US filing basics for Americans in Panama
Living in Panama does not terminate your U.S. federal income tax obligations. U.S. citizens, green-card holders, and certain long-term residents are taxed on worldwide income on a citizenship or residency basis, regardless of where the income is earned or where you reside. You generally must file Form 1040 (or 1040-SR) when gross income exceeds the annual IRS filing threshold, typically $15,000 to $30,000 or more depending on filing status, age, and dependency for recent tax years (exact amounts published in IRS Rev. Proc. documents and inflation-adjusted). Even if no tax is ultimately due after credits and exclusions, filing is usually required to claim benefits such as the Foreign Earned Income Exclusion (FEIE) under IRC §911 (up to $130,000 for tax year 2025 per IRS Rev. Proc. 2024-40) or the Foreign Tax Credit (FTC) for taxes paid to Panama authorities.
US tax treaty with Panama
There is no comprehensive US income tax treaty with Panama (or limited treaty coverage only). Planning typically relies on the Foreign Earned Income Exclusion, Foreign Tax Credit, and US domestic rules.
Local considerations in Panama
There is no US-Panama income tax treaty, so the Foreign Earned Income Exclusion and Foreign Tax Credit are the main tools against double taxation. Panama's territorial system often leaves foreign-source income untaxed locally, which can mean little foreign tax to credit, yet worldwide income still must be reported to the IRS. FBAR applies to Panamanian accounts above the threshold.
Common services needed by expats in Panama
Most Americans abroad in Panama need help with at least one of the following core compliance areas, which frequently interact:
- US expat tax returns, Form 1040 with FEIE, FTC, treaty positions, and any required state returns.
- FBAR reporting, FinCEN Form 114 for foreign financial accounts exceeding $10,000 aggregate at any time during the year.
- Form 8938 (FATCA), IRS disclosure of specified foreign financial assets when thresholds are met.
- Streamlined catch-up filing, For eligible non-willful taxpayers with prior unfiled years.