Tax Considerations When Moving Abroad Temporarily

Quick overview

Moving abroad temporarily affects tax obligations in both your home country and your host country. For U.S. citizens and resident aliens, the U.S. taxes worldwide income regardless of where you live, so you must evaluate residency rules, available exclusions or credits, and foreign account reporting requirements. This article breaks down the practical steps, rules to check, common pitfalls, and resources to help you plan a short-term international move.

Why residency and timing matter

Two central concepts determine tax outcomes when you move temporarily: the host-country residency rules and your home-country tax residency. In the U.S., residency for tax purposes can be established by citizenship, lawful permanent residency (green card), or the Substantial Presence Test (counting days physically present) — see IRS guidance for details (IRS, International Taxpayers: https://www.irs.gov/individuals/international-taxpayers). Many countries treat you as a tax resident when you meet local day-count tests or have a permanent home there. Your residency status affects:

• Which jurisdiction can tax your worldwide income.
• Whether you can claim a split-year treatment (part-year resident) or must file as a nonresident.
• Eligibility for host-country benefits and withholding rules.

Practical tip: Immediately track arrival and departure dates in writing (calendar, passport stamps, boarding passes). Day counts are the simplest evidence if questions arise.

Common filing obligations for U.S. taxpayers

If you are a U.S. citizen or resident alien living abroad temporarily, consider these filings and rules:

• Federal income tax return (Form 1040) — U.S. citizens must generally file regardless of where they live. See Publication 54 for details (IRS Pub. 54: https://www.irs.gov/pub/irs-pdf/p54.pdf).
• Foreign Earned Income Exclusion (FEIE, Form 2555) — may exclude earned income if you meet the bona fide residence or substantial presence test for a tax year. FEIE amounts adjust annually; check current limits and Form 2555 instructions (IRS Form 2555: https://www.irs.gov/forms-pubs/about-form-2555). For a deeper how-to, see our guide on qualifying for the FEIE: How to Qualify for the Foreign Earned Income Exclusion.
• Foreign Tax Credit (Form 1116) — if you pay income tax to the host country, the foreign tax credit can offset U.S. tax on the same income. Comparing FEIE vs. the foreign tax credit is a common planning trade-off (IRS Form 1116: https://www.irs.gov/forms-pubs/about-form-1116).
• FBAR (FinCEN Form 114) and FATCA (Form 8938) — you may need to report foreign financial accounts and foreign assets. FBAR is filed electronically with FinCEN if aggregate foreign accounts exceed $10,000 at any point in the year (FinCEN FBAR: https://www.fincen.gov/report-foreign-bank-and-financial-accounts). FATCA reporting has different thresholds on Form 8938 (IRS FATCA: https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca).

Related reading: FBAR Penalties: Consequences of Non-Compliance.

Residency tests that commonly apply

• Substantial Presence Test (U.S.) — counts days present in the U.S. over a three-year window. Falling below the threshold may allow you to be treated as a nonresident for the year.
• Bona Fide Residence Test — generally applies to citizens establishing an uninterrupted tax home in a foreign country for an entire tax year.
• Split-year or part-year residency (host countries) — some countries treat the year as split for tax purposes, limiting tax to income earned while resident.

If you expect to cross one of these thresholds while abroad, consult a tax advisor early to plan timing of travel and income recognition.

FEIE vs. Foreign Tax Credit: how to choose

FEIE excludes foreign-earned wages from U.S. taxable income (subject to limits and conditions). The foreign tax credit reduces U.S. tax liability by the amount of income tax you paid to a foreign country. Which is better depends on:

• Your host-country tax rate: if the foreign rate is higher than U.S. rates, a credit usually saves more tax.
• Your mix of income: FEIE covers earned income only, while the foreign tax credit applies to most foreign income taxes, including on investment income.
• Whether you want to preserve U.S. tax attributes such as deductions and tax credits — FEIE reduces taxable income and can affect the ability to claim certain credits.

Practical example: If most of your foreign income is wages taxed at a relatively high local rate, claiming the foreign tax credit (Form 1116) often yields a larger net benefit than the FEIE. If taxes paid abroad are minimal and your earned income is below the exclusion threshold, FEIE can simplify reporting.

See our comparison post: When to Use Form 2555 vs Form 1116 for Foreign Income.

