Digital Nomad Taxes: A Guide for US Expats

In the age of working remotely, more Americans are choosing to live and work abroad. Whether your office is a beach in Bali or a café in Lisbon, the digital nomad lifestyle is more accessible than ever.

But with that freedom comes responsibility, especially when it comes to digital nomad taxes. As a US expat, you still have to consider your US tax obligations. You may also need to pay taxes in your host country, depending on local laws.

To stay compliant, you need to understand how to report foreign income, self-employment tax rules, and what exclusions and credits are available to you.

In this guide, we cover everything US expats need to know about digital nomad taxes, so you can stay compliant and make the most of your international lifestyle.

Do Digital Nomads Have to Pay US Taxes?

Yes. As a US citizen or Green Card holder, you must file a US tax return annually, regardless of where you reside or earn income. That’s because the US follows a citizen-based tax system, not a residential-based one like almost all other countries worldwide. Meeting any of the income thresholds below means you must file a US tax return.

2024 Filing Requirement Thresholds (Under 65)

Single: $14,600

Married filing jointly: $29,200

Married filing separately: $5

Head of household: $21,900

Qualifying widow(er): $29,200

Fortunately, filing a return doesn’t always mean you’ll owe taxes. The IRS has provisions like the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC) to help prevent double taxation. These benefits help reduce or eliminate what you owe in income taxes, though filing remains mandatory.

You are currently viewing a placeholder content from YouTube. To access the actual content, click the button below. Please note that doing so will share data with third-party providers.

More Information

Unblock content Accept required service and unblock content

Do Digital Nomads Pay Self-Employment Tax?

Yes, the IRS will consider you self-employed If you run your own business, are a freelancer or contract worker making you liable to pay US self-employment taxes. To prepare you’ll need to set aside about 15.3% of your income to pay your US taxes. This will cover your Social Security taxes of 12.4% and Medicare taxes of 2.9%.

Unfortunately, you can’t exclude self-employment taxes through the FEIE and FTC. However, many countries have International Social Security Agreements with the US. If you live and work in a country that has a Totalization Agreement with the US, you may not be liable for US self-employment tax. Instead, you may only need to pay into the foreign country’s Social Security system.

What Can Self-Employed Digital Nomads Deduct?

As a self-employed digital nomad, you can reduce your US tax liability by deducting eligible business expenses. These deductions play a key role in managing digital nomad taxes effectively. Common deductible expenses include:

• Mobile and internet service
• Office equipment like a laptop, stand, blue-light protective glasses
• Marketing and social media advertisement expenses
• Fees for website hosting and domain purchasing
• Home office space
• Educational courses and costs related to your business
• and more

Do Digital Nomads Have to Pay Foreign Income Taxes?

A few factors determine your tax residency, but the general rule is that if you spend 183 days or more in a country, you’re likely considered a tax resident. Countries like Japan, Australia, and many others follow a residence-based taxation system, which means they tax residents on their worldwide income, not just what’s earned locally.

You typically become a tax resident if you spend at least 183 days in that country, though the exact definition can vary.

Other countries use a territorial-based tax system, taxing only income earned within their borders. Hong Kong and Singapore are prime examples. If you meet the local residency criteria, you may still need to file a tax return and pay foreign income or social security taxes, but only on income sourced within that country.

Many countries have digital nomad visa programs or special expat tax regimes that can often reduce your digital nomad taxes, sometimes temporarily. Understanding your host country’s tax rules is key to staying compliant and avoiding double taxation.

Do Digital Nomads Have to Pay State Taxes?

Yes, some digital nomads still owe state taxes, even while living abroad. Typically, you only need to file a state tax return for the portion of the year you lived in that state or if you earned income from that state while living elsewhere.

However, some states like California and New York aggressively pursue former residents, especially if they maintain ties to the state, such as a mailing address, driver’s license, voter registration, or property ownership. To avoid this, you may need to take formal steps to sever residency.

On the other hand, states with no income tax, such as Texas, Florida, and Nevada, generally do not require a return if you no longer live or earn income there. Make sure you review both federal and state requirements to stay fully compliant.

How Can Digital Nomads Avoid Double Taxation?

Yes, digital nomads can reduce or eliminate their US tax bill with these expat tax benefits:

Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion (FEIE) allows eligible digital nomads to exclude up to $126,500 in 2024 (amount adjusted annually for inflation) of foreign-earned income from US taxes. To qualify, you must meet either the Physical Presence Test or the Bona Fide Residence Test.

Physical Presence Test

You must spend at least 330 full days outside the US within a rolling 12-month period. This option gives digital nomads more mobility but requires precise tracking of time spent in each country. It’s a strong fit for those who move often without establishing long-term residency.

Bona Fide Residence Test

This test requires you to live in a foreign country for a full calendar year and establish deeper ties, such as securing a lease, opening local bank accounts, or obtaining a residency visa. It suits digital nomads who choose to settle in one location for an extended period.

What Qualifies as Foreign-Earned Income?

• Salary or wages earned from a foreign employer
• Self-employment or freelance income earned while working abroad
• Housing allowances (if part of compensation)
• Bonuses and commissions tied to work performed overseas

What Doesn’t Qualify:

• Income earned while physically in the US
• Passive income (dividends, interest, capital gains)
• Pension or retirement income
• Rental income and royalties

The Foreign Housing Exclusion and Deduction

If you qualify for the Foreign Earned Income Exclusion (FEIE), you may also claim the Foreign Housing Exclusion or Deduction. Don’t get confused, it’s the same benefit; however, employees claim the exclusion, while self-employed persons claim the deduction. The housing exclusion lets you deduct qualified expenses, such as rent, utilities, and other reasonable housing costs. This benefit can be a valuable tax break for digital nomads living in high-cost cities, but it comes with specific thresholds. To qualify, your housing expenses must exceed a base amount, and only a portion of your costs may be excluded.

