Federal tax obligations don't end
As a US citizen, you file a federal tax return regardless of where you live. Forever. The only way to stop is to renounce citizenship — which has its own consequences (covered separately).
What changes: the Foreign Earned Income Exclusion (FEIE) lets you exclude up to $126,500 (2026) of EARNED income — wages, self-employment. But pension income, Social Security, and investment income don't qualify. So FEIE rarely helps retirees.
What helps retirees: the Foreign Tax Credit. Pay tax in your country of residence, get a dollar-for-dollar credit against US tax on the same income. If Portugal taxes your pension at 10% via NHR and the US would tax it at 22%, you get the 10% as a credit and pay only the 12% net to the US.
State tax exit — the trap
California, New Mexico, South Carolina, and Virginia are notorious for chasing former residents. They use 'domicile' rules: you remain a tax resident until you can prove intent to permanently leave AND establish residency elsewhere.
Documentation that supports your exit: surrender driver's license, sell or rent out property, change voter registration to nowhere or to your new country, change bank addresses, document the move date. Keep receipts.
Some states are easy to exit (no state tax: TX, FL, NV, WA, WY, AK, SD). Some are hard (CA, NY). If you're in a hard state, plan exit 12-24 months in advance with a CPA. Don't just leave and assume.
Tax treaties — your friend
70+ countries have tax treaties with the US that clarify who taxes what. Treaties prevent double taxation and define which country has primary taxing rights.
Portugal NHR (Non-Habitual Resident): foreign-sourced pensions taxed at flat 10% for 10 years of residency. Investment income flat 28%. Highly favorable for retirees.
Spain: progressive rates apply, with offset via tax treaty. Less favorable than Portugal but better than US for moderate-income retirees.
Costa Rica, Panama: territorial taxation. Foreign-sourced income (US pensions, SS, investments) NOT taxed locally. Excellent for retirees with US-only income sources.
Mexico: treaty allocates taxing rights. SS may be partially taxable in Mexico. Pension income generally taxed in residence country (Mexico) with offset.
FBAR and FATCA — the reporting that catches people
FBAR: Report of Foreign Bank and Financial Accounts. If you have $10,000+ in foreign accounts at ANY point during the year, you file FinCEN 114 by April 15 (auto-extended to October). Penalties for missing: up to $10,000 per violation for non-willful, $100,000+ for willful. The US is serious about this.
FATCA: Foreign Account Tax Compliance Act. Foreign financial institutions report US account holders to the IRS. So your foreign bank knows you're American and will probably ask for IRS Form W-9 to comply.
Some foreign banks won't open accounts for Americans because of FATCA reporting burden. You may need to specifically ask which banks accept US clients. Wise, Charles Schwab, and Fidelity all work well as US-based options that international ATMs accept.
Roth IRA distributions abroad
Roth IRA distributions are generally tax-free in the US. Foreign treatment varies: Portugal and Costa Rica generally don't tax Roth distributions; Spain may; check treaty before moving.
Strategy: convert as much pre-tax IRA to Roth before moving abroad — especially if you're moving from a high-state-tax US state to a low-tax foreign country. The conversion is taxed only in the US, then distributions are tax-free in both jurisdictions.
Watch IRMAA: Roth conversions count as MAGI in the conversion year, which affects Medicare premiums two years later. If you're 65+ and converting, time it to avoid bracket cliffs.
Social Security taxation abroad
Social Security continues for US citizens in almost every country (sanctioned countries excluded: Cuba, North Korea, etc.). Direct deposit to Wise, Schwab, or Fidelity works in most popular expat destinations.
Tax treatment varies: Portugal NHR taxes SS at 10% flat for 10 years. Costa Rica and Panama don't tax foreign SS. Spain taxes via treaty allocation. Mexico has partial taxation.
Some countries' tax authorities require you to declare US-sourced SS income on local returns even when not taxed (informational reporting). Get a local accountant to confirm.
Hiring an expat CPA
Annual cost: $1,500-$3,000 for a full expat tax return (federal + state if needed + foreign tax credit calculation + FBAR/FATCA filing).
Cost-justification: a single mistake (missing FBAR, missing tax credit, incorrect treaty application) can cost $5,000-$50,000 in penalties or overpaid taxes. The expat CPA is the highest-ROI professional service in your move.
Specialty firms: Greenback Tax Services, TaxesForExpats, MyExpatTaxes, BrightTax. All have flat-fee structures. Get quotes from 2-3 before committing.