Foreign bank accounts and asset reporting

Reporting foreign accounts is often overlooked but can trigger steep civil penalties when missed. Key items:

• FBAR (FinCEN Form 114) — required if the aggregate balance of foreign financial accounts exceeds $10,000 at any time during the calendar year. FBAR is filed electronically with FinCEN, not the IRS (FinCEN FBAR guidance: https://www.fincen.gov/report-foreign-bank-and-financial-accounts).
• FATCA (Form 8938) — certain thresholds require reporting foreign financial assets with your federal tax return (IRS FATCA guide: https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca).

If you miss filing, look into voluntary disclosure or amending past filings. See our linked resource on correcting FBAR and foreign income reporting: Amending a Return to Correct Foreign Income Reporting and FBAR Discrepancies.

State taxes and domicile considerations

Moving abroad temporarily does not automatically end state tax obligations. States vary: some consider you a domiciliary until you take clear steps to cut ties (sell home, change voter registration, surrender driver’s license, etc.). Maintain records showing intent to establish nonresident status if you plan to sever state tax ties.

Practical tip: Before leaving, consult state guidance or an advisor about what actions your state requires to stop taxing you.

Employer, payroll, and withholding issues

If you remain on a U.S. payroll while working overseas, your employer may still withhold U.S. payroll taxes. In some cases, host countries have social security agreements (Totalization Agreements) with the U.S. that affect where FICA or similar contributions are paid. Confirm payroll treatment with your employer and ask whether they’ll withhold foreign taxes or need to register in the host country.

Common mistakes and how to avoid them

• Assuming no U.S. filing requirement — U.S. citizens and resident aliens often must file U.S. returns even when abroad.
• Forgetting FBAR or FATCA — foreign account reporting thresholds are lower than many expect.
• Misapplying FEIE or the foreign tax credit — incomplete eligibility testing can cost money.
• Ignoring state tax residency — many taxpayers stop federal planning but overlook state exposure.

Avoid these mistakes by keeping detailed records, using a simple travel log, and consulting an international tax advisor early.

Short planning checklist before you go

• Collect last 3 years of tax returns and foreign bank statements.
• Track travel dates and keep a day-count calendar.
• Determine whether you expect to meet bona fide residence or substantial presence tests.
• Review host-country tax residency rules and withholding obligations.
• Ask your employer about payroll, benefits, and social security withholding.
• Consult an international tax advisor and keep copies of communications.

Real-world scenarios (illustrative)

• Sarah, a two-year posting in Germany: We evaluated whether she qualified as a bona fide resident for FEIE and worked through Germany’s progressive tax rates. By combining treaty benefits and a partial FEIE claim, she lowered total taxes and avoided duplicate taxation.
• John, a remote worker in Spain: Because his employer was overseas for a short period and taxes had already been withheld abroad, we compared the foreign tax credit vs FEIE and concluded the credit preserved more U.S. tax attributes.

Frequently asked questions (short)

• Do I still file U.S. taxes if I live abroad? Yes — U.S. citizens and resident aliens generally must file. See IRS Pub. 54 (https://www.irs.gov/pub/irs-pdf/p54.pdf).
• What is the FBAR threshold? FBAR is required when aggregate foreign account totals exceed $10,000 at any time during the year (FinCEN guidance: https://www.fincen.gov/report-foreign-bank-and-financial-accounts).
• Which form claims FEIE? Form 2555 (see: https://www.irs.gov/forms-pubs/about-form-2555).

Professional guidance and next steps

International moves create clear opportunities—but also compliance risks. In my practice advising clients on short-term expatriation, early planning (before departure) consistently reduces audit triggers, penalties, and unnecessary tax bills. If you have complex income sources, significant foreign assets, or ambiguous residency facts, work with a CPA or enrolled agent who specializes in expatriate tax.

For technical reading and official guidance, consult:

• IRS, International Taxpayers: https://www.irs.gov/individuals/international-taxpayers
• IRS Publication 54 — Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/pub/irs-pdf/p54.pdf
• FinCEN FBAR reporting guidance: https://www.fincen.gov/report-foreign-bank-and-financial-accounts
• IRS FATCA information: https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca

Also read our related FinHelp guides:

• How to Qualify for the Foreign Earned Income Exclusion: https://finhelp.io/glossary/how-to-qualify-for-the-foreign-earned-income-exclusion/
• FBAR Penalties: Consequences of Non-Compliance: https://finhelp.io/glossary/fbar-penalties-consequences-of-non-compliance/
• Understanding Tax Treaties and Foreign Income Taxation: https://finhelp.io/glossary/understanding-tax-treaties-and-foreign-income-taxation/

Disclaimer

This article is educational and not individualized tax advice. Rules change and your situation may differ — consult a qualified tax professional before making decisions that affect your tax status or filings.