Americans who move to Japan for a job transfer, a teaching post, or a spouse's career quickly discover that two governments are now watching their income: the National Tax Agency in Japan and the IRS back home. US expat taxes in Japan are not optional and they are not automatic. What Japan actually taxes depends on how long a person has lived there, while the United States taxes its citizens and green card holders no matter where they live. Because of that mismatch, an American living in Japan typically owes a filing obligation in both countries every year, and the entire planning exercise is about coordinating the two so the same income is never taxed twice.
Do US Citizens Living in Japan Have to File Both Japanese and US Tax Returns?
Yes, in almost every case. Japan taxes individuals who are resident there under its own residency rules, with the scope of what actually gets taxed depending on which residency category a person falls into, administered through the National Tax Agency. The United States separately taxes its citizens and green card holders on worldwide income no matter where they live, a rule that has nothing to do with Japanese residency and everything to do with US citizenship or immigration status.
That means the two filing obligations run independently of each other. Filing and paying tax in Japan does not excuse you from filing a US Form 1040, and filing a US return does not excuse you from your Japanese obligations. The mechanisms that keep the same dollar of income from being taxed twice, the Foreign Earned Income Exclusion, the Foreign Tax Credit, and the US-Japan tax treaty, operate on the US side of that equation, not as a substitute for either filing.
How Does Japan Tax Residents on Worldwide Income?
Japan does not tax every resident the same way. Japan sorts individuals into residency categories, and a non-Japanese national who has lived in Japan for not more than five of the last ten years generally qualifies as a non-permanent resident, a status that is typically taxed on Japan-source income plus any foreign-source income that is actually paid in Japan or remitted into Japan, rather than on all worldwide income outright.
Once someone crosses that five-of-ten-years threshold, or otherwise qualifies as a permanent resident for Japanese tax purposes, Japan generally taxes worldwide income the same way it taxes a Japanese national. Because the line between these categories, and the remittance rules that come with non-permanent resident status, depend on residence history and the specific facts of each move, which category actually applies has to be confirmed for the individual rather than assumed from a rule of thumb. Employers typically withhold national income tax from wages throughout the year, and a separate local inhabitant tax, assessed by the city or ward where you live and based on the prior year's income, is billed and collected outside of that payroll withholding.
Should You Claim the FEIE or the Foreign Tax Credit on Japanese Income?
For most Americans earning wages in Japan, the Foreign Tax Credit on Form 1116 is the stronger tool, because Japanese income tax on employment income generally runs high enough that the credit alone tends to eliminate US tax on that income. When that is true, the credit can wipe out US tax on your Japan-source income entirely and still leave 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 §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 §§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, which you can use in a future year when your foreign taxes fall below the Form 1116 limit. Our FEIE versus Foreign Tax Credit comparison walks through the decision in more detail, and the two elections can also be combined across different income types in the same year.
What Does the US-Japan Tax Treaty Do for Double Taxation?
The United States and Japan have a comprehensive income tax treaty, in force since 2004 and updated by a protocol that entered into force in 2019, but for most Americans on the ground in Japan the treaty is not where the day-to-day double-tax relief comes from. Like nearly every US treaty, it 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, so the domestic Foreign Tax Credit and Foreign Earned Income Exclusion mechanisms described above do most of the actual work of avoiding double taxation on wages.
Where the treaty matters most is in the details: tie-breaker rules for residency when someone could be considered a resident of both countries in the same year, reduced withholding on certain investment income, rules for business profits, and specific provisions touching pensions and social security that can differ from the general rule. Because treaty provisions have to be read in their specific text, any position relying on a specific treaty article beyond the general saving-clause framework should be reviewed against the actual treaty language before you file.
Does the US-Japan Totalization Agreement Cover Social Security?
