Melbourne, Australia, Dec. 26, 2025 (GLOBE NEWSWIRE) -- Expat US Tax, a global tax advisory firm specializing in U.S. expatriates, today unveiled its analysis of the IRS’s newly released 2025 tax brackets, highlighting their impact on Americans living overseas. While the tax rates remain unchanged, inflation-driven threshold increases could influence how expats apply key strategies such as the Foreign Earned Income Exclusion and Foreign Tax Credit, with potential ripple effects on tax planning in dual-taxation scenarios.
IRS Tax Brackets 2025 | Expat US Tax
The IRS has released the federal income tax brackets for the 2025 tax year, and while the rates themselves haven’t changed, the income thresholds have shifted to reflect inflation. For U.S. citizens living abroad, tax firm Expat US Tax says the updates could subtly affect how overseas income is taxed, especially for those balancing tax obligations in two countries.
The IRS still uses seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. However, the income ranges tied to each bracket have been adjusted upward. For instance, the 22% bracket for single filers now begins at $48,476, up from $47,150 in 2024. Married couples filing jointly will enter the 35% bracket at $501,051, up from $487,450.
The standard deduction also increased to $15,750 for single filers and $31,500 for joint filers.
These shifts may seem modest, but according to Expat US Tax, they can influence which tax strategies make the most sense for U.S. expats — particularly those with moderate to high earnings abroad.
“Although the adjustments are part of routine inflation indexing, they can affect how expats apply tools like the Foreign Earned Income Exclusion or Foreign Tax Credit,” said Clark Stott, Managing Director at Expat US Tax. “In some cases, even a small threshold change could push income into a different bracket, and that impacts your overall tax strategy.”
Tax Implications for Americans Abroad
While all U.S. citizens are subject to the same tax brackets regardless of where they live, applying those brackets isn’t always simple for expats.
For example, the Foreign Earned Income Exclusion (FEIE) allows qualified expats to exclude up to $130,000 of foreign earned income from U.S. tax in 2025. However, under the IRS’s “stacking rule,” this excluded income still factors into the tax rate applied to any remaining taxable income. That means even excluded earnings can push non-excluded income into a higher bracket.
Alternatively, many Americans abroad rely on the Foreign Tax Credit (FTC), which allows them to offset U.S. taxes with the income taxes they’ve already paid to another country. This option tends to be more beneficial for those living in high-tax countries like the U.K., Germany, or Australia.
According to Stott, the new income thresholds could tip the balance in favor of one strategy over the other, depending on an individual’s income level and local tax burden.
What About Self-Employment Tax?
The updated thresholds do not affect U.S. self-employment tax, which covers Social Security and Medicare. Expats who are self-employed may still owe this tax unless covered by a totalization agreement between the U.S. and their country of residence. Such agreements are designed to prevent double payment into two social security systems, but eligibility depends on the nature of the work and the local system.
Filing Deadlines and Additional Reporting
Americans living abroad automatically receive an extension to June 15, 2026 to file their federal return. However, any tax due must still be paid by April 15, 2026 to avoid interest charges.
In addition, expats are subject to foreign financial reporting requirements:
- FBAR (FinCEN 114): Required if foreign accounts exceed $10,000 in total at any point during the year.
- FATCA (Form 8938): Required for individuals with larger foreign asset holdings, starting at $200,000 for single filers abroad.
“These reporting obligations are often overlooked but can carry serious penalties if missed,” said Stott. “Even if no tax is due, the IRS still expects a complete and timely filing.”
A Closer Look at the Bigger Picture
While the 2025 tax bracket updates may appear minor, their impact on US expats can be meaningful. When paired with FEIE, FTC, local tax rules, and currency conversions, even small shifts in U.S. tax thresholds can create ripple effects for Americans living abroad.
Stott emphasized that there’s no one-size-fits-all answer. “The same income level could result in very different outcomes depending on which country you live in, how much local tax you pay, and whether you’re employed, self-employed, or retired.”
About Expat US Tax
Expat US Tax is a global tax firm focused exclusively on helping Americans abroad manage their US tax obligations. With clients in over 150 countries, the firm provides expert, streamlined support for everything from tax returns to FBARs and foreign trusts. Visit Expat US Tax to learn more.
Press inquiries
Expat US Tax
https://www.expatustax.com/
Clark Stott
info@expatustax.com
