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US citizens who live abroad for at least 330 days a year, or establish permanent residence abroad, may qualify for the Foreign Earned Income Exclusion (FEIE). t

US citizens who live abroad for at least 330 days a year, or establish permanent residence abroad, may qualify for the Foreign Earned Income Exclusion (FEIE). that FEIE excludes the first $112,000 of income from federal income tax, double that for a married couple. Social Security/Medicare (aka self-employment tax) are not excluded. Most states will want state income tax, so establish residence in a state with no income tax before going nomading. https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion https://www.irs.gov/individuals/international-taxpayers/fore... This is a huge tax break. You can exclude income earned from US sources too. If you live in a foreign country and pay taxes there you may be able to deduct those from US taxes, depends on reciprocal tax agreements. I used ustax.bz to help me figure this out, was worth it to me.

Stevvo 5y ago
I imagine if someone is considering revoking their citizenship just to avoid tax, they make a lot more than $112,000 I wouldn't call it a tax break; the US is the only country that double taxes its citizens on foreign-earned income.
- gregjor 5y ago
  The US is one of only two countries that taxes based on citizenship. Double taxation would only happen if you had to pay taxes to a foreign country and the US. If you plan to work or earn income abroad as a US citizen it would be wise to choose a country that has tax reciprocity with the US, to avoid double taxation. That would include most countries that would be on the list of places worth renouncing US citizenship for.
idontwantthis 5y ago
Yeah this article is really pointless because it doesn't mention this. I'm an American citizen living abroad (still digital, no longer nomadic). I only pay SS and Medicare tax to the US. Do not give up your US Citizenship for tax avoidance unless you are earning > $200k per year or making a lot of unearned income outside of the US. Or you are in some weird situation where you permanently want to be in the US more than 35 days a year, but you don't work in the US, and don't want to be a citizen for some reason.
- plugger 5y ago
  from my understanding the US is the only G20 country that taxes citizens living and working abroad. given that I'm not sure your statement makes sense about when you should give up your US citizenship, as you'll still be out of pocket if you earn less than $200k pa. On the flip side currently if you renounce your US citizenship it immediately triggers a 5 year back tax audit by the IRS and you have to clear your bill before they'll let you renounce.
  - idontwantthis 5y ago
    No you're not really if you know what the FEIE is. You don't get taxed on the first $112,000 of earned income this year. It's one extra page you need to file with your taxes. That means no income tax on any earned income up to that amount. "Income tax" on "earned income" does not include Social Security, medicare/caid tax so you still pay some. It also doesn't cover "unearned" income like capital gains or rent. I said earn > $200k because I'm sure citizenship is worth at least $88000 per year to most people. You would also need to be very confident that that income level is never going to to go away. Further, most developed countries where you would be more likely to be earning that much money have tax reciprocity treaties with the US that cover the rest of your earned income.
    - anonymoushn 5y ago
      Because the U.S. prefers to penalize market participants who provide services like market making and reward market participants who speculate for periods of at least 1 year, all of my income is taxed at income tax rates but none of it is "earned income."
    - mschuster91 5y ago
      You should not be forced to file taxes for a country you do not live in. Even if there are reciprocity agreements in place.
      - gregjor 5y ago
seanmcdirmid 5y ago
> double that for a married couple Only if your spouse also qualifies, which isn’t necessarily just because they have an ITIN (oh, and it only applies to their income, and not yours…which often won’t work out if your spouse is earning local wages). SS and Medicare aren’t collected on income earned abroad, but you also have to be careful because your credits towards benefits don’t accrue either. I quickly dropped the FEIE in favor of the foreign tax credit. Turns out I paid more in Chinese taxes than I would have paid USA taxes, and computing the FTC on top of the FEIE was just too complex by hand.
- gregjor 5y ago
  Digital nomads generally aren’t getting permanent residency or work permits, so they aren’t paying local taxes wherever they happen to stay. Longer-term expats and retirees will have different visas and tax situations.
  - seanmcdirmid 5y ago
    A lot of countries require you to pay local income taxes even if you don't have permanent residency or a work permit (as long as you do the work in country, you are supposed to pay taxes on what you earn from it). But they have no way of tracking the worker's income, so won't know unless somehow they happen to find out about the tax fraud.
    - gregjor 5y ago
      Can you name any countries that tax foreigners who work there without a work permit (or a visa that allows remote work)? Suppose I'm a US citizen working for a US company while I enjoy living in Thailand. I don't have a work permit in Thailand. Technically (according to Thai immigration and labor law) I am not allowed to work at all, so I'm breaking the law. In practical terms there's no way for the Thai authorities to enforce those laws unless I go around telling everyone I'm running a business or working for a foreign employer. If I try to pay taxes there without a work permit I am either going to get confused looks or deported. The US is like this -- it's illegal to work in the US without a work permit or visa that allows work. If a French citizen comes to the US on a tourist visa and works for their employer remotely they are technically violating the conditions of their tourist visa, which prohibits any kind of work. Practically there's little to no enforcement for people working on laptops from coffee shops. I'm not saying I don't believe you, I just haven't heard of any country requiring local taxes unless you have a work permit or some kind of visa that specifically allows you to work remotely. I can't see how those governments would enforce that unless they raided every coffee shop and hotel room looking for foreigners with laptops. I know some countries have so-called digital nomad visas that allow working for a foreign employer remotely. I don't think that's what you're describing, though.
