As a U.S. citizen or subject, such as green card holder, you are liable for tax on income earned abroad.
As a side note, the U.S. is the only country that taxes its citizens or subjects on worldwide income. For an example on how the U.S. government wants its due from overseas earnings, let’s say that you are a U.K. citizen but are in the U.S. on a green card and you earn income in the U.K. You must claim the income from the U.K. in the U.S. and pay any tax due. The U.K., though, like many countries, has a tax treaty with the U.S.
So, using the same example as before, if the U.K. income is taxed in the U.K., the income is claimed here in the U.S., and the amount of tax paid in U.K. is given a foreign tax credit, which is a dollar-for-dollar credit, in the U.S. If there is a difference between the taxes owed here and the taxes paid in the U.K., then the difference is taxed in the U.S.
For example, let’s say that your income in the U.K. is 20 pounds, and the tax paid in the U.K. is 5 pounds. Let’s say after the conversion rate the income is $30, and the tax paid is $10, you would claim the $30 as income in the U.S., and get a tax credit of $10. However, let’s say that the tax in the U.S. on the $30 is $20, then after the $10 tax credit, you would owe $10 in U.S. tax. Usually the tax paid in the other country zeroes out the tax in the U.S., but not always.
If you are a U.S. citizen and you work and live in Spain, and meet certain requirements, you have to claim the Spanish income in the U.S. However, in 2018 there is a foreign earned income exclusion of $104,100, meaning that the first $104,100 of income earned in Spain is excluded from U.S. income. If you made more than the earned income exclusion, the amount is taxable in the U.S.
The question that I’m always asked is, “How does the IRS know about foreign income?”