If you’ve spent any time living in the Gulf (Dubai, Doha, Riyadh), you’ve probably joked at least once about how strange it feels to earn a salary with zero income tax taken out. And honestly, it is a relief. However, every American in the region eventually bumps into the same reality: the IRS doesn’t really care where you live. If you’re a U.S. citizen or Green Card holder, you’re still expected to file a U.S. return for 2025, even while surrounded by sand dunes, skyscrapers, and tax-free paychecks.
And because the IRS adjusts numbers every year, 2025 brings a fresh round of changes that matter a lot more than people assume. Here’s what you actually need to know before filing in 2026.
What’s New in the 2025 Federal Income Tax Brackets?
Although Gulf residents don’t deal with local income tax, the U.S. brackets still shape your federal liability, especially if you earn a high salary or receive generous allowances, which is common across the region.
For 2025, the IRS released inflation-adjusted brackets that raise the thresholds across all filing statuses. It’s a subtle change, but it can shift your tax outcome if your income climbs each year, as it often does for expats with annual housing, education, or transportation allowances built into their contracts.
In other words: even in a tax-free country, your U.S. rate still matters.
Updated 2025 Standard Deduction
The standard deduction is also increasing for 2025. For most expats, this is the deduction they lean on, since itemizing from abroad is often unnecessary or impossible.
- Single filers: higher deduction
- Married filing jointly: higher deduction
- Head of household: higher deduction
- Married filing separately: still the problematic category, especially if your spouse is not a U.S. person
The one wrinkle? If you file separately because your spouse isn’t American, you lose access to several credits and phase-outs. It’s not always a bad choice, but it’s rarely straightforward.
Before you decide anything, it helps to look at the exclusions expats rely on next.
The Updated 2025 FEIE (Foreign Earned Income Exclusion)
For 2025, the Foreign Earned Income Exclusion rises to US$130,000. Most Gulf-based Americans depend heavily on this because the region doesn’t impose income tax. And since FEIE covers earned income, it works well for salaried employees with predictable hours.
But the traps usually come from travel. Many Gulf residents fly constantly, whether it be quick weekends in Georgia, visa runs to Oman, or long summer breaks in Europe. One too many days outside a foreign country can break the Physical Presence Test’s 330-day rule.
If you’re thinking, “Well, I’m definitely abroad for the whole calendar year,” the Bona Fide Residence Test might help instead, though it depends on your long-term intentions and residency setup.
Foreign Housing Exclusion Updates
Housing costs in the Gulf can swing wildly depending on where you live. A one-bedroom in central Dubai can cost twice what it does in Sharjah. The IRS accounts for this through the Foreign Housing Exclusion, which adjusts each year.
For 2025:
- Base housing amount: US$20,800
- General cap: US$39,000
- Certain high-cost locations may have higher caps (Dubai and Doha often qualify)
If your employer provides housing, which is common for teachers, engineers, and medical staff, the value of that benefit can sometimes be excluded.
Child Tax Credit & Other Credit Changes for 2025
The Child Tax Credit remains US$2,200, with up to US$1,700 potentially refundable. Children must have valid Social Security Numbers issued on time.
There’s a catch that trips people up:
If you use FEIE, your “earned income” becomes artificially low, which can shrink the refundable portion dramatically. It’s a weird quirk of the system, and it surprises many new expats every year.
Foreign Reporting Rules That Still Apply in 2025
Living in the Gulf doesn’t exempt you from reporting foreign assets. In fact, Gulf banks have tightened compliance under FATCA in recent years.
You may need to file:
- FBAR (FinCEN 114) if your foreign accounts exceed US$10,000 combined at any time
- Form 8938 if your assets exceed FATCA thresholds for expats
- Other forms if you own a business, hold foreign investments, or have complex structures
Even though Gulf countries don’t impose income tax, they do exchange information with the U.S. under FATCA agreements, so the IRS likely knows you’re banking there.
Self-Employment & Contractor Rules for Gulf Expats
If you’re freelancing in Dubai or holding a contractor visa in Saudi Arabia, the U.S. still expects 15.3% self-employment tax on net earnings.
Because the Gulf has no totalization agreements, you can’t shift Social Security obligations away from the U.S.
Freelance permits look simple on paper, but the IRS treats them as regular self-employment, with all the usual requirements.
Need help sorting out your 2025 U.S. filing?
If you’d rather not spend your weekends deciphering IRS forms, Expat US Tax can walk you through the entire 2025 filing process starting from FEIE, FBAR, housing exclusion, and everything.
They work with thousands of Gulf-based Americans each year, so they know how the regional systems work and how to keep your return clean, compliant, and (ideally) tax-free.
Aisha Noreen is an owner of a small business with more than 9 years of experience in the marketing industry. With the wisdom of an old soul, she always seeks innovation and mind-blowing ROI techniques. Her unique approach helped many small businesses thrive and she can surprise you in many ways as well. Believe it or not, her energy, passion, and creativity are contagious enough to transform your business and take it to another level.