0xy 5y ago
>Most states will want state income tax, so establish residence in a state with no income tax before going nomading. Is this true? I thought that was only the case if they could prove you are an active resident. Of course, if you maintain a mailing address or residence in California/NY then you better believe they'll make sure you pay. If you cut ties completely, they don't have grounds to come after you.
- gregjor 5y ago
  Get a driver’s license and an address in a state with no income tax: Washington, Nevada, Texas, Florida, etc. It’s not hard to do but you need to plan a little bit if you want to move overseas long enough that the FEIE will kick in. Some states hold on to former residents harder than others: California and Virginia are notorious for trying to continue taxing people who leave. How you deal with this will depend on individual circumstances. Get professional tax advice if you expect problems with state tax authorities.
- beagle3 5y ago
  If you maintain a mailing address in a state, it will be on you to prove you don’t live there (and expect to have to do it on a yearly basis). If you have an address outside the US, it is a good idea to tell the IRS to mail you at that address, the states seem to be content with that as evidence that you live out of state.
  - gregjor 5y ago
    Until you renounce US citizenship I would advise keeping a US address in a no income tax state, and a US bank account. Don’t tell the IRS or your bank that you moved out of the country. You don’t have to prove where you live or don’t live, just file the forms, pay the taxes, they don’t care. No one comes to the house looking for you unless you have done something criminal. If you don’t have family or friends that will let you use their address you can use a mail receiving service (I used Traveling Mailbox for years). An attorney will usually let you use their address for a nominal fee. There’s actually a pretty big selection of services geared to expats and constant travelers, like people who live in RVs. Do some research, it’s not a big deal.
mellavora 5y ago
Did ustax.bz also tell you that if you are self-employed, you still need to file quarterly with the US, unless you are in a country with a totalitization treaty with the US? unless you earn less than $400/yr. > International Tax Gap Series > If you are a self-employed U.S. citizen or resident, the rules for paying self-employment tax are generally the same whether you are living in the United States or abroad. > The self-employment tax is a social security and Medicare tax on net earnings from self-employment. You must pay self-employment tax if your net earnings from self-employment are at least $400. https://www.irs.gov/individuals/international-taxpayers/self-employment-tax-for-businesses-abroad https://www.irs.gov/individuals/international-taxpayers/self...
- gregjor 5y ago
  Self-employed taxpayers are supposed to file quarterlies regardless of where they live. If you don’t you get a penalty assessed. And yes, ustax.bz told me that, but I already knew.
toastal 5y ago
> Medicare What a joke. I'm all for getting medical care to people in general, but you can't redeem Medicare abroad. There are no shared medical treaties. You can't get a voucher. You can't even get exemptions for living abroad. You just pay in, and if you want value for paying in your whole life, you have to expend greenhouse gases flying back to the US and pay their extortionate health care prices which are probably cheaper uninsured where you are (at least it has been for me). That picture people have of retiring on a beach abroad, well, most of them stop once they realize they won't be covered for basically anything at their retirement age. https://www.cnbc.com/2019/08/08/retiring-overseas-how-medicare-may-or-may-not-fit-into-your-plans.html https://www.cnbc.com/2019/08/08/retiring-overseas-how-medica... More info: https://www.medicare.gov/Pubs/pdf/11037-Medicare-Coverage-Outside-United-States.pdf https://www.medicare.gov/Pubs/pdf/11037-Medicare-Coverage-Ou...
- gregjor 5y ago
  Medical insurance and health care abroad for expats costs a lot less in most places, compared the to US. As a US citizen you can’t get out of paying taxes for Social Security and Medicare, just cost of citizenship the way I look at it. Not something I get too wound up over. Even if I can’t benefit from Medicare I am paying in for my parents and other people who can benefit from it, while I pay $50 for a doctor’s visit in Thailand. You can collect Social Security while living abroad.
  - toastal 5y ago
    If the goal is to get more people health care, then letting them deduct visits for cheaper care in the country they reside in would be a good thing. It more strain on the US healthcare system and the planet to have expats traveling back for a procedure and the deduction would be less because the healthcare cost is less. And remember the reaction to the House press secretary Jen Psaki saying the US would provide vaccines to all Americans and then immediately walking that back when a reporter ask about those abroad with, "we have not historically provided private healthcare for Americans living overseas, so that remains our policy"? I'd say this was joke if it wasn't about the health of US citizens not getting care while paying their whole lives for it (this isn't Medicare, but still the reaction and aversion to health services aboard).

