U.S. and Portugal Taxes for Expats — Simplified
Do U.S. Expats Still File Taxes?
Do U.S. Expats Still File Taxes?
You may live abroad, but your taxes still call the U.S. home
What Is FBAR and FATCA?
Do U.S. Expats Still File Taxes?
If you bank overseas, you may be required to tell the IRS.
Understanding the Foreign Earned Income Exclusion (FEIE)
Earn money abroad? You might not have to pay U.S. tax on it.
Taxes in Portugal: What Expats Need to Know
Taxes in Portugal: What Expats Need to Know
Portugal taxes residents on worldwide income — with key exceptions.
Dual Taxation & Treaty Benefits
Taxes in Portugal: What Expats Need to Know
Dual Taxation & Treaty Benefits
You might owe in two places — but you shouldn’t pay twice
When to Hire a Tax Advisor
Taxes in Portugal: What Expats Need to Know
Dual Taxation & Treaty Benefits
When your finances cross borders, so should your tax advice.”
Do U.S. Expats Still File Taxes?
Yes, You Still File. But It’s Not as Scary as It Sounds.
The single most important financial rule for a U.S. citizen moving abroad is this: your obligation to file taxes with the IRS is based on your citizenship, not where you live. While you may be enjoying life in Portugal, your tax responsibilities still call the U.S. home. This doesn't mean you'll be taxed twice, but it does mean you must report your worldwide income every year. Understanding this fundamental principle is the key to a stress-free financial life as an expat.
Why You Have to File: Citizenship-Based Taxation
The United States is one of only two countries in the world that taxes its citizens based on who they are, not where they live. This means that as long as you are a U.S. citizen, you are subject to U.S. tax laws on all your income, from any source in the world.
When filing taxes as a U.S. citizen abroad, you’ll quickly notice it's not just about Form 1040 anymore. Several additional IRS forms are typically required for expats, such as Form 2555 (Foreign Earned Income Exclusion), Form 1116 (Foreign Tax Credit), FBAR (FinCEN 114), and Form 8938 under FATCA. Each form has specific thresholds and requirements, and missing just one can lead to costly penalties. This guide details each form, explaining who must file them, common pitfalls, and how to submit them accurately and on time.Experience the beauty of nature with US Expat.
Who Has to File? The Income Thresholds
You must file a U.S. federal tax return if your gross income from all worldwide sources meets the standard filing threshold for your filing status. For example, for the 2024 tax year, a single individual under 65 must file if their income was at least $14,600. These thresholds change, so it's important to check them each year.
When to File: The Expat's Automatic Extension
While the tax deadline for U.S. residents is April 15, expats living abroad receive an automatic two-month extension to file their return.
- Automatic Deadline: Your deadline to file is June 15. You do not need to file a form to receive this extension.
- Need More Time? You can request a further extension to October 15 by filing Form 4868.
Important Note: An extension to file is not an extension to pay. If you expect to owe U.S. tax (which is rare for most expats in Portugal), you should pay the estimated amount by April 15 to avoid interest and penalties.
What is FBAR and FATCA?
Reporting Your Foreign Accounts: A Non-Negotiable Task
As part of its effort to combat international tax evasion, the U.S. government requires citizens to report the financial accounts they hold outside of the United States. This is primarily done through two different reports: the FBAR and FATCA. While they may seem similar, they are filed with different agencies, have different thresholds, and serve different purposes. Compliance is not optional, and the penalties for failing to file are severe.
FBAR (Report of Foreign Bank and Financial Accounts)
The FBAR is a disclosure tool filed with FinCEN (Financial Crimes Enforcement Network), a bureau of the Treasury Department. It is not a tax form.
- What it is: A report listing your foreign financial accounts.
- Who Must File: Any U.S. person with a financial interest in or signature authority over foreign accounts whose aggregate value exceeded $10,000 at any point during the calendar year.
- Which Form: FinCEN Form 114, filed electronically and separately from your tax return.
Key Detail: The $10,000 threshold is for the combined total of your accounts, not per account. If you have €6,000 in one account and €5,000 in another, you must file.
