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US Tax Help for Americans in Panama
Short answer: If you are a US citizen or green card holder living in Panama, you still file a US return on your worldwide income. All State Tax Resolution, led by Sabih Shafi, an Enrolled Agent, prepares the US side for Americans in Panama. Panama has no income tax treaty or Social Security agreement with the US, so the exclusion and the credit do most of the work.
Key takeaways
A US citizen or green card holder in Panama files a US return on worldwide income.
The foreign earned income exclusion is up to $130,000 for 2025 and $132,900 for 2026, per person. It does not cover pensions or Social Security benefits.
Panama bank accounts can trigger an FBAR once your foreign accounts together pass $10,000, and sometimes Form 8938 as well.
If you missed filings, the streamlined procedures may fit when the failure was not willful.
Do Americans in Panama have to file a US tax return?
Yes, in most cases. The IRS says the rules for filing are generally the same whether you live in the United States or abroad, and that you are taxed on worldwide income from all sources. Moving to Panama does not change that for a citizen or a green card holder. The IRS also says many Americans abroad qualify for the foreign earned income exclusion and the foreign tax credit, but only by filing a US return.
The regular due date is April 15. If you live outside the US and your main place of business or post of duty is outside the US on that date, you get an automatic two extra months, to June 15. You attach a statement to the return saying you qualify. Interest on tax you owe still runs from April 15. Form 4868 can add four more months, to October 15, for filing only. It is not extra time to pay.
What Panama's rules mean for your US return
Panama has its own tax authority, the Dirección General de Ingresos, and its own rules for what it taxes and what you file there. We do not prepare Panamanian returns or advise on Panamanian law. If a US choice depends on a Panamanian figure, we use the number your Panamanian preparer gives us.
Here is what matters on our side. Whether Panama taxes you does not decide whether the US taxes you. The US looks at your citizenship or green card, then gives you tools to avoid paying twice. The IRS list of US income tax treaties does not include Panama, so there is no treaty to lean on.
Exclusion or credit: which fits you?
The foreign earned income exclusion, claimed on Form 2555, leaves part of your foreign earnings out of US income tax: up to $130,000 for 2025 and $132,900 for 2026, per person. To claim it you need foreign earned income, a tax home in a foreign country, and one of two tests. Under the bona fide residence test, you are a resident of a foreign country for an uninterrupted period that includes an entire tax year. Under the physical presence test, you are in foreign countries for at least 330 full days in any 12 months in a row. A green card holder can use the residence test only as a citizen or national of a country with a US income tax treaty. Panama has none, so a Panamanian citizen with a green card living in Panama needs the 330-day test.
Foreign earned income means pay for work you do. The IRS says it does not include pension or annuity payments, including social security benefits, and it does not include pay from the US government. A retiree in Panama living on a pension and Social Security cannot use the exclusion for that income.
The exclusion lowers income tax only. It does not reduce self-employment tax.
The foreign tax credit, claimed on Form 1116, is the other route. It reduces your US tax by qualifying foreign income taxes you paid. The IRS says generally only income, war profits and excess profits taxes qualify, and you cannot take a credit for tax on income you exclude. Which route is better depends on your income and on what you actually pay in Panama, so we run both and show you the numbers before you choose.
Social Security and Medicare: no US agreement with Panama
The Social Security Administration has agreements with some countries to stop double Social Security tax on the same pay. Its list of agreements in force does not include Panama.
For employees, the IRS says US social security and Medicare taxes generally do not apply to wages for work you do outside the US, unless an exception applies, such as working for an American employer.
For the self-employed, the Social Security Administration says US coverage extends to self-employed US citizens and residents wherever the work is done, so they are almost always covered by both countries. An agreement is what fixes that, and there is none. A freelancer in Panama normally owes US self-employment tax on net earnings, and the exclusion does not reduce it. Whether Panama charges its own contributions is a Panamanian question.
