US Taxes When Living Abroad: What Every American Expat Must Know

The number one question Americans ask before moving abroad is not about visas or housing — it is about taxes. "Do I still have to pay US taxes if I live in Brazil?" The answer is yes, but with a major exception that most people do not know about.

The United States is one of only two countries in the world (the other is Eritrea) that taxes its citizens based on citizenship rather than residency. This means that even if you live full-time in Florianópolis, Brazil, you are still required to file a US tax return every year. However, filing does not necessarily mean paying — and for most Americans living in Brazil, the actual tax bill is zero.

The Foreign Earned Income Exclusion (FEIE)

The most important tool for American expats is the Foreign Earned Income Exclusion (FEIE), governed by IRS Form 2555. For 2025, the FEIE allows you to exclude up to $126,500 of foreign-earned income from US federal income tax. If you earn less than that amount working remotely or from a Brazilian employer, you owe zero US federal income tax on that income.

To qualify for the FEIE, you must meet one of two tests: the Bona Fide Residence Test (you have established a genuine residence in a foreign country for an entire tax year) or the Physical Presence Test (you have been physically present in a foreign country for at least 330 days in any 12-month period). Most Americans who move to Brazil qualify under one or both tests within their first full year abroad.

The Foreign Tax Credit

If your income exceeds the FEIE limit, or if you have passive income (dividends, rental income, capital gains) that is not covered by the FEIE, the Foreign Tax Credit (Form 1116) allows you to offset US taxes dollar-for-dollar with taxes you have already paid to Brazil. Since Brazil's tax rates are comparable to US rates, most expats end up owing little to nothing after applying both the FEIE and the Foreign Tax Credit.

FBAR and FATCA: Reporting Foreign Accounts

Beyond income taxes, Americans living abroad have two additional reporting requirements. The FBAR (FinCEN Form 114) requires you to report any foreign bank accounts if the aggregate balance exceeds $10,000 at any point during the year. FATCA (Form 8938) requires reporting foreign financial assets above certain thresholds. These are reporting requirements, not tax payments — but the penalties for non-compliance are severe, so do not skip them.

State Taxes: The Hidden Trap

Federal taxes are often manageable for expats, but state taxes can be a surprise. Some states — notably California, New York, and Virginia — are aggressive about claiming tax residency even after you move abroad. Before leaving the US, you should formally establish domicile in a state with no income tax (such as Florida, Texas, or Nevada) or take clear steps to sever your tax residency with your current state. This is one of the most important pre-departure steps and one that many Americans overlook.

What About Social Security?

If you are self-employed or running your own business while living in Brazil, you still owe US self-employment tax (Social Security and Medicare contributions) on your net earnings. However, Brazil and the United States have a Totalization Agreement, which prevents double taxation of Social Security contributions. If you are employed by a Brazilian company and paying into Brazil's social security system (INSS), you are generally exempt from US self-employment tax.

Practical Steps Before You Leave

Before moving to Brazil, take these concrete steps: establish domicile in a no-income-tax state, open a Charles Schwab or Fidelity account (both reimburse ATM fees worldwide), consult an expat tax specialist to review your specific situation, and file your final US state tax return marking yourself as a non-resident. The cost of a one-hour consultation with an expat CPA — typically $150 to $300 — is one of the best investments you can make before moving abroad.

The Bottom Line

Yes, you still file US taxes when living in Brazil. No, you almost certainly will not owe anything if your income is under $126,500 and you are living and working abroad. The paperwork is manageable, the tools exist to protect you, and the financial upside of living in Brazil — where your cost of living drops by more than half — far outweighs the annual inconvenience of filing a tax return.