Having two passports feels like freedom. Travel is easier. More doors open. You have options. But what if one of those passports is American? Then you still have to deal with US taxes.

Many dual citizens think that living abroad or having another nationality exempts them from this obligation. It doesn’t. The US taxes its citizens based on citizenship, not where they live. So, if you’re a US citizen, even by birth or through your parents, you must report all your income wherever it comes from.

With more people living and earning income across borders, ignoring US expat taxes can be costly.

This guide keeps it simple. No fluff. It contains everything dual citizens need to know to stay compliant and keep their finances safe.

Who is considered a US taxpayer? Dual citizens included.

Do you think you’re off the hook just because you live abroad? Not if you’re a US citizen.

The US is one of the few countries that taxes its citizens based on citizenship rather than residency. This means that even if you haven’t lived in the United States for decades- or ever the IRS still considers you a taxpayer. And yes, that includes those dealing with US expat taxes.

Here’s how it works:

Born abroad to American parents? You’re likely a US
Born in the US, but now a citizen elsewhere? It still

If you’re a US citizen, you have tax responsibilities. That means:

File a US tax return every year
Report foreign bank accounts if they total over $10,000.
Disclosing certain foreign assets under

It doesn’t matter where you earn your income. It also doesn’t matter if you already pay taxes somewhere else. The IRS still expects your paperwork.

Do dual citizens pay taxes in both countries? Understanding the Basics

We often hear this question from dual citizens: “Do I have to pay taxes in both countries?”

Short answer? You might have to file in both countries, but you probably won’t have to pay twice.

Here’s why: The IRS offers several ways to avoid double taxation. These tools ensure that you won’t be taxed on the same income in two places.

Let’s break them down:

● Foreign Tax Credit (FTC):

Did you pay taxes to a foreign country? The FTC can reduce your US tax bill by the same amount.

● Foreign Earned Income Exclusion (FEIE):

Do you live and work abroad? You may be able to exclude up to $126,500 of your foreign income from US taxes.

● Tax treaties

The US has agreements with many countries that determine which country gets to tax what income. These can save you a lot of money—if you know how to use them.

However, these aren’t one-size-fits-all solutions.

What about investment income, self-employment income, or foreign pensions? They can be tricky. Quickly.

If you’re a high earner with global assets or a business abroad, it’s worth planning ahead. The right strategy can save you thousands. The wrong one? It could get you flagged or fined.

Requirements for US tax filing that apply to dual citizens

If you’re a dual citizen and the IRS considers you a US taxpayer, there’s paperwork to handle. Some of it may be unfamiliar to you, especially if you’ve never lived in the US or earned money abroad.

Here’s what you’ll likely need to file:

Form 1040: Your standard US tax You must report all your income, even if none of it came from the US
FBAR (FinCEN Form 114): Did you have more than $10,000 total in foreign bank accounts at any point during the year? You need to report it.
FATCA (Form 8938): If your foreign assets exceed certain limits (starting at

$200,000 if you live abroad), you must also file this form.

Depending on your situation, you might also need Form 1116 to claim the Foreign Tax Credit.

Form 1116 to claim the Foreign Tax
Form 2555 to claim the Foreign Earned Income Exclusion
Form 5471 if you own shares in a foreign
Form 3520/3520-A is for foreign trusts or large

Miss one? Even by accident? The penalties can be steep, even if you don’t owe any US taxes.

Tax strategies to avoid double taxation

Yes, you may need to file taxes in both countries. However, that doesn’t mean you’ll be taxed twice.

The IRS has several tools to help you avoid double taxation:

● One is the Foreign Tax Credit (FTC)

Have you paid taxes in another country? You can use those payments to lower your US tax bill dollar for dollar. This is a lifesaver if you live in a country with high taxes, like France or Germany.

● Foreign Earned Income Exclusion (FEIE)

Live and work abroad? If you meet the requirements, you can exclude up to

$126,500 of your foreign income from US taxes.

● Tax Treaties

The US has tax treaties with over 60 countries that determine which country can tax certain types of income, such as pensions or capital gains. These treaties can be very helpful if your finances are spread across borders.

However, there’s a catch: you can’t always use these tools together.

Not all income is treated the same. Rental income? Investment gains? They’re still taxable in the US in many cases.

High-income expats: Unique considerations and traps

If you’re a high-earning expat, your tax situation is much more complicated. More income means more forms and rules, as well as more opportunities to make a mistake.

Here are a few traps to watch out for:

Net Investment Income Tax (NIIT): Do you earn passive income, such as dividends, interest, or capital gains? You might owe an additional 3.8% if your income exceeds

$200,000 (if you’re single) or $250,000 (if you’re married).

Alternative Minimum Tax (AMT): Claiming a lot of deductions while earning a high income? You could still owe extra under AMT rules.
PFIC Rules: Have non-US mutual funds? They are treated harshly under US law unless you file special forms. Make a mistake, and you could face steep taxes.

High earners are also more likely to trigger FATCA reporting or audits if the IRS spots inconsistencies. If you’re married to a non-US citizen, issues like gift and estate taxes can quickly become complicated.

Can you escape US tax obligations by renouncing citizenship?

Are you thinking of ditching your US passport to avoid taxes? It’s not that simple.

While renouncing US citizenship can end your tax obligations, there’s more to it than that. But only if you do it the right way. There are a few hoops to jump through first.

For example, you have to show up in person at a US consulate.

You’ll also need to file Form 8854 to prove that you’ve filed your taxes correctly for the past five years.

If your net worth exceeds $2 million or your average annual US tax bill exceeds approximately $206,000 (as of 2025), you may be subject to the Exit Tax.

The most important thing to know is that renouncing doesn’t erase the past. If you’ve missed any tax filings or haven’t been compliant, you must fix those issues before renouncing citizenship.

For wealthy expats, giving up citizenship is a big deal. Financially. Legally. Emotionally. So, before making the decision, talk to someone who knows this subject inside and out.

Why you shouldn’t go it alone

Dealing with US taxes and dual citizenship is about more than just staying out of trouble. It’s also about protecting what you’ve built.

If you go it alone, it’s easy to miss something:

A form you didn’t know
Or a treaty benefit you didn’t
An exclusion you forgot to

Each mistake can cost you a lot. In penalties. In stress. In missed opportunities.

At TFX, this is what we do. We’ve helped over 50,000 expats stay compliant and save money. Every client works with a real tax expert. No bots. No one-size-fits-all software. Just people who know expat taxes inside and out.