Stevvo 5y ago

I imagine if someone is considering revoking their citizenship just to avoid tax, they make a lot more than $112,000 I wouldn't call it a tax break; the US is the only country that double taxes its citizens on foreign-earned income.

gregjor 5y ago
The US is one of only two countries that taxes based on citizenship. Double taxation would only happen if you had to pay taxes to a foreign country and the US. If you plan to work or earn income abroad as a US citizen it would be wise to choose a country that has tax reciprocity with the US, to avoid double taxation. That would include most countries that would be on the list of places worth renouncing US citizenship for.

idontwantthis 5y ago

Yeah this article is really pointless because it doesn't mention this. I'm an American citizen living abroad (still digital, no longer nomadic). I only pay SS and Medicare tax to the US. Do not give up your US Citizenship for tax avoidance unless you are earning > $200k per year or making a lot of unearned income outside of the US. Or you are in some weird situation where you permanently want to be in the US more than 35 days a year, but you don't work in the US, and don't want to be a citizen for some reason.

plugger 5y ago
from my understanding the US is the only G20 country that taxes citizens living and working abroad. given that I'm not sure your statement makes sense about when you should give up your US citizenship, as you'll still be out of pocket if you earn less than $200k pa. On the flip side currently if you renounce your US citizenship it immediately triggers a 5 year back tax audit by the IRS and you have to clear your bill before they'll let you renounce.
- idontwantthis 5y ago
  No you're not really if you know what the FEIE is. You don't get taxed on the first $112,000 of earned income this year. It's one extra page you need to file with your taxes. That means no income tax on any earned income up to that amount. "Income tax" on "earned income" does not include Social Security, medicare/caid tax so you still pay some. It also doesn't cover "unearned" income like capital gains or rent. I said earn > $200k because I'm sure citizenship is worth at least $88000 per year to most people. You would also need to be very confident that that income level is never going to to go away. Further, most developed countries where you would be more likely to be earning that much money have tax reciprocity treaties with the US that cover the rest of your earned income.
  - anonymoushn 5y ago
    Because the U.S. prefers to penalize market participants who provide services like market making and reward market participants who speculate for periods of at least 1 year, all of my income is taxed at income tax rates but none of it is "earned income."
  - mschuster91 5y ago
    You should not be forced to file taxes for a country you do not live in. Even if there are reciprocity agreements in place.
    - gregjor 5y ago

seanmcdirmid 5y ago

> double that for a married couple Only if your spouse also qualifies, which isn’t necessarily just because they have an ITIN (oh, and it only applies to their income, and not yours…which often won’t work out if your spouse is earning local wages). SS and Medicare aren’t collected on income earned abroad, but you also have to be careful because your credits towards benefits don’t accrue either. I quickly dropped the FEIE in favor of the foreign tax credit. Turns out I paid more in Chinese taxes than I would have paid USA taxes, and computing the FTC on top of the FEIE was just too complex by hand.

gregjor 5y ago
Digital nomads generally aren’t getting permanent residency or work permits, so they aren’t paying local taxes wherever they happen to stay. Longer-term expats and retirees will have different visas and tax situations.
- seanmcdirmid 5y ago
  A lot of countries require you to pay local income taxes even if you don't have permanent residency or a work permit (as long as you do the work in country, you are supposed to pay taxes on what you earn from it). But they have no way of tracking the worker's income, so won't know unless somehow they happen to find out about the tax fraud.
  - gregjor 5y ago
    Can you name any countries that tax foreigners who work there without a work permit (or a visa that allows remote work)? Suppose I'm a US citizen working for a US company while I enjoy living in Thailand. I don't have a work permit in Thailand. Technically (according to Thai immigration and labor law) I am not allowed to work at all, so I'm breaking the law. In practical terms there's no way for the Thai authorities to enforce those laws unless I go around telling everyone I'm running a business or working for a foreign employer. If I try to pay taxes there without a work permit I am either going to get confused looks or deported. The US is like this -- it's illegal to work in the US without a work permit or visa that allows work. If a French citizen comes to the US on a tourist visa and works for their employer remotely they are technically violating the conditions of their tourist visa, which prohibits any kind of work. Practically there's little to no enforcement for people working on laptops from coffee shops. I'm not saying I don't believe you, I just haven't heard of any country requiring local taxes unless you have a work permit or some kind of visa that specifically allows you to work remotely. I can't see how those governments would enforce that unless they raided every coffee shop and hotel room looking for foreigners with laptops. I know some countries have so-called digital nomad visas that allow working for a foreign employer remotely. I don't think that's what you're describing, though.

