If you are an American living in Hungary, you already know that NAV, the National Tax and Customs Administration, expects a Hungarian return from you as a resident taxpayer. What trips up far more people is a change that took effect only recently: the tax treaty that used to coordinate US and Hungarian tax claims on the same income is gone. The United States terminated the US-Hungary income tax treaty, and as of January 1, 2024, there is no treaty in force between the two countries at all. That leaves Americans in Hungary filing a full US return every year, on top of their NAV obligations, with none of the treaty-based relief that expats in most other countries can rely on.
Do US Citizens Living in Hungary Have to File Both Hungarian and US Tax Returns?
Yes, and each government's filing requirement runs independent of the other. NAV taxes anyone resident in Hungary, determined by where a person keeps a permanent home, habitual abode, or center of vital interests, on every dollar of worldwide income, so salary from a Budapest employer, freelance invoices, rental income from a Hungarian apartment, and investment gains all land on the NAV return no matter where they were earned. The United States runs a separate, citizenship-based system: it taxes its citizens and green card holders on worldwide income no matter where they live, work, or already pay tax, so an American who has fully settled up with NAV in October still owes the IRS a Form 1040 in April covering the identical income a second time.
With no treaty in place since 2024, there is no treaty text to lean on for relief from that overlap, and the Foreign Tax Credit and Foreign Earned Income Exclusion covered below have to do all of the work that a treaty would otherwise share with them. Neither mechanism removes the filing requirement itself; you still have to file the US return and affirmatively claim the credit or exclusion, since the IRS does not apply either one automatically just because Hungarian tax was already paid.
Should You Claim the FEIE or the Foreign Tax Credit on Hungarian Income?
For Americans working in Hungary this is a real toss-up, not a foregone conclusion, and it needs to be run both ways before filing. Form 1116 only lets you credit Hungary's flat 15 percent personal income tax; the social contributions withheld alongside it are social-security-type charges, not income tax, and with no totalization agreement between the two countries they never make it onto the credit calculation. A 15 percent creditable rate lands below plenty of US effective rates, so the credit alone does not always wipe out the US bill, which is the scenario that pushes higher earners toward comparing both routes side by side. The Foreign Earned Income Exclusion shelters up to $130,000 of 2025 wage income and nothing else, so an American drawing a Budapest salary can exclude it while rental income from a Hungarian apartment or dividends from a Hungarian brokerage account stay fully taxable regardless of the exclusion, and even the wages it does cover still owe full US self-employment tax where applicable and lose access to the refundable Additional Child Tax Credit once the exclusion is claimed.
Form 1116 credits are computed by income category under IRC Sections 901 and 904, with unused credit eligible for the Schedule B carryover the comparison table below lays out. The FEIE carries its own commitment problem: drop it and you are locked out of re-electing for five tax years absent special IRS consent, so it is not a switch to flip back and forth as a Hungarian tax bill moves year to year. Lower earners, freelancers whose Hungarian tax paid falls short of the US liability, and households that do not need the Additional Child Tax Credit sometimes still land on the exclusion instead.
Is There a US-Hungary Tax Treaty, and What If There Isn't?
No, and this is the single most important fact for anyone doing US tax planning around Hungary right now. The United States Department of the Treasury gave formal notice terminating the US-Hungary income tax treaty on July 8, 2022, and under the treaty's own termination provisions, it ceased to have effect as of January 1, 2024. The termination followed Hungary's veto of a proposed European Union global minimum tax measure; Hungary later dropped its objection and the EU measure moved forward, but the United States did not reverse the termination, and the treaty has stayed dead since. As of 2026, there is no US-Hungary income tax treaty in force, full stop.
The practical consequences run in both directions. Americans in Hungary no longer have a treaty residency tie-breaker test, treaty-reduced withholding rates, or a savings-clause carve-out to fall back on for any category of income, so the Foreign Tax Credit under IRC Sections 901 and 904 and the Foreign Earned Income Exclusion under IRC Section 911 now do all of the double-tax relief work that a treaty and a credit or exclusion would normally share. On the other side of the border, US-source income paid to Hungarian residents, dividends, interest, and certain other payments, is now subject to the full 30 percent US statutory withholding rate rather than the reduced rate the old treaty provided, which matters for Hungarian residents who are not US persons. A US citizen or green card holder living in Hungary is still a US person who files Form 1040 on graduated rates and certifies US status on Form W-9, so the 30 percent nonresident rate does not apply to their own US brokerage or retirement accounts. There is also no Form 8833 treaty position to disclose for Hungary anymore, since there is no treaty to invoke one under. The United States and Hungary have also never had a totalization agreement, so there was never a separate Social Security coordination mechanism to lose in the first place, and an American working in Hungary has to evaluate US self-employment tax and Hungarian social contribution obligations independently.
How Does Hungary Tax Residents?
