What Digital Nomads Need to Know About Taxes Abroad

It’s risky. Employers need to know where their employees work in case their presence leads to corporate tax obligations abroad. The risk is higher when employees generate revenue for companies, such as in sales positions, said David McKeegan, co-founder of Greenback Tax Services, an accounting firm for U.S. expatriates.

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May 25, 2021 at 5:16 p.m. ET

However, many companies work according to the “don’t ask, don’t tell” guideline. A California science writer in his fifties who was granted anonymity for not wanting senior executives to know he had worked in Costa Rica for a few months said his HR department had prevented employees from working outside of California, but said so not everything explicit about working abroad. His setup of an Airbnb on the beach worked perfectly until he lost power due to a hurricane and had to work from a bar a few times. He was using his company’s zoom background, but colleagues wondered where he was when they heard ocean waves and music. “In a restaurant,” he told them without going into detail.

As more and more people work from abroad, it can be more difficult for companies to turn a blind eye. Roughly 10.9 million Americans referred to themselves as digital nomads – people who work remotely and tend to travel from place to place – last year, up from 7.3 million in 2019, according to MBO Partners, which provides services for the self-employed.

“The tax system around the world is currently unprepared for what the workforce is going through,” McKeegan said. “I think at some point we’ll see a system where people on the way in or out are asked if they work, and countries will try to get more tax revenue from this very mobile workforce.”

Possibly. If you qualify for overseas income exclusion, your first $ 108,700 will be exempt from US income tax. Note, however, that this only applies if you are a U.S. citizen and have lived in a foreign country for more than 330 days in 12 consecutive months, with no time on airplanes, or if you are a bona fide resident of a foreign country. (You would still have to pay federal and state taxes on unearned income, including interest, dividends, and capital gains.)

It is important to keep track of the number of days spent abroad in order to prove to U.S. tax authorities that you were there.

Paige Brunton, 30, a Canadian website designer based in Hanover, learned how complicated tax regulations are for expats the hard way: she had to file tax returns in three countries for a year. The situation was inevitable because she had lived and worked in Germany, Canada, and the United States that tax year. However, your biggest advice to others who may have complicated situations is to immediately find an accountant who specializes in international taxes.

“Don’t gather in Facebook groups and Google, it will really weigh you down,” she said.

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