FATCA (Foreign Account Tax Compliance Act)
FATCA is a law that requires foreign financial institutions to report on their U.S. clients' accounts to the IRS. Individuals must also self-report by filing a specific form with their tax return.
- What it is: A report of specified foreign financial assets.
- Who Must File: Expats who meet higher asset thresholds. For a single individual living abroad, the threshold is over $200,000 in assets on the last day of the year, or over $300,000 at any point during the year. These amounts are doubled for married couples.
Which Form: Form 8938, filed with your annual Form 1040 tax return.
The Bottom Line: When in Doubt, Disclose.
The U.S. government takes foreign account reporting very seriously. The penalties for unintentional mistakes can be up to $10,000 per violation. It is always better to over-report than to fail to disclose an account.
Understanding the Foreign Earned Income Exclusion (FEIE)
Exclude Over $125,000 From Your U.S. Taxes
The Foreign Earned Income Exclusion, or FEIE, is one of the most significant tax benefits available to Americans living abroad. It allows you to exclude a large portion of your foreign salary or self-employment income from U.S. income tax. For the 2024 tax year (the return you file in 2025), the maximum exclusion amount is $126,500. This powerful tool can substantially reduce or even eliminate your U.S. tax liability.
How to Qualify for the FEIE
To claim the exclusion using Form 2555, you must first have a "tax home" in a foreign country and meet one of two residency tests:
- Bona Fide Residence Test: You must prove you are a legitimate resident of a foreign country for an uninterrupted period that includes one full calendar year (e.g., January 1 - December 31). Having a Portuguese residency permit is strong evidence of this. This is the test most established expats use.
- Physical Presence Test: You must be physically present in one or more foreign countries for at least 330 full days during any 12-consecutive-month period. This test is useful for digital nomads or those in their first year abroad before they have been a resident for a full tax year.
What Income Qualifies? Earned vs. Unearned
The FEIE can only be used to exclude earned income. This includes:
- Salary and wages
- Bonuses and commissions
- Self-employment income
It cannot be used to exclude unearned or passive income, such as:
- Pensions and Social Security
- Dividends and interest
- Capital gains
- Rental income
Key Considerations
While powerful, the FEIE has trade-offs. If you claim the FEIE, you cannot claim certain tax credits, like the Child Tax Credit. For many expats in high-tax countries like Portugal, using the Foreign Tax Credit (FTC) is often a better overall strategy. Sail the seas with US Expat. Our cruise packages offer a unique way to explore multiple destinations without the hassle of packing and unpacking. Enjoy the comfort and luxury of a cruise ship while discovering new places.
Taxes in Portugal: What Expats Need to Know
Becoming a Tax Resident
You are generally considered a tax resident in Portugal if you spend more than 183 days in the country during any 12-month period, or if your primary home is located in Portugal.
Portugal's Progressive Tax Rates
Like the U.S., Portugal has a progressive tax system, meaning higher income is taxed at higher rates. For 2025, these rates range from around 13% to a top rate of 48% for income over approximately €79,000. It is crucial to understand these brackets to accurately project your local tax liability. Embark on an unforgettable Safari Adventure in U.S. Expat's game reserves and national parks. Witness the awe-inspiring wildlife up close, and enjoy camping under the starry skies. Our package includes lodging, meals, and guided tours.
The Non-Habitual Resident (NHR) Regime
For over a decade, Portugal's NHR regime offered significant tax breaks to new residents. This program was officially closed to most new applicants at the end of 2023.
- "Old" NHR Rules: If you successfully registered for NHR before it closed, you are "grandfathered" in and will continue to receive benefits (like a 20% flat tax on certain income) for your 10-year term.
- The New "NHR 2.0": A new, much narrower program was introduced in 2024. Now called the "Tax Incentive for Scientific Research and Innovation," it is targeted at specific high-value professions like university professors, scientific researchers, and employees of certified tech startups. If you don't fall into one of these specific categories, you will likely be taxed at the standard progressive rates.