For the 2024, the Foreign Earned Income Exclusion (FEIE) limit is $126,500. The IRS sets the base housing amount at 16% of that limit, which equals $20,240. This means you can only exclude housing expenses above $20,240. There’s also a cap, 30% of the FEIE limit, so the maximum you can exclude is $37,950

The most benefit comes when your annual housing costs fall between those two thresholds. If you live in an expensive city abroad and meet FEIE eligibility, the housing exclusion can significantly lower your US tax liability, all through Form 2555.

The Foreign Tax Credit

If you pay income tax to a foreign government, you can use the Foreign Tax Credit (FTC) to reduce your US tax bill. By filing Form 1116, you receive a dollar-for-dollar credit for qualifying foreign taxes paid, helping to avoid double taxation on the same income.

The FTC is especially valuable for digital nomads living in countries with high income tax rates or for those who do not qualify for the Foreign Earned Income Exclusion (FEIE). However, you can not use the FTC and FEIE on the same income. You can only apply the Foreign Tax Credit to income that is in the same “income bucket.” For example, you cannot claim foreign income taxes paid on your salaried income on your foreign investment income.

What Forms Do Digital Nomads Need to File?

Digital nomads face unique tax rules. You need to file the forms that apply to your income, location, and foreign financial assets.

Note: The IRS grants US expats an automatic two-month extension to file (until June 15), but this does not delay your tax payment deadline.

You must still pay any tax owed by April 15 to avoid interest and penalties.

Below are some of the key tax forms digital nomads often need to file, along with their deadlines:

• Form 1040 – Your standard US income tax return, required for all American citizens and green card holders, regardless of where they live. Deadline: April 15 (June 15 if living abroad; October 15 with extension)
• Form 2555 – Use this to claim the Foreign Earned Income Exclusion (FEIE) and the Foreign Housing Exclusion or Deduction. Deadline: Same as Form 1040
• Form 1116 – File this to claim the Foreign Tax Credit (FTC) for income taxes paid to a foreign government. Deadline: Same as Form 1040
• Schedule C (Form 1040) – Required if you earn freelance or self-employment income while abroad. Deadline: Same as Form 1040
• Schedule SE (Form 1040) – Use this to calculate self-employment tax unless you qualify for an exemption under a Totalization Agreement. Deadline: Same as Form 1040
• **FinCEN Form 114 – Foreign Bank Account Report (FBAR)** – You must file this if you have foreign bank or financial accounts with a combined value of over $10,000 at any point during the year. It’s submitted electronically through the **Financial Crimes Enforcement Network (FinCEN)**, not the IRS. Deadline: April 15 (automatic extension to October 15)
• **Form 8938 – Statement of Specified Foreign Financial Assets (FATCA)** – Required under the Foreign Account Tax Compliance Act (FATCA) if your foreign financial assets exceed certain thresholds (starting at $50,000 in the US and $200,000 if abroad for single filers). This form is filed with your tax return and covers additional types of foreign holdings beyond bank accounts. Deadline: Same as Form 1040

Which Countries Have the Best Tax Laws for Digital Nomads?

Before choosing your next base, evaluate how the local tax system treats foreign income. One of the most effective digital nomad tax tips is to prioritize countries with territorial taxation, where only local income is taxed and foreign earnings are excluded. This can significantly reduce your global tax burden.

Other countries have tax treaties with the United States, which help prevent double taxation and clarify where and how you pay taxes. By understanding these rules in advance, you can structure your stay and your income to maximize tax efficiency.

Digital Nomad Taxes Support

Being a digital nomad is a dream come true, offering freedom and flexibility, but digital nomad taxes can be anything but simple. US tax obligations follow you wherever you go, no matter how far you travel. With MyExpatTaxes, our trusted tax professionals make it easy to file your US taxes quickly and accurately. No matter how complex your situation, we’re ready to help you stay compliant and stress-free.

Digital Nomad Taxes FAQ

1. Do digital nomads pay taxes?

Not necessarily, but they must file a tax return regardless. US citizens and green card holders must file US taxes no matter where they live. You may also owe taxes locally if you’re considered a tax resident abroad.

2. How do you pay digital nomad taxes?

File Form 1040 and any required forms (like Schedule C, Schedule SE, and then 2555 or 1116). Pay taxes electronically via the IRS website, bank transfer, credit card, or check.

3. Do you pay self-employment tax as a digital nomad?

Yes. Freelancers and contractors must pay US self-employment tax unless covered by a Totalization Agreement with their host country.

4. How do I file taxes as a digital nomad?

File Form 1040 and attach any expat-related forms. Use tax software or services that specialize in expat tax compliance.

5. Can I use both the Foreign Earned Income Exclusion and the Foreign Tax Credit?

Yes, but not on the same income. Exclude income up to the FEIE limit, and apply the FTC to the rest or to unearned income.

6. Can I deduct business expenses as a digital nomad?

Yes. You can deduct ordinary and necessary expenses like laptops, internet, software, and coworking spaces.

7. What’s the difference between FATCA and FBAR?

FATCA (Form 8938) is filed with your tax return. FBAR (FinCEN Form 114) is filed separately if foreign accounts exceed $10,000.

8. Do digital nomad visas affect my US taxes?

Not directly. But they may impact your local tax residency and create obligations in your host country.

9. Can digital nomads contribute to IRAs or 401(k)s while abroad?

• Only if you have US-taxable earned income. Income fully excluded by the FEIE does not count for contribution purposes.