Bank accounts, companies and FATCA
Two separate reports can apply to your accounts in Panama.
FBAR (FinCEN Form 114). FinCEN says you must file if your foreign financial accounts together exceed $10,000 at any time in the calendar year. You file it online with FinCEN, not with your tax return. It is due April 15, with an automatic extension to October 15.
Form 8938. It is attached to your return. If you live abroad by the IRS definition, you file it above $200,000 on the last day of the year or $300,000 at any time for a return that is not joint, and above $400,000 or $600,000 for a joint return. It does not replace the FBAR.
Panama's tax authority lists the law approving the FATCA agreement with the US on its website, and the US Treasury lists that agreement as in force. The IRS says FATCA generally requires foreign financial institutions to report on assets held by their US account holders. We tell clients to treat Panama accounts as visible to the IRS.
If you own part of a Panama company, a separate form may apply. The IRS says certain US citizens and residents who are officers, directors or shareholders in certain foreign corporations file Form 5471. Tell us about every company and account you hold, even one with no income.
Behind on US filing from Panama?
The streamlined foreign offshore procedures are for people abroad whose failures were non-willful, meaning negligence, inadvertence, mistake or a good faith misunderstanding of the law.
The IRS asks for delinquent or amended returns for the most recent three years with a passed due date, with required information returns such as Form 8938, and FBARs for the most recent six years. All tax and interest is paid with the returns, and Form 14653 certifies non-willful conduct. You also need no US abode and at least 330 full days outside the US in one of those three years.
The IRS says a filer who qualifies and follows the instructions is not subject to failure-to-file, failure-to-pay, accuracy-related, information return or FBAR penalties, unless an exam finds fraud or a willful FBAR violation. You cannot use the procedures once a civil exam or criminal investigation has started. If your conduct may have been willful, talk to us before you file anything.
State taxes after you move
Leaving the US does not always end state tax. California's Franchise Tax Board, for example, treats you as a resident if you are domiciled in California but outside the state for a temporary or transitory purpose. Other states have their own tests, so we check your last state's rules instead of guessing.
How we help
I am Sabih Shafi, an IRS Enrolled Agent, federally licensed to represent taxpayers before the IRS in all 50 states. We prepare US returns for Americans in Panama City, Boquete, Coronado and anywhere else in the country, by phone and video, in English or Spanish.
Your US return: Form 1040 with Form 2555 or Form 1116, run both ways so you see which comes out better.
Foreign account reports: we check whether you owe an FBAR or Form 8938, and whether a Panama company needs its own form.
Missed years: we prepare several unfiled years and tell you whether the streamlined procedures fit.
IRS letters: an Enrolled Agent signs your return and can represent you if the IRS writes.
A flat fee quoted in writing before work starts.
Frequently Asked Questions
Do I have to file a US tax return if I live in Panama?
Usually yes, if you are a US citizen or green card holder with income above the filing threshold. You are taxed on worldwide income wherever you live.
Does Panama have a tax treaty with the US?
Not on the IRS list of US income tax treaties, which does not include Panama. The exclusion and the foreign tax credit do the work of preventing double tax.
Can I use the foreign earned income exclusion on my pension or Social Security?
No. The IRS says pension or annuity payments, including social security benefits, are not foreign earned income. The exclusion is for pay you earn by working.
Do I need an FBAR for my Panama bank account?
If all your foreign accounts together exceed $10,000 at any time in the year, yes. The balance is counted across accounts, not per account.
Can you prepare my Panamanian tax return?
No. We prepare the US side only. You need a Panamanian preparer for local filings, and we work with the figures they give us.
I have not filed US returns since I moved. What now?
Book the free review before filing anything. We see which years are missing and whether the streamlined procedures fit your situation.
General information, not tax advice for your situation.
Related Reading
Talk to an Enrolled Agent
This article is general information, not individual tax advice. If you want to talk through your own IRS or state balance, book a free 20-minute review or call or text us directly.
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