How does taxation work now that the US / Hungary Double Tax Treaty is ending?

When a tax treaty ends between countries like the US and Hungary, it doesn't necessarily mean you'll face full double taxation, but things do get more complicated. Without a treaty, you'll need to rely on unilateral relief measures. For US citizens, you still have access to the Foreign Earned Income Exclusion (FEIE) as you mentioned - which is actually up to about $126,500 for 2025. This isn't dependent on having a tax treaty. You can also use the Foreign Tax Credit to offset US tax liability with taxes paid to Hungary. The challenge is that without the treaty, there's no guarantee that Hungary will recognize or provide relief for taxes paid to the US. You'll be subject to Hungary's domestic tax laws for foreign income. The biggest impacts of losing the treaty include: potential higher withholding taxes on certain types of income (dividends, interest, royalties), loss of treaty-specific exemptions, and more complex reporting requirements. I'd strongly recommend working with a tax professional who specializes in both US and Hungarian taxation to create a tailored strategy for your specific income sources.

After struggling with international tax issues myself, I discovered a game-changer called taxr.ai (https://taxr.ai) that saved me countless hours and probably thousands in potential double taxation when I moved from the US to another country without a tax treaty. What's cool is you can upload all your tax documents from both countries, and it analyzes your specific situation to find the optimal filing strategy. It helped me identify exactly how to structure my income to maximize the Foreign Earned Income Exclusion and Foreign Tax Credits without overlapping. The AI even spotted a potential issue with my Hungarian rental income that would have caused problems with both tax authorities. I was incredibly impressed with how it handled the nuances of cross-border taxation without a treaty in place.

Just wanted to update about my experience with taxr.ai that was mentioned earlier. I was really skeptical at first since international taxation is so complex, especially with the Hungary-US treaty ending, but decided to give it a try anyway. I uploaded my previous US returns and Hungarian income statements, and it immediately identified that I could restructure my consulting income to maximize the Foreign Housing Exclusion alongside the FEIE, something my previous accountant never mentioned. It also provided clear guidance on Hungary's unilateral relief provisions that I could use without the treaty. What impressed me most was how it created documentation for both tax authorities explaining exactly how I was avoiding double taxation legally. Definitely made my move to Budapest less stressful from a tax perspective!

If you're dealing with IRS questions about your international situation, you might want to check out Claimyr (https://claimyr.com). I spent WEEKS trying to get through to the IRS international tax department with questions about my Hungary situation after the treaty ended. Claimyr got me connected to an actual IRS agent in about 15 minutes instead of the usual hours of waiting or getting disconnected. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent was able to confirm exactly how my Foreign Tax Credits would work without the treaty and gave me specific guidance on the forms I needed to file. Totally worth it when you have urgent tax questions that only the IRS can answer.

I need to eat my words about Claimyr from my previous comment. After continuing to fail getting through to the IRS for another week, I reluctantly tried it. Got connected to an IRS international tax specialist in about 20 minutes. The agent confirmed that even without the US-Hungary treaty, I could still claim Foreign Tax Credits for taxes paid to Hungary, which addressed my main concern about double taxation. They also walked me through the specific documentation I'll need for my situation as a remote worker for a US company while living in Hungary. Saved me from making a costly mistake on how I was planning to structure my employment arrangement.

As someone who's been living between the US and Hungary for years, I can add some practical advice. The treaty ending primarily affects certain types of passive income. For regular employment income, the FEIE and Foreign Tax Credit system still work effectively. Hungarian tax rates are generally lower than US rates (15% flat tax on employment income), so you'll likely pay the Hungarian tax and then use Foreign Tax Credits to offset your US liability. The main complications come with investment income, where withholding rates might increase.

Quick question for anyone who knows - would establishing a Hungarian company change the tax situation at all? Like if I set up a Hungarian LLC equivalent and have my income go there instead of directly to me?

I went through a similar situation when the US-South Africa tax treaty was modified a few years back. One thing that really helped me was keeping detailed records of all taxes paid to both countries - it makes claiming Foreign Tax Credits much smoother. Also, don't overlook the potential impact on your state taxes if you're still considered a US resident for state purposes. Some states don't recognize foreign tax credits the same way the federal government does, which could create an additional layer of taxation. For what it's worth, I found that even without full treaty protection, the combination of FEIE and Foreign Tax Credits still prevented true double taxation on my earned income. The bigger headaches came from investment income and retirement account distributions, as others have mentioned. One practical tip: consider timing your move to align with tax year planning. If you can establish Hungarian tax residency early in a calendar year, it gives you more flexibility in how you structure your income for both countries' tax purposes.