Digital Nomad Taxes: 10 Things Americans Abroad Should Know
As a digital nomad, taxes likely aren’t at the forefront of your mind. It’s understandable — the nomad life is full of challenges, and between navigating visas and renting your next Airbnb, it’ hard enough to keep it all straight without throwing taxes into the mix. Don’t sweat it too much, though — H&R Block is here to help.
Below, we’ll tell you the basics of what you should know about U.S. taxes for digital nomads, including:
- Your U.S. tax responsibilities as a nomad
- How to get caught up on multiple years of back taxes
- Common digital nomad tax penalties and fines (and how to avoid them)
- Tax credits and benefits available to you
- Other financial reporting obligations you might have
- Additional tax considerations, like state taxes and non-U.S. taxes
- How to file your U.S. taxes online
Ready to file? No matter where in the world you are, H&R Block Expat Tax Services brings a tax expert right into your living room (or camper, or bungalow, or wherever you currently call home). Head on over to our Ways to File page to choose your journey and get started.
What digital nomads should know about U.S. taxes
1. Yes, American digital nomads have to file U.S. taxes
The most common question we hear is, "Do digital nomads have to file U.S. taxes?"
Yes, if they make over the minimum amount required to file, digital nomads must file a U.S. tax return.
The U.S. taxes Americans based on citizenship, not place of residency. That means it doesn’t matter where you currently live — if you’re legally considered a U.S. citizen and make over the minimum amount of worldwide income, you have a tax obligation. This is true even if you earn no income within the U.S.
Taxable foreign income for digital nomads includes:
- Rental Income
Filing taxes as a digital nomad may seem difficult, but H&R Block makes it convenient no matter where in the world you are — whether you want to DIY your expat taxes or file with help from an advisor.
2. Digital nomads can catch up on U.S. taxes with Offshore Streamlined Compliance Procedures
If you are a digital nomad and have never filed a U.S. tax return, you may be able to get caught up without being penalized.The IRS has a program to help mistakenly non-compliant filers get caught up penalty-free — Streamlined Foreign Offshore Procedures — which the Expat Tax Advisors here at H&R Block can happily help you with.
To qualify, you must:
- Have lived in a foreign country for at least 330 days during one of the last three years and not maintained a U.S. abode.
- Confirm that your failure to file U.S. tax returns and FBAR was not willful.
To catch up on past returns, get started with an Expat Tax Advisor now.
3. Not filing taxes as a digital nomad can result in steep penalties and fines
Trying to wiggle around your U.S. tax obligation has steep consequences — and it’s pretty easy to get caught. Thanks to FATCA, many financial institutions around the world exchange U.S. citizens’ financial account information with the U.S. government.
Bottom line: It’s worth it to file your U.S. taxes each year, even if you’re a digital nomad.
4. Digital nomads have two ways to lower their U.S. tax obligation: The Foreign Earned Income Exclusion and the Foreign Tax Credit
Worried about paying too much in taxes? You’re in luck — digital nomads have two ways to lower their tax bill and avoid double-taxation: The Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC).
The FEIE excludes your foreign earned income from U.S. income tax, which lowers (or eliminates) your U.S. tax liability. As a digital nomad, you can qualify if you pass either the Bona Fide Residency test or the Physical Presence Test.
Another important tool for lowering your U.S. tax obligation is the FTC. The FTC gives you a dollar-for-dollar reduction of your U.S. tax liability per foreign taxes paid.
5. Digital nomads must track time carefully to claim certain tax benefits
If you’re a digital nomad, accurately tracking your time in each country will be the key to a smooth tax return. You need to have been on foreign soil for a certain number of full days (full = 24 full hours) to claim tax benefits like the FTC or the FEIE, and if you’re off by even 30 minutes you could be disqualified. For example, time spent on a 12-hour trans-oceanic flight may not count toward your full days because you're technically in international airspace.
Correctly tracking hours in-country gets more complicated when you cross time zones. It’s worth it to get guidance from an international tax professional, like the ones at H&R Block Expat Tax Services.
6. Self-employed digital nomads may have to pay Social Security tax in the U.S.
If you’re self-employed outside the U.S., you’ll still owe U.S. self-employment tax on foreign earned income. This is true even if you’re able to claim the foreign earned income exclusion. However, Social Security Totalization Agreements between the United States and many foreign countries might prevent you from having to pay self-employment taxes in both countries.