0xy 5y ago

>Most states will want state income tax, so establish residence in a state with no income tax before going nomading. Is this true? I thought that was only the case if they could prove you are an active resident. Of course, if you maintain a mailing address or residence in California/NY then you better believe they'll make sure you pay. If you cut ties completely, they don't have grounds to come after you.

gregjor 5y ago
Get a driver’s license and an address in a state with no income tax: Washington, Nevada, Texas, Florida, etc. It’s not hard to do but you need to plan a little bit if you want to move overseas long enough that the FEIE will kick in. Some states hold on to former residents harder than others: California and Virginia are notorious for trying to continue taxing people who leave. How you deal with this will depend on individual circumstances. Get professional tax advice if you expect problems with state tax authorities.
beagle3 5y ago
If you maintain a mailing address in a state, it will be on you to prove you don’t live there (and expect to have to do it on a yearly basis). If you have an address outside the US, it is a good idea to tell the IRS to mail you at that address, the states seem to be content with that as evidence that you live out of state.
- gregjor 5y ago
  Until you renounce US citizenship I would advise keeping a US address in a no income tax state, and a US bank account. Don’t tell the IRS or your bank that you moved out of the country. You don’t have to prove where you live or don’t live, just file the forms, pay the taxes, they don’t care. No one comes to the house looking for you unless you have done something criminal. If you don’t have family or friends that will let you use their address you can use a mail receiving service (I used Traveling Mailbox for years). An attorney will usually let you use their address for a nominal fee. There’s actually a pretty big selection of services geared to expats and constant travelers, like people who live in RVs. Do some research, it’s not a big deal.

mellavora 5y ago

Did ustax.bz also tell you that if you are self-employed, you still need to file quarterly with the US, unless you are in a country with a totalitization treaty with the US? unless you earn less than $400/yr. > International Tax Gap Series > If you are a self-employed U.S. citizen or resident, the rules for paying self-employment tax are generally the same whether you are living in the United States or abroad. > The self-employment tax is a social security and Medicare tax on net earnings from self-employment. You must pay self-employment tax if your net earnings from self-employment are at least $400. https://www.irs.gov/individuals/international-taxpayers/self-employment-tax-for-businesses-abroad https://www.irs.gov/individuals/international-taxpayers/self...

gregjor 5y ago
Self-employed taxpayers are supposed to file quarterlies regardless of where they live. If you don’t you get a penalty assessed. And yes, ustax.bz told me that, but I already knew.

toastal 5y ago

> Medicare What a joke. I'm all for getting medical care to people in general, but you can't redeem Medicare abroad. There are no shared medical treaties. You can't get a voucher. You can't even get exemptions for living abroad. You just pay in, and if you want value for paying in your whole life, you have to expend greenhouse gases flying back to the US and pay their extortionate health care prices which are probably cheaper uninsured where you are (at least it has been for me). That picture people have of retiring on a beach abroad, well, most of them stop once they realize they won't be covered for basically anything at their retirement age. https://www.cnbc.com/2019/08/08/retiring-overseas-how-medicare-may-or-may-not-fit-into-your-plans.html https://www.cnbc.com/2019/08/08/retiring-overseas-how-medica... More info: https://www.medicare.gov/Pubs/pdf/11037-Medicare-Coverage-Outside-United-States.pdf https://www.medicare.gov/Pubs/pdf/11037-Medicare-Coverage-Ou...

gregjor 5y ago
Medical insurance and health care abroad for expats costs a lot less in most places, compared the to US. As a US citizen you can’t get out of paying taxes for Social Security and Medicare, just cost of citizenship the way I look at it. Not something I get too wound up over. Even if I can’t benefit from Medicare I am paying in for my parents and other people who can benefit from it, while I pay $50 for a doctor’s visit in Thailand. You can collect Social Security while living abroad.
- toastal 5y ago
  If the goal is to get more people health care, then letting them deduct visits for cheaper care in the country they reside in would be a good thing. It more strain on the US healthcare system and the planet to have expats traveling back for a procedure and the deduction would be less because the healthcare cost is less. And remember the reaction to the House press secretary Jen Psaki saying the US would provide vaccines to all Americans and then immediately walking that back when a reporter ask about those abroad with, "we have not historically provided private healthcare for Americans living overseas, so that remains our policy"? I'd say this was joke if it wasn't about the health of US citizens not getting care while paying their whole lives for it (this isn't Medicare, but still the reaction and aversion to health services aboard).