Living in Japan as an American can be an adventure filled with new culture, friends, and opportunities, but taxes are one part of expat life you can’t ignore. US citizens and Green Card holders must still file US taxes wherever in the world they live, and Japan has its own tax system that expats need to understand. The good news? There are tax benefits and strategies available to prevent double taxation for expats. In this article, we provide an overview of how US expat taxes work for Americans in Japan, including rules, strategies and deadlines, and show you how to stay compliant while keeping more of your hard-earned income.
Why do Americans in Japan have to file two tax returns?
Living abroad doesn’t get you off the hook with the IRS. If you’re a US citizen or green card holder, you’re still required to file a US tax return every year. This is true even if all your income comes from Japan.
At the same time, Japan taxes based on residency, so if you’re living and working in Japan, you’ll likely owe Japanese taxes too. As such, most Americans in Japan end up filing in both countries — once in Japan and once in the US.
How can US expats in Japan avoid paying taxes twice?
Filing two returns doesn’t necessarily mean paying double tax. While the US-Japan tax treaty doesn’t automatically prevent double taxation, the US offers provisions to help expats avoid it.
The Foreign Tax Credit
If you pay income tax in Japan, you can usually claim a credit for the same amount to offset your US tax bill. The Foreign Tax Credit reduces your US tax dollar-for-dollar. If your Japanese tax is higher than what you’d owe to the US, your US liability often drops to zero, and any unused credits can be carried forward to future years. You can carry them back one year or forward up to ten years in the same income category.
The Foreign Earned Income Exclusion (FEIE)
The FEIE lets you exclude a portion of your foreign earned income from US taxation. For 2025 tax year, the exclusion limit is $130,000. To qualify, you need to meet either:
- The Physical Presence Test: 330 full days abroad in a 12-month period, or
- The Bona Fide Residence Test: showing you are a bona fide resident of Japan, meaning it is your main home, for at least a full calendar year.
Foreign Housing Exclusion
If you qualify for the FEIE and rent your home in Japan, you can also claim the Foreign Housing Exclusion to exclude some of your housing costs from US taxation. Rent, utilities, insurance, and even parking may qualify. In expensive cities like Tokyo or Osaka, this can be a great benefit.
Which option should expats use?
This is where strategy matters. If you’re paying high Japanese income tax rates, the Foreign Tax Credit is often your best option, as you can normally cancel out your US tax liability.
If your income is lower and entirely earned (rather than passive), or if Japanese tax rates are lower than US rates for your bracket, the Foreign Earned Income Exclusion (and possibly the Foreign Housing Exclusion) might make more sense.
While everyone’s situation is different, but keep in mind that you can’t apply the FEIE and the FTC to the same income. Often the best approach is to run the numbers under both options and compare which gives you the greater benefit.
As an American living in Japan, depending on your income and overall financial circumstances, you may need to file:
- Form 2555 – To claim the Foreign Earned Income Exclusion and Housing Exclusion
- Form 1116 – To claim the Foreign Tax Credit
- FinCEN Form 114 (FBAR) – Required if your Japanese bank accounts ever totaled more than $10,000 combined during the year
- Form 8938 (FATCA) – Needed if your foreign financial assets exceed certain thresholds (e.g. $200,000 for single filers abroad)
- Form 5471 – If you have a business registered in Japan
These forms can be time-consuming, but skipping them can mean steep penalties. There may be other forms required too, so seek advice from a US expat tax specialist.
Filing deadlines for expats in Japan
The Japanese tax year runs January 1 to December 31, and returns are typically due by March 15. Extensions aren’t available.
The US tax year is also the calendar year. As an expat, the IRS gives you an automatic extension to file until June 15. On top of that, you can request an additional extension to October 15 if needed. Remember, extensions only extend your time to file, not to pay unpaid tax. Interest still accrues after April 15, so paying early helps avoid extra costs.
Pro tip: Use your Japanese tax documents like the Gensen-Choshu-Hyo (similar to a W-2) when filing your US return. It shows your income and taxes paid and makes things much easier when claiming the Foreign Tax Credit.
What do expats need to know about Japanese taxes?
Japan doesn’t just tax foreigners blindly, it categorizes them. Your residency status affects what income gets taxed.
- Non-residents – Only taxed on Japanese-sourced income
- Non-permanent residents – Taxed on Japanese income and some foreign income if brought into Japan
- Permanent residents – Taxed on worldwide income, just like citizens
Most Americans who’ve lived in Japan for over five years get treated as permanent residents.
Income taxes
Japan’s national income tax is progressive, topping out at 45% for high earners. On top of that, you’ll pay local inhabitant tax, which is around 10%. There’s also a 2.1% surtax on national income tax, depending on your bracket.
Social security
Thanks to the US-Japan Totalization Agreement, you won’t get hit with social security tax in both countries. If you work for a Japanese company, you pay into the Japanese pension system. If you’re sent by a US employer and stay under five years, you likely remain in US Social Security.
Other taxes
- Capital gains tax – Generally around 20% on stocks; real estate gains can hit up to 39% depending on how long you’ve owned the property
- Property tax – Roughly 1.7% of assessed value, plus possible local taxes
- Consumption tax – Japan’s version of VAT is 10% for most goods and services. It’s reduced to 8% for essentials like groceries and non-alcoholic beverages
The IRS loves paperwork, especially when it comes to foreign accounts. Here are the key things to stay on top of:
- FBAR (FinCEN Form 114) – Required if your foreign accounts total over $10,000 at any point
- FATCA (Form 8938) – Required if your foreign assets exceed certain thresholds, depending on your filing status.
- Child Tax Credit – You can normally only claim this benefit if you don’t use the Foreign Earned Income Exclusion. It’s worth a refundable $1,700 per qualifying child, so it can be a great benefit from Americans parents living in Japan
Missing these forms can result in huge fines, even if you don’t owe any tax. The penalties are automatic, so don’t skip them.
Tips to make filing easier
Filing from Japan doesn’t have to be painful. Here’s how to simplify things:
- Keep your Japanese tax records, especially the Gensen-Choshu-Hyo, organized and translated
- Track your travel dates to meet the Physical Presence Test if you’re using FEIE
- Save receipts for rent and utilities if claiming the Foreign Housing Exclusion
- If your situation is complex, work with a tax professional who understands both US and Japanese systems
What to do next
Filing US taxes from Japan is absolutely manageable once you know the rules. Use the Foreign Tax Credit if you pay higher taxes in Japan, or the FEIE if your income is lower or your housing costs are high. Don’t forget about reporting your foreign accounts, too, and be aware of the IRS and Japanese deadlines.
If you’ve been living in Japan but not filing US taxes because you didn’t know you had to, you may qualify for an IRS amnesty program called the Streamlined Procedures.
Paying taxes in two countries isn’t ideal, but with the right advice and planning, you won’t pay more than you have to. Living in Japan can be an amazing experience – don’t let tax season ruin it.
Vincenzo Villamena, CPA is Founder and CEO of Online Taxman. Having previously worked at PwC in New York, he has 20 years' experience in expat taxes and regularly appears in the media as a thought leader in accounting and finances for overseas Americans. Vincenzo loves to travel, is fluent in Spanish, Portuguese, and Italian, and currently resides in Rio De Janeiro, Brazil.
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