You Are Taxed as an American Wherever You Live
The United States taxes its citizens on worldwide income no matter where they live, and holding a second citizenship does not change that. What most people get wrong is the consequence: the obligation is overwhelmingly an obligation to file, not an obligation to pay, and the IRS own figures show that roughly 62 percent of individual international taxpayers reported zero tax between 2016 and 2021.
That gap between filing and paying is the whole subject. This article describes a regime rather than advising on one: Fluxia Law works on Portuguese civil status and nationality, not on tax returns, and the analysis of any individual position belongs to an accountant.
Thinking about Portuguese citizenship for your family? Have the civil records assessed first. It takes a few minutes and commits you to nothing.
Assess my caseIn this article:
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- Why does the United States tax people who do not live there?
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- What has to be filed, even when nothing is owed
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- Why do most international filers end up at zero?
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- What the United States and Portugal actually agreed
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- How different Brazil is: the country you can leave
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- Frequently asked questions
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- Conclusion
Why does the United States tax people who do not live there?
Because the American system attaches the tax duty to citizenship itself, not to where somebody lives. Treasury regulation 26 CFR 1.1-1(b) states that all United States citizens, wherever resident, are liable to federal income tax on income from sources inside or outside the United States, and section 61(a) of the Internal Revenue Code defines gross income as all income from whatever source derived, with no territorial limit.
The Supreme Court settled the principle more than a century ago. In Cook v. Tait, decided on 5 May 1924, the Court held that Congress may tax the income of an American citizen domiciled abroad and earned from property located abroad, because the foundation of the taxing power is the relationship of citizenship, not domicile and not the location of the asset.
This is close to unique in the world. In a resolution of 5 July 2018, the European Parliament recorded that the United States and Eritrea are the only two countries that have adopted taxation based on citizenship. The IRS own Taxpayer Advocate Service puts it the same way: unlike almost every other country, the United States taxes citizens and residents on worldwide income regardless of residence.
The difficulty is recognized inside the system, not only outside it: the Taxpayer Advocate ranked taxpayers living abroad as the ninth most serious problem facing taxpayers at the IRS, in its annual report for 2025 published in January 2026.
What has to be filed, even when nothing is owed
The filing thresholds are low, and several of the reporting duties have nothing to do with how much tax is due. For the 2025 tax year, the gross income threshold for filing a Form 1040 was 15,750 dollars for a single filer under 65 and 31,500 dollars for a married couple filing jointly with both spouses under 65. For a married person filing separately the threshold is 5 dollars of gross income, at any age. Anyone with at least 400 dollars of net self-employment earnings has to file regardless of those thresholds.
Living abroad brings an automatic two-month extension, to 15 June, but interest runs from 15 April.
| Filing | What triggers it | Timing | Exposure if skipped |
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| Form 1040 | Gross income above the annual threshold, or 400 dollars of self-employment earnings | 15 April, automatic extension to 15 June from abroad, interest from 15 April | Interest and penalties on any tax due |
| FBAR (FinCEN Form 114) | Foreign accounts above 10,000 dollars in aggregate at any point in the year | 15 April, automatic six-month extension to 15 October | Up to 16,536 dollars if non-willful; if willful, the greater of 165,353 dollars or 50 percent of the balance |
| Form 8938 (FATCA) | Living abroad: foreign financial assets above 200,000 dollars at year end or 300,000 at any time, single; 400,000 and 600,000 jointly | With the return | 10,000 dollars, plus 10,000 per 30 days after notice, up to an extra 50,000 |
| Form 2555 (FEIE) | Electing to exclude foreign earned income | With the return; the election is mandatory | Revoking it blocks a new election for five years without IRS consent |
| Form 1116 (foreign tax credit) | Claiming credit for tax paid to another country | With the return | The credit exists only on a filed return |
Two details in that table are worth their own sentence. The penalty figures are the 2025 inflation-adjusted amounts and still apply in 2026, because no adjustment was made for 2026. And the Supreme Court decided in Bittner, on 28 February 2023, that the non-willful FBAR penalty applies per annual report rather than per bank account, which changed the arithmetic considerably for people with several small accounts.
The Form 8938 thresholds are far lower for people who stay in the United States: 50,000 and 75,000 dollars for a single filer, 100,000 and 150,000 filing jointly. Living abroad raises them, and also makes them far likelier to be crossed. In the 2021 tax year, 7.0 percent of individual international filers submitted a Form 8938, against 0.2 percent of domestic filers.
Why do most international filers end up at zero?
Two mechanisms, plus the fact that most Americans abroad are not wealthy.
The foreign earned income exclusion lets a qualifying person exclude earned income up to an annual ceiling: 130,000 dollars for 2025 and 132,900 dollars for 2026. To use it you need a tax home abroad and either bona fide residence for a full uninterrupted tax year or physical presence for 330 full days in 12 consecutive months. There is a separate housing element, and Lisbon appears on the IRS list of high-cost locations, with a housing ceiling of 40,000 dollars in 2025 and 44,800 dollars in 2026.
