Americans who move to Denmark for a job, a marriage, or a research posting quickly discover that two tax authorities are tracking their income: Skattestyrelsen in Copenhagen and the IRS back home. US expat taxes in Denmark come with a particular challenge, because Denmark is one of the highest-tax countries in the world, and getting the Foreign Tax Credit and treaty mechanics right is what keeps that high Danish tax bill from also generating a US bill on the same income. Denmark taxes its residents on worldwide income and the United States taxes its citizens and green card holders no matter where they live, so an American living in Denmark typically owes a filing obligation in both countries every year, and because the Danish tax bill is usually the larger of the two, the Foreign Tax Credit does most of the work of keeping that from becoming double taxation.
Do US Citizens Living in Denmark Have to File Both Danish and US Tax Returns?
Yes, in almost every case. Denmark taxes individuals who qualify as tax residents, generally meaning they have a home available to them in Denmark or spend a qualifying period there, on their worldwide income through Skattestyrelsen, part of the broader Danish Customs and Tax Administration, Skatteforvaltningen. The United States separately taxes its citizens and green card holders on worldwide income no matter where they live, a rule tied to US citizenship or immigration status rather than Danish residency.
That means the two filing obligations run independently of each other. Filing and paying tax in Denmark does not excuse you from filing a US Form 1040, and filing a US return does not excuse you from your Danish obligations. The mechanisms that keep the same dollar of income from being taxed twice, the Foreign Tax Credit, the Foreign Earned Income Exclusion, and the US-Denmark tax treaty, operate on the US side of that equation, not as a substitute for either filing.
How Does Denmark Tax Residents on Worldwide Income?
Denmark applies its income tax on a worldwide basis to anyone who qualifies as a tax resident, using the same steeply progressive rates already noted above as among the highest in the world. Employers generally withhold tax directly from Danish payroll throughout the year, similar to US wage withholding.
On top of ordinary income tax, most Danish employees also pay a labor-market contribution, referred to as AM-bidrag, calculated as a percentage of gross income before the income tax itself is applied, and members of the Danish national church additionally pay a church tax. Both add to the combined burden that ultimately gets credited against US tax, and both should be confirmed for the current year rather than assumed, since Danish tax rules and rates are set and adjusted annually.
Should You Claim the FEIE or the Foreign Tax Credit on Danish Income?
For most Americans earning wages in Denmark, the Foreign Tax Credit on Form 1116 is the stronger tool, because Denmark's combined income tax and labor-market contribution generally run well above the comparable US federal rate on the same income. When that is true, the credit tends to eliminate US tax on Danish-source income entirely and still leaves unused credit on the table.
The Foreign Earned Income Exclusion on Form 2555 works differently: it excludes foreign earned income up to an annually indexed maximum, for example $130,000 for 2025, from US taxable income in the first place under IRC Section 911. That can be simpler for income under the cap, but it comes with real costs. The FEIE does nothing for self-employment tax, claiming it can disqualify the refundable Additional Child Tax Credit for a family with kids, and once you revoke the election you generally cannot re-elect it for five years without IRS consent. The Foreign Tax Credit, by contrast, is computed by category under IRC Sections 901 and 904, and any credit you cannot use in the current year carries back one year and forward ten years on Schedule B of Form 1116. Given how high Danish tax runs, the credit routinely produces excess credit that can be carried forward for future use, which is why higher-earning Americans in Denmark typically favor the Foreign Tax Credit. Our FEIE versus Foreign Tax Credit comparison walks through the decision in more detail.
What Does the US-Denmark Tax Treaty Do for Double Taxation?
The United States and Denmark have a modern, comprehensive income tax treaty that has been in force since 2000, later updated by a protocol, and it provides real structure for Americans in Denmark: tie-breaker rules for residency when someone could otherwise be considered a resident of both countries, and treaty-based relief for specific categories of income. Like nearly every US treaty, it also contains a standard saving clause that lets the United States tax its own citizens and green card holders largely as if the treaty did not exist.
Because of the saving clause, the domestic Foreign Tax Credit and Foreign Earned Income Exclusion still do most of the routine, day-to-day work of avoiding double taxation on wages, and the treaty operates as a backstop for situations the domestic rules do not fully resolve on their own, including certain pension and residency questions addressed below. Any position that relies on a specific treaty provision beyond the general Foreign Tax Credit framework should be checked against the actual treaty text and current protocol before it is used on a return.
Does the US-Denmark Totalization Agreement Cover Social Security?
Yes. A totalization agreement between the United States and Denmark has been in force since October 1, 2008, and it exists specifically to stop a worker from paying into both countries' social security systems on the same earnings at the same time. Without it, an American employee or self-employed person working in Denmark could owe both Danish social contributions and US self-employment tax on the identical income.
