Expat Taxes: Tax Considerations When Retiring Abroad

Originally based on a guest article by Ines Zemelman, EA – Founder of Taxes for Expats. Updated with 2026 figures and new legislation.

After a lifetime of working, you are finally able to spend your days enjoying leisure. RetirePedia has a wealth of information on where you can settle in your golden years, but it’s important to remember that even though you no longer need to worry about work, you will always need to think about taxes.

For US citizens and Green Card holders, US tax requirements follow you to any beach in the world.

Taxes for Expats offers a comprehensive tax guide for retirement. Below is an updated expat taxes FAQ covering the key issues to keep in mind if you plan to retire overseas.

Are IRA Distributions and US Pensions Taxed?

All US employer pension distributions and traditional IRA distributions are fully taxable in the US no matter where you live. On a positive note, pension distributions are generally exempt from state taxation once you’ve established domicile abroad.

As always, Roth IRA distributions remain tax-free, since those accounts were funded with after-tax contributions.

Note on Foreign Pensions: If you hold a foreign pension or retirement plan in your country of residence (such as a UK SIPP or Canadian RRSP), those accounts may be subject to US tax as well — and may need to be reported under FBAR and/or FATCA rules (see below). Tax treaty provisions vary significantly by country, so consult a qualified expat tax professional.

Are Social Security Benefits Taxable?

The rules for Social Security income taxes are complex and vary based on where you live.

US Income Tax Thresholds (unchanged since 1984):

• Single filers: Benefits may be partially taxable if combined income exceeds $25,000; up to 85% is taxable above $34,000.
• Married filing jointly: Taxation begins above $32,000; up to 85% taxable above $44,000.
• Combined income = Adjusted Gross Income + nontaxable interest + 50% of your Social Security benefits.

You must pay taxes on your benefits if you file a federal tax return as an “individual” and your “combined income” exceeds $25,000. If you file a joint return, you must pay taxes if you and your spouse have “combined income” of more than $32,000. If you are married and file a separate return, you probably will have to pay taxes on your benefits. 

Source: Social Security website

2026 Senior Bonus Deduction: The One Big Beautiful Bill Act (signed July 2025) creates a new temporary additional standard deduction of $6,000 per person (or $12,000 per couple) for those age 65 and older. This applies for tax years 2025–2028 and phases out at incomes above $75,000 (single) / $150,000 (joint). It does not eliminate taxation of Social Security, but it can reduce adjusted gross income enough to keep many retirees below the taxation thresholds.

Countries Where US Social Security Benefits Are Not Subject to US Tax:

Certain US tax treaties provide that Social Security benefits paid to residents of a treaty country are taxable only by the country of residence — not the US. Countries with such treaty provisions include:

• Canada
• Germany
• Ireland
• Italy (only if you are also an Italian citizen)
• United Kingdom
• Romania
• Egypt
• Israel

Unfortunately for those choosing Central American countries as their retirement destination, they are not on this list — so Social Security benefits remain subject to US tax.

For holders of Green Cards, make sure to understand the conditions that apply by reading the Social Security Administration publication on payments outside the United States.

Related: Countries with No Income Taxes

The Foreign Earned Income Exclusion (FEIE)

Even in retirement, if you do any part-time consulting, freelance work, or self-employment abroad, the Foreign Earned Income Exclusion is a key tool. For tax year 2026, the FEIE limit is $132,900 per qualifying person.

To qualify, you must pass either:

• Physical Presence Test: Be outside the US for at least 330 full days in any 12-month period. More details at Taxes for Expats.
• Bona Fide Residence Test: Be a bona fide resident of a foreign country for a full tax year. See bona fide residence qualifications.

The FEIE applies only to earned income (wages, salaries, self-employment income). It does not shelter pension distributions, IRA withdrawals, Social Security, dividends, interest, rental income, or capital gains. The foreign housing exclusion limit for 2026 is $39,870.

State tax caveat: The FEIE eliminates federal tax on qualifying income, but states like California and New York still tax worldwide income of their domiciliaries. Establishing domicile in a no-income-tax state (such as Florida or Texas) before moving abroad can eliminate this issue entirely.

Foreign Tax Credit vs. FEIE: Which Strategy Is Better?

Most retirees won’t have earned income, but for those who do — or who are structuring rental or investment income abroad — the choice between the Foreign Tax Credit (FTC) and the FEIE matters.

• FEIE is generally better in low-tax countries, since it removes income from your US return entirely without requiring you to have paid foreign taxes.
• FTC is generally better in high-tax countries, since it credits foreign taxes you’ve already paid, often eliminating your US tax bill.
• You cannot use both on the same income, but you can use FEIE for earned income and FTC for remaining passive income.

If you have dependent children, note that using the FEIE can disqualify you from the refundable Additional Child Tax Credit ($1,700 per child in 2026). Many expat parents with children are switching to the FTC strategy to preserve this benefit.

FBAR and FATCA: Reporting Foreign Accounts

Two separate reporting regimes apply to Americans with foreign financial accounts — regardless of whether you owe any tax.

FBAR (FinCEN Form 114)

Required if the aggregate value of all foreign financial accounts exceeds $10,000 at any point during the calendar year. Filed separately from your tax return, due April 15 (with automatic extension to October 15). Penalties for non-willful violations can reach $12,921 per account per year; willful violations can be 50% of the account balance.

