \n }\n\n .index-link {\n color: white; \n font-weight: bold; \n font-size: 1.1rem;\n }\n\n</style>\n<div class="index-section">\n <div class="index-section__inner">\n <ul id="index-list">\n </ul>\n </div>\n</div></div> taxable in both countries.
Foreign Tax Credits (FTC) – You can offset UK taxes paid on pension withdrawals against US tax liability.
Social Security Agreement – If you’ve contributed to both systems, you may be eligible for totalized benefits under the agreement.
FBAR & FATCA Reporting – UK pension accounts may need to be reported to the IRS if they meet threshold requirements.
Proper tax planning and treaty elections (Form 8833) can help minimize tax liability on UK pensions.
Need More Help?
If you need more help regarding any matter of US or UK taxation feel free to reach out! We have over 15 years experience handling taxation for US citizens living abroad, helping our clients save money on their tax liability.