Taxes when you retire abroad work differently for Americans than for almost anyone else: the US taxes its citizens on worldwide income wherever they live. Move to Valencia or Mérida and you still file Form 1040 every April. The only real question is what the new country adds on top, and that ranges from a full second tax return to nothing at all.
The answer sits in a treaty article that almost nobody reads before they move. Here’s the short version, and the four forms that follow you out of the country.
Taxes when you retire abroad: what doesn’t change
The IRS is plain about it: if you’re a US citizen, you report your worldwide income no matter where you live.
The tool most people have heard of, the foreign earned income exclusion, won’t help a retiree. It only covers earned income: wages and self-employment. Pensions, Social Security, IRA and 401(k) withdrawals, dividends and interest are all outside it. For retirees, double taxation is handled two other ways:
- the tax treaty, which decides which country gets to tax each kind of income first,
- foreign tax credits, which let you subtract tax paid to one country from the bill in the other.
Your state may also keep taxing you if you don’t clearly break residence there: sell or rent out the house, move your driver’s license and voter registration, close the ties. States differ, and a few are known for pursuing former residents. Check yours before you leave.
What changes: the new country’s claim
Countries fall into three rough groups for an American retiree.
Worldwide taxation, and they tax your Social Security. Spain is the clearest example. Once you spend more than 183 days there in a year, Spain taxes your worldwide income, and its tax agency says US Social Security and private pensions are taxed in Spain under the treaty, with relief where the US taxes them too. US government pensions are the exception. The full picture, with Modelo 720 and the wealth tax, is on Spain taxes for American retirees.
Worldwide taxation, but the treaty gives Social Security to the US. Mexico taxes its residents on worldwide income, but Article 19 of the US–Mexico treaty says US Social Security paid to a resident of Mexico or a US citizen is taxable only in the US. Other income, like IRA withdrawals and investment income, follows different rules.
Territorial taxation. Costa Rica and Panama tax only income earned locally. A US pension or Social Security check paid into your account from abroad isn’t taxed there. Costa Rica has several bills in committee in 2026 that would tax some foreign income, and none has passed; watch that space if Costa Rica is on your list.
Every country on this site has its own rules on residency days, pensions and investment income, and they change. Treat the groups above as a first filter, not a plan.
The four forms that follow you
Form 1040. Every year, as before. Many expats get an automatic two-month extension to June, but interest still runs from April on any tax owed.
FBAR (FinCEN Form 114). Required when your foreign accounts together exceed $10,000 at any point in the year. It’s filed with FinCEN, not the IRS, and it’s a report, not a tax. The day you open a local bank account and move a few months of rent into it, you’ve probably crossed the line.
Form 8938. The IRS’s own foreign-asset report, filed with your 1040, with higher thresholds for people who live abroad: $200,000 at year end or $300,000 at any time if single, double for a married couple filing jointly. It overlaps with the FBAR, and you may need both.
The new country’s own asset report. Spain’s Modelo 720 is the best-known example: Spanish residents declare assets abroad above €50,000 in any category. Portugal, Italy and others have their own versions. From the new country’s point of view, your US brokerage account and IRA are the foreign assets.
The mistakes that cost the most
Buying local investment funds. To the IRS, most non-US mutual funds and ETFs are PFICs, taxed and reported under rules designed to punish them. A fund a friendly local banker recommends can cost more in US tax and paperwork than it ever earns.
Choosing the arrival date by accident. Many countries use a calendar-year day count. Arrive in May and the whole year may count as resident; arrive in mid-July and it may not. Ask before you book.
Assuming the internet is right about your treaty. Search “does Spain tax Social Security” and you’ll find confident answers in both directions. The country’s own tax agency and the treaty text beat any blog, including this one.
Doing it alone in year one. One hour with a preparer who handles expat returns, and one with a local adviser, before you move, costs less than a single missed form. I’m not a tax adviser; this page is the map for that hour.
Country by country
The country pages on this site go into each place’s rules on residency days, pensions and wealth taxes. Start with Spain, the most complicated of the popular choices, and the one where getting it right is worth the most.