FATCA (IRS Form 8938)

Required if foreign financial assets exceed $200,000 at year-end for single filers abroad, or $400,000 for married filing jointly abroad. Filed with your regular Form 1040. Penalties start at $10,000 for failure to file.

US-based IRAs and 401(k)s are not considered foreign accounts and do not need to be reported under FBAR or FATCA. Foreign pensions — such as a local retirement plan in your country of residence — typically doneed to be reported and may also be subject to US income tax, depending on treaty provisions.

Am I Required to Purchase Health Insurance?

The individual mandate penalty under the Affordable Care Act (ACA) was eliminated at the federal level in 2019 — so no, you are not required to purchase US health insurance if you retire abroad.

If you spend at least 330 days per year outside the US (Physical Presence Test) or are a bona fide resident of a foreign country, you qualify for an exemption from ACA requirements. You can claim this on Form 8965.

If you have earned your Medicare benefits, you are also exempt from ACA penalties regardless of where you live — but keep in mind that Medicare does not cover you outside the US.

Editor’s Note: Even though you are not required to purchase US health insurance as an expat retiree, international health insurance is strongly recommended. We’ve compared some of the most popular international medical insurance providers for you.

Key 2026 Figures at a Glance

Item	2026 Figure / Status
FEIE limit	$132,900 per person
Foreign housing exclusion limit	$39,870
Social Security threshold — single	$25,000 (50%) / $34,000 (85%)
Social Security threshold — married filing jointly	$32,000 (50%) / $44,000 (85%)
Senior bonus deduction (age 65+, 2025–2028)	$6,000 per person
FBAR reporting threshold	$10,000 (aggregate)
FATCA threshold — single filer abroad	$200,000 at year-end
FATCA threshold — married filing jointly abroad	$400,000 at year-end
ACA individual mandate penalty	$0 (eliminated)
Federal income tax rates (permanent via OBBBA)	10%–37%
Estate tax exemption (permanent via OBBBA)	$15M per individual

Disclaimer: This article is for general informational purposes only and does not constitute tax or legal advice. Tax laws change frequently. Consult a qualified tax professional for advice specific to your situation.

Sources

IRS: Foreign Earned Income Exclusion

Taxes for Expats: FEIE 2026 Guide

Greenback Tax Services: 2026 IRS Changes for Expats

Greenback Tax Services: FEIE vs FTC

SSA: International Agreements Overview

IRS: Totalization Agreements

Taxes for Expats: FBAR vs FATCA

Greenback Tax Services: OBBBA and Expat Taxes

IRS: One Big Beautiful Bill Act — Senior Deduction

Mercer Advisors: Is Social Security Taxed in 2026?

Taxes for Expats: ACA for Expats

SSA: Must I Pay Taxes on Social Security Benefits?

SSA: Your Payments While Outside the United States

Guest article by Ines Zemelman, EA – Founder of Taxes for Expats

After a lifetime of working, you are finally able to spend your days enjoying leisure. RetirePedia has a wealth of information of where you can settle in your golden years, but it is important to remember that even though you no longer need to worry about work, you will always need to think about taxes.

For US citizens and Green Card holders, US tax requirements will follow you to any beach in the world.

Taxes for Expats offers a comprehensive tax guide for retirement. Below is an abbreviated expat taxes FAQ covering key issues to keep in mind if you plan to retire overseas.

Expat Taxes: Are IRA Distributions and US Pensions Taxed?

All US employer pension distributions and traditional IRA distributions are fully taxable in the U.S. no matter where you live. On a positive note, pension distributions are exempt from state taxation.

Distributions received while residing in the United States will be taxed according to the state tax laws where you reside, not where the money was earned.

As always, Roth IRA distributions are not taxable since these accounts were funded using after-tax contributions.

Expat Taxes: Are Social Security Benefits Taxable?

The rules for Social Security income taxes are a bit more complex. These vary based on the country you are living in. There are only eight countries where United States Social Security benefits are not taxed:

• Canada
• Germany
• Ireland
• Italy (only if you are also an Italian citizen)
• United Kingdom
• Romania
• Egypt
• Israel

Unfortunately for those choosing Central American countries as their retirement country, they are not on this list – so Social Security benefits are subject to tax.

For residents of any country that is not in this list, Social Security benefits will be taxed using the same requirements as for someone still living in the United States.

For holders of Green Cards, make sure to understand the conditions that apply by reading the Social Security Administration publication.

Related: Countries with No Income Taxes

Am I Required to Purchase Health Insurance?

Affordable Care Act penalties will not apply if you retire abroad, so you are not required to purchase US health insurance. If you intend to stay abroad for a significant period of time you may be able to claim Bona fide residence status and qualify for an exemption from the ACA requirements.

If you have earned your Medicare benefits, you are also exempt from the ACA penalties regardless of where you live – but keep in mind that you won’t have Medicare benefits while living outside the US.

If you aren’t old enough for Medicare benefits, you might qualify for exemption from the health care insurance requirements for the time you lived outside the US, assuming you pass the test for Physical Presence. It is not necessary to submit a Form 2555.