Dual Taxation & Treaty Benefits
How the U.S.-Portugal Tax Treaty Protects You
The biggest fear for new expats is being fully taxed on the same income by two different countries. Thankfully, this is a myth for those who plan properly. The U.S. and Portugal have a formal tax treaty designed specifically to prevent this "dual taxation" and allocate taxing rights between the two nations. This treaty is the cornerstone of your U.S. expat tax strategy.
How the Treaty Works
The treaty assigns the primary right to tax different types of income to either the "source country" (where the income arises) or the "residence country" (where you live). For example, it dictates how pensions, social security benefits, dividends, and capital gains are to be treated, ensuring a clear set of rules.
The Foreign Tax Credit (FTC): The Treaty's Most Powerful Tool
The most important benefit of the treaty is that it allows the Foreign Tax Credit (FTC) to function. The FTC lets you take the income taxes you pay to the Portuguese government and use them as a dollar-for-dollar credit to wipe out your U.S. tax liability. Since taxes in Portugal are generally higher than in the U.S., most expats find the FTC completely eliminates any tax they would have owed to the IRS.
The "Saving Clause": A Crucial Detail
The treaty contains a standard "Saving Clause," which essentially says that despite any other article in the treaty, the U.S. reserves the right to tax its own citizens as if the treaty didn't exist. This sounds scary, but it's precisely why the FTC is so important. The clause allows the U.S. to calculate tax on your worldwide income, but the FTC then steps in to provide relief based on the taxes you've paid to Portugal.
When to Hire a Tax Advisor
Why a Professional Tax Advisor is Your Most Valuable Asset Abroad
Moving to Portugal is an investment in a new lifestyle, and protecting your financial health is paramount. While it can be tempting to handle your U.S. taxes yourself to save on fees, expat taxation is a specialized field where a small mistake can lead to significant penalties and missed opportunities. An experienced expat tax advisor is more than just a form-filler; they are a strategist, a safety net, and your expert guide through the complexities of a cross-border financial life. Here are the key reasons why professional guidance is a critical investment.
Strategic Planning, Not Just Filing
A tax professional’s greatest value lies in strategic, forward-thinking advice that goes far beyond simple compliance.
- FEIE vs. FTC Analysis: This is the most important strategic decision an expat makes. An advisor can run detailed projections to determine whether the Foreign Earned Income Exclusion or the Foreign Tax Credit will result in a lower tax liability and unlock other benefits, such as the Child Tax Credit, which is often forfeited under the FEIE.
- Long-Term Goal Alignment: Are you planning to buy property, start a business, or invest in Portugal? A good advisor helps you structure these activities in a tax-efficient way from the very beginning, saving you from costly restructuring down the road.
Navigating Dual-Country Complexity
Your finances live in two worlds, and you need an expert who speaks both languages fluently.
- U.S.-Portugal Tax Treaty Expertise: A professional knows the specific articles of the U.S.-Portugal tax treaty and how they apply to your income—from pensions and social security to capital gains—ensuring you receive the maximum protection against double taxation.
- Integrated Advice: They understand how your Portuguese tax situation (including the NHR regime) impacts your U.S. return, helping you manage your worldwide tax liability holistically
Mitigating Costly Risks and Errors
The stakes for expat tax errors are incredibly high. A professional advisor is your first line of defense.
- FBAR & FATCA Compliance: Failure to correctly file foreign bank account reports (FBAR) or Form 8938 (FATCA) can trigger staggering penalties, starting at $10,000 for even unintentional mistakes. An advisor ensures these are filed accurately and on time, every time.
- Audit Protection: A professionally prepared return is less likely to be flagged for an audit. If you are audited, having an expert who prepared the return and can represent you before the IRS is invaluable.
Unlocking Hidden Savings
Tax software is designed for compliance, not optimization. An advisor proactively looks for ways to save you money.
- Maximizing Credits and Deductions: Professionals are experts at identifying all available deductions and credits you are entitled to as an expat, many of which are easily missed by DIY filers.
- Avoiding Common Expat Mistakes: From mishandling state tax residency issues to misunderstanding how to report self-employment income, an advisor helps you sidestep common pitfalls that can lead to overpaying tax or incurring penalties.