Which states do not tax foreign income?
Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.
- Alabama.
- California.
- Hawaii.
- Massachusetts.
- New Jersey.
- Pennsylvania.
Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.
- Alaska.
- Florida.
- Nevada.
- South Dakota.
- Texas.
- Washington State.
- Wyoming.
As of 2023, nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming — do not levy a state income tax.
If you're an expat and you qualify for a Foreign Earned Income Exclusion from your U.S. taxes, you can exclude up to $112,000 or even more if you incurred housing costs in 2022. (Exclusion is adjusted annually for inflation). For your 2023 tax filing, the maximum exclusion is $120,000 of foreign earned income.
For the tax year 2022 (the tax return filed in 2023), you may be eligible to exclude up to $112,000 of your foreign-earned income from your U.S. income taxes. For the tax year 2023 (the tax return filed in 2024), this amount increases to $120,000.
The US is one of the few countries that taxes its citizens on their worldwide income, regardless of where they live or earn their income. This means that American expats are potentially subject to double taxation – once by the country where they earn their income, and again by the United States.
Federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts.
For individuals who are dual citizens of the U.S. and another country, the U.S. imposes taxes on its citizens for income earned anywhere in the world. 7 If you live in your country of dual residence that is not the U.S., you may owe taxes both to the U.S. government and to the country where the income was earned.
Where are most American expats moving to?
- Portugal.
- Spain.
- United Kingdom.
- United Arab Emirates.
- Canada.
- Germany.
- France.
| Country | Number of Americans (2018) |
|---|---|
| Canada | 860,783 |
| Mexico | 586,129 |
| United Kingdom | 391,141 |
| France | 248,168 |
- 40% opt for the Western hemisphere — Canada, Central and South America.
- 26% move to Europe.
- 14% head to East Asia and the Pacific — think Australia and New Zealand as well as China and Japan.
- 14% head to the Middle East.
- 3% travel to Central or South Asia.
- 3% choose Africa.
- New York: 12.47%
- Hawaii: 2.31%
- Maine: 11.14%
- Vermont: 10.28%
- Connecticut: 9.83%
- New Jersey: 9.76%
- Maryland: 9.44%
- Minnesota: 9.41%
Unsurprisingly, the states with no state income taxes at all ended up scoring pretty highly. Those eight states are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.
New York has the highest overall tax burden, while Alaska has the lowest. Maine has the highest property tax burden, while Alabama has the lowest. California has the highest individual income tax burden, while seven states (including Texas, Florida and Washington) have the lowest.
The maximum foreign earned income exclusion amount is adjusted annually for inflation. For tax year 2023, the maximum foreign earned income exclusion is the lesser of the foreign income earned or $120,000 per qualifying person. For tax year 2024, the maximum exclusion is $126,500 per person.
Foreign Earned Income Exclusion (FEIE)
If you claim the Foreign Earned Income Exclusion by filing IRS Form 2555, then you don't have to pay tax on your first $112,000 of foreign income for the 2022 tax year.
Enter the amount of the foreign earned income exclusion claimed on your 2022 federal taxes. This amount appears on IRS Form 1040 Schedule 1, line 8d.
If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income.
How do I report foreign income while living in the US?
You must attach Form 2555, Foreign Earned Income, to your Form 1040 or 1040X to claim the foreign earned income exclusion, the foreign housing exclusion or the foreign housing deduction. Do not submit Form 2555 by itself.
Since foreign accounts are taxable, the IRS and U.S. Treasury have a very rigid process for declaring overseas assets. Any American citizen with foreign bank accounts totaling more than $10,000 in aggregate, or at any time during the calendar year, is required to report such accounts to the Treasury Department.
Expats can use the Foreign Earned Income Exclusion (FEIE) to exclude a certain amount of foreign income from US taxation. The maximum exclusion amount changes each year. For the 2023 tax year, the FEIE exclusion limit is $120,000 and will increase to $126,500 for the 2024 tax year.
US citizens can live outside the country for as long as they wish — even for the rest of their lives — without a problem. A US citizen cannot be prevented from re-entering the US.
Americans who retire overseas still have tax obligations. Typically, you will have to file a tax return with both the US government and your new host country.