The agreement works by assigning coverage to a single system based on where the work is performed and how long the assignment is expected to last, documented with a certificate of coverage issued by the Social Security Administration or the corresponding Danish authority, depending on the direction of the assignment. Self-employed Americans in Denmark should not assume US self-employment tax automatically applies; the SSA totalization pamphlet for Denmark and our guide to totalization agreements and self-employment tax abroad both cover how the certificate process works.
How Are Danish Pensions and Retirement Accounts Taxed by the US?
Not automatically. Denmark's retirement system includes the mandatory occupational pension known as ATP along with other employer and individual pension arrangements, and being tax-favored or mandatory under Danish law does not, by itself, make a plan tax-deferred for US purposes. Each Danish pension has to be analyzed on its own facts rather than assumed to follow the Danish tax treatment.
Under IRC Sections 401(a) and 402(b), a US person's default position is that income accruing inside a foreign retirement arrangement is taxed currently, not deferred, unless a specific treaty provision says otherwise. Whether the US-Denmark treaty provides that deferral, and for which type of Danish plan, is fact-specific and needs to be checked against the treaty's actual text rather than assumed to apply automatically. Our foreign pension US tax treatment guide walks through the four questions that determine the answer for any foreign plan: whether growth is taxed as it accrues, whether a treaty defers it, what has to be reported, and how distributions are taxed.
Are Danish Investment Funds Taxed as PFICs?
Usually, yes, which catches many Americans off guard after they have already absorbed Denmark's high income tax rates on the same investment income. A Danish investeringsforening, whether structured as a mutual fund, an actively managed fund, or many ETFs domiciled in Denmark or elsewhere in the EU, typically meets the definition of a passive foreign investment company under IRC Section 1297, with Sections 1291 and 1298 governing the tax treatment, and that US classification applies regardless of how the fund is taxed inside Denmark.
The default US tax treatment once a fund is classified as a PFIC is harsh: without a timely election, gains and certain distributions get spread across your entire holding period, taxed at the top rate in effect for each of those years, plus an interest charge on top of that. Each PFIC generally requires its own Form 8621 filing, even in a year where no tax is actually due, which is why Americans in Denmark are usually steered toward US-domiciled brokerage accounts and US-based index funds rather than a local investeringsforening through a Danish bank.
What Else Do You Have to Report to the IRS?
The income tax return is not the end of it: Danish financial accounts and investments trigger their own separate reporting obligations, independent of whether any US tax is actually owed, and each one is enforced on its own terms. Missing one of these filings typically carries a far steeper penalty than the underlying tax ever would have.
The Denmark Reporting Stack
Reference- FBAR (FinCEN Form 114). Required when the combined balance of your Danish bank, brokerage, and pension-related accounts exceeds $10,000 at any point during the year. See our FBAR filing guide.
- Form 8938 (FATCA, IRC §6038D). A separate filing threshold, higher for Americans living abroad, that can require you to list the same Danish accounts directly on your federal tax return. See our Form 8938 guide.
- Form 8621 (PFIC). Generally required for each Danish investeringsforening or other pooled fund that qualifies as a passive foreign investment company. See our PFIC and Form 8621 guide.
Citizenship is not the only path into a US filing obligation: a non-citizen who spends enough time in Denmark on a research fellowship, an intra-company transfer, or a residence permit before eventually settling there for good can still trip the substantial presence test, a separate question from Danish tax residency entirely.
Bottom Line
Denmark's tax rates do a lot of the heavy lifting for you: because Skattestyrelsen usually collects more than the IRS would on the same income, the Foreign Tax Credit tends to wipe out your US bill entirely, but that convenience does not excuse either filing. Skattestyrelsen and the IRS operate independently, and the mechanisms that keep this from becoming double taxation, the Foreign Tax Credit doing most of the routine work, backstopped by the treaty in force since 2000 and the totalization agreement in force since October 1, 2008, still have to be applied deliberately rather than assumed. ATP and other Danish pensions, an investeringsforening held at a Danish bank, and ordinary Danish bank accounts each trigger their own reporting rules on top of the income tax analysis, and getting any one of them wrong tends to cost far more in penalties than the credit ever saved you.
Have questions about US expat taxes in Denmark? Contact TS CPA for a free consultation. We respond within the same day.
Official IRS and Government Sources
- IRS, Foreign Earned Income Exclusion
- IRS, Foreign Tax Credit
- IRS, US Citizens and Resident Aliens Abroad
- IRS, United States Income Tax Treaties A to Z
- Social Security Administration, US-Denmark Totalization Agreement
- FinCEN, Report of Foreign Bank and Financial Accounts (FBAR)
- IRS, About Form 8621
- IRC Section 911, Citizens or Residents Living Abroad