US citizen, lived in lisbon for 9 months in 2025. did contract work for a portuguese client (€72k). they withheld 25% portuguese tax. i'm now filing US taxes and looks like i owe US fed too. that's like 50%+ effective rate. is that right?
foreign tax credit (form 1116) prevents this. you take a credit for the portuguese tax paid against your US fed tax. usually wipes out most or all of the US tax on the same income.
also if you were physically out of US for 330+ days, FEIE (form 2555) excludes up to ~$130k of foreign earned income. you'd need to choose between credit and exclusion strategically.
also you may have to file PT tax return as a tax resident if you were 183+ days. and the US-PT tax treaty has specific rules about which country has primary taxing rights based on permanent establishment, etc. get a CPA who specializes in expat returns. this is not DIY territory.