Quick Review On The New Expat Tax Changes for 2026

As a U.S. expatriate, you remain subject to U.S. tax on your worldwide income. While this fundamental rule has not changed, a number of individual tax provisions affecting expatriates have been adjusted for inflation or clarified through recent legislation. Many of the provisions introduced under the 2017 Tax Cuts and Jobs Act have now been extended or made permanent under the One Big Beautiful Bill Act (OBBBA) enacted in 2025.

With that in mind, below is a summary of the key individual tax provisions affecting U.S. expats for the 2025 tax year (returns filed in 2026).

Personal Exemptions

Personal and dependent exemptions remain suspended. The exemption amount continues to be $0 for both 2025 and 2026, consistent with prior years. This treatment was originally enacted under the Tax Cuts and Jobs Act and has now been made permanent by OBBBA.

Standard Deductions

For the 2025 tax year, the standard deduction amounts are as follows:

• Married Filing Jointly: $31,500
• Single and Married Filing Separately: $15,750
• Head of Household: $23,625

Additional standard deduction amounts continue to apply for taxpayers who are age 65 or older or blind.
For the 2026 tax year, these amounts increase to $32,200 for married filing jointly, $16,100 for single filers, and $24,150 for heads of household due to inflation adjustments.

Income Tax Rates

The seven marginal tax rates remain in place at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These rate structures, originally scheduled to sunset after 2025, have been made permanent by OBBBA.

For 2025, the top marginal rate of 37% applies to single filers with taxable income exceeding $626,350, with lower brackets adjusted upward for inflation. Thresholds for other filing statuses are similarly adjusted.

Estate and Gift Taxes

For 2025, the unified estate and lifetime gift tax exemption is $13.99 million per individual, or $27.98 million for married couples, subject to inflation adjustments. The annual gift tax exclusion remains $18,000 per recipient.

These provisions, including inflation indexing, were preserved under OBBBA, eliminating the previously scheduled reduction of exemption amounts.

Alternative Minimum Tax (AMT)

The Alternative Minimum Tax continues to apply, with exemption amounts adjusted for inflation.

For 2025:

• Single filers: $88,100
• Married filing jointly: $137,000

Phaseout thresholds begin at $626,350 for single filers. The AMT rate structure remains unchanged, with a 26% rate applying to initial AMT income and 28% applying above the applicable threshold.

U.S. expats relying heavily on the Foreign Earned Income Exclusion should be aware that AMT exposure can still arise in higher-income situations. In such cases, the Foreign Tax Credit may produce a more favorable result.

Child Tax Credit

For 2025, the Child Tax Credit is $2,200 per qualifying child under age 17, with up to $1,700 refundable as the Additional Child Tax Credit. Phaseouts begin at $200,000 for single filers and $400,000 for married filing jointly.

Expats should note that excluding earned income under the FEIE may limit access to the refundable portion of the credit, depending on circumstances.

Adoption Credit

The adoption credit for 2025 is $17,280 per eligible child, subject to income-based phaseouts. The credit amount reflects inflation adjustments and remains available under the current law structure.

Education-Related Tax Benefits

The following education provisions remain in effect:

• American Opportunity Tax Credit: Up to $2,500 per eligible student
• Lifetime Learning Credit: Up to $2,000 per return
• Student loan interest deduction: Up to $2,500, subject to income limitations

Eligibility for these benefits depends on income levels and the nature of the educational institution.

Retirement Plan Contributions

Contribution limits for retirement plans continue to increase incrementally.

For 2025:

• 401(k), 403(b), and similar plans: $23,500
• Catch-up contributions (age 50+): $7,500
• Traditional and Roth IRAs: $7,000 ($8,000 for age 50+)

For 2026, the 401(k) contribution limit increases to $24,500, and the IRA limit increases to $7,500, with catch-up amounts adjusted accordingly.

Foreign earned income excluded under the FEIE does not qualify as compensation for IRA contribution purposes.

Foreign Earned Income Exclusion

For the 2025 tax year, the Foreign Earned Income Exclusion is $130,000 per qualifying individual. Married couples where both spouses qualify may exclude up to $260,000 of earned income.

To qualify, taxpayers must meet either the Physical Presence Test or the Bona Fide Residence Test. For 2026, the exclusion amount increases to $132,900.

Foreign Housing Exclusion and Deduction

Eligible taxpayers may claim a foreign housing exclusion or deduction for qualifying housing expenses that exceed the base housing amount, which is 16% of the maximum foreign earned income exclusion for the tax year (prorated for partial years).

• For tax year 2025, the base amount is $20,800 (16% of $130,000) for a full year.
• For tax year 2026, the base amount is $21,264 (16% of $132,900) for a full year.

The allowable amount is your qualifying housing expenses minus the base amount, subject to location-specific limits. These limits generally start at 30% of the maximum foreign earned income exclusion ($39,000 for 2025), but are higher in high-cost cities. The allowable housing amount varies significantly by city of residence.

Foreign Tax Credit

The Foreign Tax Credit allows a dollar-for-dollar credit for qualified foreign income taxes paid or accrued. This credit is often more advantageous for expats residing in higher-tax jurisdictions or for those seeking to reduce exposure to the Alternative Minimum Tax.

The credit is subject to category limitations and allocation rules, and it cannot be claimed on income excluded under the FEIE.

Capital Gains

Long-term capital gains continue to be taxed at preferential rates of 0%, 15%, or 20%, depending on overall taxable income. Short-term gains are taxed at ordinary income rates.

Capital gains are not eligible for the Foreign Earned Income Exclusion but may qualify for the Foreign Tax Credit if foreign taxes were paid.

Filing Requirements and Reporting Obligations

U.S. expats must file a federal income tax return if gross income exceeds applicable filing thresholds. Even when no tax is due, filing may still be required to claim exclusions, credits, or refunds.

Additional reporting requirements include:

• FBAR (FinCEN Form 114) for foreign accounts exceeding $10,000 in aggregate value.
• Form 8938 (FATCA) for specified foreign financial assets exceeding applicable thresholds:
  • $200,000 on the last day of the year or $300,000 at any time during the year (if not filing jointly)
  • $400,000 on the last day of the year or $600,000 at any time during the year (if married filing jointly)

Penalties for failure to file these forms can be severe.

Filing Deadlines for U.S. Expats

For 2025 returns filed in 2026:

• April 15, 2026: Tax payment deadline
• June 15, 2026: Automatic filing extension for taxpayers living abroad
• October 15, 2026: Extended filing deadline if an extension is requested

Final Considerations

While many of the individual tax rules affecting U.S. expats remain familiar, annual adjustments and legislative changes under OBBBA make it important to review each year carefully. Assumptions based on prior returns may no longer apply.

If you need assistance understanding how these provisions apply to your situation, professional guidance can help ensure compliance and proper planning.

Our goal at Tax Samaritan is to provide clear, practical advice tailored to the unique tax issues faced by U.S. taxpayers living abroad. If you would like a quote or wish to discuss your situation further, click the button below to request a free consultation.