There may be a problem for digital nomads moving from country to country because of the residency requirements of the totalization agreements — if you’re not taxed as a resident in another country, the totalization agreement will not apply. That’s why it’s worth it to have a tax professional handle the paperwork for you.
Bottom line, if you’re self-employed and not paying self-employment taxes as a resident in another country, you have to pay them in the U.S.
7. Digital nomads with money overseas may have financial reporting obligations in addition to filing U.S. taxes
As a digital nomad, you may have more paperwork to file other than your tax return — if you have a foreign bank account, you might also have to file your Foreign Bank Account Report (FBAR) and FATCA Form 8938.
This includes digital bank accounts. For digital bank accounts, you’d refer to the country the bank is registered in.
You’d file an FBAR (FinCEN Form 114) if the combined balance of all your foreign accounts was more than $10,000 at any point during the calendar year. For example, if you had a bank account in Hong Kong with a balance of $5,000 and an account in Singapore with another $6,000, your total balance in all foreign accounts would be more than $10,000 — meaning you’d have to file an FBAR.
You’d file FATCA Form 8938 if your total combined value of foreign assets is worth more than $300,000 at any time during the year (or at least $200,000 on the last day of the year). If you’re filing a joint return, the thresholds are $600,000 at any time during the year or $400,000 on the last day of the year.
If you’re confused about your FBAR and FATCA filing requirements, it’s best to leave your U.S. expat taxes to seasoned pros who will dig into your specific tax situation to find all your filing requirements.
8. Digital nomads may still have to file U.S. state taxes
Yes, it’s possible you still have to file state taxes even if you’re a digital nomad — it depends on the state you lived in prior to moving abroad. If you are unsure if you have a U.S. state tax obligation, we recommend consulting with an expat tax professional to ensure you stay compliant.
9. There are hundreds of IRS forms and schedules—but these are the most commonly used when filing U.S. taxes for digital nomads
- Form 1040: The form each American files during tax season to report income to the IRS.
- FBAR (FinCEN Form 114): Your Foreign Bank Account Report, used to report any assets in foreign financial institutions to the Financial Crimes Enforcement Network of the U.S. Treasury.
- Foreign Earned Income Exclusion Form 2555: One of two methods digital nomads can use to avoid being double taxed on income earned abroad.
- Foreign Tax Credit Form 1116: One of two methods digital nomads can use to avoid being double taxed on income earned abroad.
- FATCA Form 8938: The form U.S. citizens file to report certain foreign financial assets to the IRS.
- Form 5471: Informational return for U.S. citizens who are also shareholders, officers, or directors of a foreign corporation.
- Form 8621: Informational return for U.S. citizens who are also shareholders of a passive foreign investment company, including owners of foreign mutual funds.
- Form 3520: Informational return digital nomads use to report certain transactions with foreign trusts, ownerships of foreign trusts (including certain private pensions), or large gifts from certain foreign persons.
10. Digital nomads may still have to file taxes in foreign countries
If you spent a significant amount of time or made over a certain amount of money in another country, you may have to pay taxes in that country.
It’s not one-size-fits-all, either. For example, American digital nomads in Canada and the U.K. will have different tax obligations than digital nomads in Mexico or Thailand. Before you land to do business in a foreign country, get to know their income taxation laws and residency laws because that will dictate your tax obligation.
How to file taxes as a digital nomad living overseas
With H&R Block, you can file your U.S. taxes conveniently online from wherever you currently call home. Digital nomads have two options: File using our DIY online expat tax service (designed specifically for expats), or let one of our Expat Tax Advisors handle it. Here’s how to file your U.S. expat taxes online:
- Head on over to our Ways to File page.
- Pick your journey — with you in control using our online DIY tool or letting a Tax Advisor guide you through the process.
- Review your return and pay once you’re through your chosen journey.
- We file your return with the IRS.
- You sit back and relax knowing your taxes were done correctly.
Need help filing digital nomad taxes? Choose H&R Block’s Online Expat Tax Services for U.S. tax advice wherever you call home
Filing taxes in one country is enough to give anyone a headache, and it only gets more complicated for digital nomads. But no matter where you call home, we bring U.S. tax solutions to you — whether you want to be in the driver’s seat with our DIY online expat tax service designed for U.S. citizens abroad or let one of our experienced Tax Advisors take the wheel. Head on over to our Ways to File page to choose your journey and get started online.