Hungary determines tax residency primarily by permanent home, habitual abode, and center of vital interests, factors that look at where a person actually lives day to day and where their closest personal and economic ties sit, rather than a single bright-line day count. Once someone qualifies as a Hungarian tax resident, NAV reaches every forint of worldwide income, not merely what was earned inside Hungary, which puts Hungarian tax residency in the same bucket as US citizenship: both trigger a claim on income earned anywhere on the globe. Non-residents are generally taxed by Hungary only on Hungary-source income instead.
Because both countries can independently claim a full worldwide-income tax return during the years someone qualifies as a Hungarian resident, and there is no treaty tie-breaker test available to sort out competing residency claims, the Foreign Tax Credit becomes the primary practical tool for avoiding two full tax bills on the same income. That makes accurate records of Hungarian tax paid, by category and by year, more important than they would be in a treaty country, since there is no treaty language to fall back on if the credit calculation gets challenged.
Are Hungarian Investment Funds Taxed as PFICs?
Start with the unit-linked life insurance policy or the mutual fund a Hungarian bank sold as a retirement or savings vehicle: both are pooled investments earning mostly dividends, interest, and capital gains rather than running an operating business, which is exactly the profile IRC Section 1297 uses to define a Passive Foreign Investment Company. Each one held triggers its own Form 8621 under IRC Sections 1291 and 1298, and absent a timely QEF or mark-to-market election, the default excess distribution regime taxes gains and certain distributions at the top marginal rate plus an interest charge calculated as if the gain had accrued evenly over the entire holding period.
This is a common blind spot for Americans in Hungary, since a Hungarian bank or financial advisor recommending a local fund has no reason to track US tax consequences, and with no treaty in force there is no treaty-based relief to soften the PFIC regime's default outcome either. Before putting money into any Hungarian fund or insurance-wrapped investment product, confirm whether it is actually a pooled structure in the first place, since individually held Hungarian stocks and bonds fall outside PFIC treatment entirely. Our PFIC and Form 8621 guide walks through the election choices available once PFIC status is confirmed.
How Are Hungarian Pensions and Retirement Accounts Taxed by the US?
A Hungarian voluntary pension fund comes with real local tax breaks on contributions and growth, and that is precisely what leads people to assume the IRS honors the same deferral, which it does not do automatically. IRC Sections 401(a) and 402(b) set the default rule: contributions to, and growth inside, a foreign employer or private pension plan count as currently taxable income to a US person unless a specific exception applies, and since the US-Hungary treaty is gone there is no treaty provision left to manufacture that exception for a Hungarian plan. A voluntary pension fund, an employer-sponsored plan, and the state pension system are three different animals under US law, so each one needs its own review rather than a blanket assumption that Hungary's favorable tax treatment survives the trip across the Atlantic.
Getting this wrong costs money in either direction: assuming deferral that a plan does not actually qualify for means underreported current income, while treating a plan as fully taxable without checking whether any narrow exception might still apply means giving up relief that could otherwise be available. Anyone holding a Hungarian pension or retirement account should have the actual plan documents and contribution structure reviewed before assuming either answer, particularly now that the treaty framework that used to govern many of these questions no longer exists. Our foreign pension US tax treatment guide walks through the analysis framework used to make that determination.
What Foreign Accounts and Assets Must You Report?
A single Hungarian forint checking account rarely trips the wire on its own, but stack a brokerage account and a voluntary pension fund balance on top of it and Americans in Hungary cross the FinCEN Form 114 threshold faster than they expect, because the rule adds together the highest balance of every foreign account a person controls rather than looking at any one account in isolation, and the trigger fires the instant that combined total tops $10,000 on even a single day of the year. FATCA layers Form 8938 on top of that, filed with the Form 1040 itself rather than separately, using its own higher dollar thresholds that move with filing status and with whether the filer counts as living in Hungary or in the United States for the year, and it pulls in a wider range of foreign financial assets than the FBAR ever reaches.
Neither filing depends on how much US tax is actually owed; a return that owes zero additional US tax after the Foreign Tax Credit can still require both the FBAR and Form 8938 purely because of account balances. Missing either one carries its own penalty exposure, entirely separate from anything tied to income tax, even when every dollar of income was reported correctly. Anyone holding a Hungarian bank account, brokerage account, or pension fund balance anywhere near these thresholds should run both filings through a checklist every year, not just the year the threshold was first crossed.
Bottom Line
Everything about a Hungary tax strategy now runs without a safety net that expats in most other countries still have: the US-Hungary income tax treaty is gone, terminated by US notice on July 8, 2022 and dead as of January 1, 2024, taking with it the treaty relief, reduced withholding rates, and residency tie-breaker test that would otherwise exist. The Foreign Tax Credit and the Foreign Earned Income Exclusion now carry the full weight of avoiding double taxation on their own, which raises the bar on keeping accurate, well-documented Hungarian tax records since there is no treaty language left to point to if a position gets challenged. Add a PFIC analysis for any Hungarian fund or unit-linked policy, a plan-by-plan look at Hungarian pension accounts, and FBAR and Form 8938 filings that trigger regardless of tax owed, and a generic answer stops being useful for Hungary specifically. This is a facts-and-circumstances situation with no treaty fallback, which calls for a review built around the actual accounts and income involved rather than a guess.
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