Working Abroad

US citizens are taxed on their worldwide income no matter where they live, so working from abroad means managing two systems at once: a host country's immigration and work rules, and your ongoing US federal tax and reporting obligations. The encouraging news is that the toolkit for doing this legally has matured rapidly—more than 60 countries now offer dedicated digital nomad or remote-work visas, and the IRS provides well-established mechanisms (the Foreign Earned Income Exclusion and Foreign Tax Credit) to avoid being taxed twice on the same income. The right legal path depends on how you earn. Remote employees of US companies and freelancers serving clients elsewhere increasingly qualify for 'digital nomad' or 'remote work' visas, which permit you to live in a country while working for foreign (non-local) employers or clients. Taking a job with a local employer is different: it generally requires a sponsored work visa or residence-and-work permit, which is harder to obtain. A third route—starting a business—forces a choice between keeping a US entity (such as an LLC or S-corp) and forming a local company, with meaningfully different tax, banking, and compliance consequences. Tax planning is the part most people underestimate. For tax year 2025 you can exclude up to $130,000 of foreign earned income via the FEIE (up from $126,500 in 2024), but it must be actively claimed and you must pass either the Physical Presence Test (330 full days abroad in a 12-month period) or the Bona Fide Residence Test. Critically, the FEIE reduces income tax but does NOT eliminate the 15.3% US self-employment tax—only a totalization agreement can do that. Layer on foreign-account reporting (FBAR and FATCA), and the practical lesson is to model your tax situation before you move, not after.

Key Points

• 1Worldwide income still taxed: US citizens must file Form 1040 on global income regardless of residence. For 2025 the Foreign Earned Income Exclusion (Form 2555) shields up to $130,000 of earned income ($126,500 for 2024; $132,900 for 2026), but only if you pass the Physical Presence Test (330 full days abroad within 12 months) or the Bona Fide Residence Test.
• 2Self-employment tax is the big trap: Freelancers and sole proprietors owe 15.3% US self-employment (Social Security + Medicare) tax on net profit above $400 EVEN IF that income is excluded under the FEIE. The only way out is a Totalization Agreement—the US has 30+—which lets you pay into just one country's system; you must obtain a Certificate of Coverage as proof.
• 3Digital nomad visa income thresholds vary widely (2025): Portugal D8 ~€3,680/month; Spain ~€2,760/month (≈200% of minimum wage); Italy €28,000/year (~€2,333/month); Croatia €3,295/month (now an 18-month permit as of Aug 2025, with local-income-tax exemption); UAE Virtual Work Visa $3,500/month; Mexico Temporary Resident ~$1,620+/month; Thailand DTV ~THB 500,000 (~$15,300) in savings (5-year, 180-day stays); Japan ~¥10M/year (~$67,000) for 6 months.
• 4Double-taxation relief, two options: Use the FEIE to exclude income, OR the Foreign Tax Credit (Form 1116) to offset US tax dollar-for-dollar with tax paid to the host country. The FTC is often better in high-tax countries and—unlike the FEIE—can be combined with retirement contributions; the FEIE is better in low- or no-tax destinations.
• 5Foreign-account reporting is mandatory and separate from taxes: File an FBAR (FinCEN Form 114) if your foreign accounts exceed $10,000 aggregate at any point in the year. FATCA Form 8938 thresholds for citizens living abroad are $200,000 (single) / $400,000 (married filing jointly) in specified foreign assets at year-end. Penalties for non-filing are steep, so open foreign bank accounts deliberately.
• 6Business structure shapes everything: A US-based LLC/S-corp keeps US banking, contracts, and payment rails simple and avoids forming a foreign entity, but does not by itself reduce self-employment tax. Forming a local company can unlock work authorization and local clients but adds foreign corporate filings, may trigger CFC/GILTI reporting (Form 5471), and complicates banking. Decide based on where your clients and tax residency sit.
• 7Logistics make remote work sustainable: Prioritize time-zone overlap with employers/clients (a 6–9 hour gap can be workable with async habits; larger gaps strain US-team collaboration), reliable high-speed internet plus a mobile-data backup (eSIM/local SIM), and confirm your employer permits working from your destination for payroll, data-security, and permanent-establishment reasons before you go.