Do I still have to file US taxes if I live abroad?
Yes — moving to Mexico or Spain doesn't end your US taxes. The Foreign Earned Income Exclusion can cut your income tax to $0, but it's not automatic, and it doesn't erase self-employment tax. See what you'd actually owe, and the Mexico-vs-Spain difference that catches people.
Your situation
The breakdown
Email me my FEIE summary + the questions to ask an expat-tax pro
Methodology & data sources
US citizens and green-card holders are taxed on worldwide income regardless of where they live. The Foreign Earned Income Exclusion (FEIE, Form 2555) lets you exclude up to $132,900 for 2026 of foreign earned income from US income tax — if your tax home is abroad and you pass the Physical Presence Test (330 full days in a foreign country in any 12 consecutive months) or the Bona Fide Residence Test (a full tax year as a resident). It is an election you must claim by filing Form 1040 with Form 2555 attached — it is not automatic, and income above the cap stays taxable at ordinary rates (computed with the Foreign Earned Income Tax Worksheet "stacking rule"). Critically, the FEIE reduces income tax but not self-employment tax (15.3% = 12.4% Social Security up to the $184,500 wage base + 2.9% Medicare, on 92.35% of net earnings). Whether a self-employed American owes US SE tax abroad turns on totalization agreements: the US–Spain agreement is in force (a certificate of coverage can exempt you), while the US–Mexico agreement was signed in 2004 but never entered into force — so a self-employed American in Mexico still owes it. We compute the confident layer (exclusion + SE tax) and flag the rest for a cross-border pro.
Sources: IRS — Foreign Earned Income Exclusion · IRS — Form 2555 instructions · SSA — Totalization agreements (Spain in force; Mexico not)
Frequently asked questions
Do I still have to file if I live in Mexico or Spain?
Yes. You file on worldwide income. The FEIE can cut your income tax to $0, but it's not automatic — you must file Form 1040 + Form 2555 to claim it, or you forfeit the exclusion.
Does it cover self-employment tax?
No. The FEIE excludes income tax only. Self-employment tax (15.3%) still applies — and in Mexico, which has no totalization agreement in force, you still owe it. In Spain a certificate of coverage can exempt you.
How much is the exclusion for 2026?
$132,900 per qualifying person (up from $130,000 in 2025). Each spouse who qualifies files their own Form 2555, up to $265,800 combined.
What if I earn more than the cap?
Only up to $132,900 is excluded; income above that is taxed at your ordinary US rates via the stacking-rule worksheet. The foreign housing exclusion and the Foreign Tax Credit (Form 1116) are separate options — a US expat-tax pro should run your full return.