Yes. A totalization agreement between the United States and Japan has been in force since October 1, 2005, and it exists specifically to stop a worker from paying into both countries' social insurance systems on the same earnings at the same time. Without it, an American employee or self-employed person working in Japan could owe both Japanese social insurance 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. Depending on the direction of the assignment, the certificate is issued by the Social Security Administration, to keep someone covered under the US system while working temporarily in Japan, or by the Japan Pension Service, to keep someone covered under the Japanese employee pension system. Self-employed Americans in Japan should not assume US self-employment tax automatically applies; our guide to totalization agreements and self-employment tax abroad covers how the certificate process works.
How Are Japanese Pensions and Retirement Accounts Taxed by the US?
Not automatically. Japan offers several distinct retirement vehicles: the Employees' Pension Insurance and National Pension systems that make up the statutory social insurance pension, and private or employer-sponsored options including iDeCo, Japan's individual defined contribution pension. Being tax-favored under Japanese law does not, by itself, make any of these tax-deferred for US purposes.
The general US rule, under the operation of IRC §§401(a) and 402(b), is that income accruing inside a foreign retirement plan is taxed currently to a US person unless a specific treaty provision defers it. Whether the US-Japan treaty provides that deferral, and for which type of Japanese plan, is fact-specific and has to be analyzed against the actual treaty text rather than assumed. Because the analysis is the same regardless of which country the plan is in, 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 Japanese Investment Funds Taxed as PFICs?
Usually, yes, and this is one of the more expensive surprises for Americans investing through a Japanese brokerage. A Japanese investment trust, whether it is a mutual fund, an actively managed fund, or many ETFs domiciled in Japan or elsewhere in Asia, typically meets the definition of a passive foreign investment company under IRC Section 1297, with Sections 1291 and 1298 governing the tax treatment. That classification is a matter of US tax law and does not turn on how the fund is taxed inside Japan or whether it sits inside a Japanese tax-advantaged wrapper like NISA.
Once a fund is a PFIC, the default US tax treatment is punitive: absent a timely election, gains and certain distributions are spread over your holding period, taxed at the highest rate in effect for each of those years, and hit with an interest charge on top. Each PFIC generally requires its own Form 8621 filing, and the reporting obligation applies even in a year where no tax is actually due. This is one of the clearest reasons Americans in Japan are usually steered toward US-domiciled brokerage accounts and US-based index funds for new investing rather than opening a local investment trust or NISA account through a Japanese bank or brokerage.
What Else Do You Have to Report to the IRS?
Beyond the income tax return itself, Japanese financial accounts and investments carry their own separate information-reporting obligations that apply whether or not any US tax is owed. These filings are enforced on their own terms, and the penalties for missing them are typically far larger than any tax that would have been due.
The Japan Reporting Stack
Reference- FBAR (FinCEN Form 114). Required when the combined balance of your Japanese 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 Japanese accounts directly on your federal tax return. See our Form 8938 guide.
- Form 8621 (PFIC). Generally required for each Japanese investment trust or other pooled fund that qualifies as a passive foreign investment company. See our PFIC and Form 8621 guide.
Whether you even count as a US tax resident in the first place, if your situation is more complicated than straightforward citizenship, such as a long visit on a work visa before a move became permanent, is a separate question governed by the substantial presence test.
Bottom Line
Living in Japan does not simplify your US tax picture, it adds a second filing system on top of it. The National Tax Agency and the IRS operate independently, and the tools that prevent double taxation, primarily the Foreign Tax Credit given how high Japanese tax runs on employment income, along with the treaty's narrower provisions and the totalization agreement for social security, have to be applied deliberately rather than assumed. Pensions, Japanese investment funds, and foreign accounts each carry their own reporting rules on top of the income tax analysis, and getting any one of them wrong tends to cost more in penalties than the underlying tax ever would have.
Have questions about US expat taxes in Japan? 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-Japan Totalization Agreement
- FinCEN, Report of Foreign Bank and Financial Accounts (FBAR)
- IRS, About Form 8621
- IRC Section 911, Citizens or Residents Living Abroad