The exclusion has hard edges that surprise people. It does not cover passive income: pensions and annuities, including social security benefits, interest, dividends, capital gains, rents, royalties and alimony are all expressly outside it. It does not exempt anyone from self-employment tax, which is calculated on the full self-employment income even when that income was excluded. And under the stacking rule of section 911(f), excluded income still pushes whatever remains into higher brackets.
The foreign tax credit is the other mechanism, and it is capped by the ratio between foreign-source taxable income and total taxable income, applied separately across seven categories on Form 1116. It cannot be applied against self-employment tax, because the credit provision reaches only chapter 1 tax while self-employment tax sits in chapter 2. Treasury regulation 1.1411-1(e) also bars it against the Net Investment Income Tax, charged at 3.8 percent on net investment income above 200,000 dollars for a single filer and 250,000 filing jointly, on thresholds that are not adjusted for inflation.
Then there is the income profile. In the 2021 tax year, 56 percent of individual international filers reported adjusted gross income below 25,000 dollars and 76 percent below 75,000, while fewer than 5 percent were above 400,000. That year, more than 437,000 American taxpayers abroad declared just under 48.2 billion dollars of foreign earned income, of which 28.5 billion was excluded.
Portuguese citizenship is a civil records question, not a tax one. Find out where your family chain stands.
Check my family lineWhat the United States and Portugal actually agreed
There is a bilateral income tax convention between the two countries, signed in Washington on 6 September 1994 and generally effective from 1 January 1996. The United States maintains such treaties with 66 countries in total.
The convention does not switch off American taxation of Americans. Paragraph 1(b) of the Protocol contains a saving clause allowing the United States to tax its own citizens as if the Convention had not entered into force. What Article 25(2) does provide is a resourcing rule: income taxed by the United States solely because of citizenship is treated as arising in Portugal to the extent needed to relieve double taxation, provided the tax paid to the United States is not less than it would have been had the person not been an American citizen.
Separately from tax, a social security totalization agreement between the United States and Portugal has been in force since 1 August 1989.
On the banking side, FATCA imposes a 30 percent withholding on withholdable payments to foreign financial institutions that do not comply with its reporting rules, which is why compliance is close to universal. The IRS list of registered foreign financial institutions held 515,172 entries across 247 jurisdictions when it was downloaded on 29 July 2026, including 649 in Portugal. Portugal operates under a Model 1 intergovernmental agreement in force since 10 August 2016.
The practical friction shows up at account opening. In a Democrats Abroad survey with 6,903 complete responses in April 2022, 38 percent of respondents had tried to open a bank or brokerage account where they lived in the previous two years, and 22 percent of those attempts failed.
How different Brazil is: the country you can leave
For anyone with a Brazilian side to the family, the contrast is stark. Brazilian tax liability depends on residence, not nationality. Someone who leaves Brazil permanently is treated as non-resident from the date of departure, provided they file the Comunicação de Saída Definitiva do País. Someone who leaves temporarily only becomes non-resident from the day after completing twelve consecutive months of absence. The Comunicação runs from the date of departure to the last day of February of the following calendar year.
Once the exit is complete, Brazilian-source income is taxed exclusively at source, at 25 percent on employment and services and 15 percent on other income without a specific rate. A non-resident cannot file the Brazilian annual return at all, and income from foreign sources is simply not taxable in Brazil.
Skipping the paperwork has a price. Anyone who leaves permanently without filing the Comunicação and the Declaração continues to be taxed as a resident, on worldwide income, for the first twelve months from departure. Brazil's Ministry of Foreign Affairs warned in December 2025 that income received abroad without a definitive fiscal exit may remain taxable in Brazil for up to five years.
There is a tax treaty between Brazil and Portugal, in force since 5 October 2001. There is none between Brazil and the United States: the United States does not appear on the Receita Federal list of 39 treaty countries, and what exists is a tax information exchange agreement in force since 19 March 2013.
Frequently asked questions
Does taking Portuguese citizenship change my American tax position? No. American tax duties attach to American citizenship, and Portugal does not require anyone to give up a second nationality: under article 27 of the Nationality Law, where a person holds Portuguese nationality alongside another, only the Portuguese one counts for Portuguese law.
I have never filed while living abroad. Is there a route back? The IRS operates Streamlined Foreign Offshore Procedures for non-residents, which involve three years of returns and six years of FBARs without penalties for late filing, accuracy, information returns or FBAR. Whether that route fits a given situation is a question for an accountant.
Can unpaid American tax affect my passport? Yes. The IRS can certify a seriously delinquent tax debt to the State Department, which must then deny passport issuance and may revoke an existing one. The threshold is 66,000 dollars in 2026.
Why do the forms take so long even when I owe nothing? Because the reporting is separate from the tax. The IRS itself estimates that Form 3520 takes 54 hours on average, and Form 3520-A 43 hours.
Conclusion
American citizenship travels with the person and carries a permanent filing duty, whatever passport sits beside it. Portuguese citizenship imposes nothing on a holder who never uses it.
This is the reason the two decisions should never be bundled together. Whether your American tax position is efficient is a matter for an accountant. Whether your family still has an open route to Portuguese nationality is a matter of civil records and deadlines, and that is the part Fluxia Law handles.