Working Abroad

US citizens working abroad face a uniquely complex landscape: unlike most nations, the United States taxes its citizens on worldwide income regardless of residence, meaning an American freelancer in Lisbon or a remote engineer in Bali still files a 1040 every April. The Foreign Earned Income Exclusion (FEIE) for 2025 allows up to $130,000 of earned income to be excluded if you meet either the Physical Presence Test (330 full days abroad in 12 months) or the Bona Fide Residence Test, and the Foreign Tax Credit can offset double taxation for higher earners. Self-employment tax (15.3%) is NOT covered by the FEIE, so freelancers and contractors still owe Social Security and Medicare on net earnings unless a Totalization Agreement applies. The post-2020 remote work boom produced a wave of digital nomad visas — over 60 countries now offer them, with income thresholds ranging from roughly $2,000/month (Colombia, Indonesia's E33G) to $8,500/month (Iceland). Popular 2024-2025 options include Portugal's D8, Spain's Digital Nomad Visa, Italy's long-awaited visa launched April 2024, Japan's six-month nomad visa launched March 2024, and Brazil, South Korea, and Thailand's Destination Thailand Visa (DTV, launched July 2024). These visas typically grant 1-2 years with renewal paths, but most do NOT permit local employment — you must work for foreign clients or employers. The biggest structural decision is whether to remain a W-2 employee (many US employers now restrict or prohibit long-term foreign work due to permanent establishment and payroll tax risk), convert to a 1099 contractor through an Employer of Record like Deel or Remote, or form your own entity. A US LLC or S-corp remains the simplest structure for most nomads; forming a foreign entity usually triggers punishing IRS reporting (Form 5471, GILTI, Subpart F) and rarely saves tax. Always pair the move with state tax residency planning — California, New York, and Virginia aggressively pursue departing residents.

Key Points

• 1Foreign Earned Income Exclusion 2025: up to $130,000 excludable via Physical Presence Test (330 days/12 months abroad) or Bona Fide Residence Test; does not waive self-employment tax
• 2Self-employed Americans abroad owe 15.3% SE tax on net earnings unless the host country has a US Totalization Agreement (currently 30 countries including Portugal, Spain, UK, Japan, South Korea)
• 3Digital nomad visa income thresholds vary widely: Portugal D8 ~€3,480/mo, Spain ~€2,763/mo, Italy ~€28,000/yr, Japan ¥10M/yr (~$68K), Thailand DTV 500,000 THB in savings, Colombia ~$980/mo
• 4US employers increasingly restrict foreign remote work to 30-90 days due to permanent establishment risk; Employer of Record services (Deel, Remote, Oyster) let employers legally retain staff abroad
• 5Form 8938 (FATCA) required if foreign financial assets exceed $200K single / $400K married filing jointly living abroad; FBAR (FinCEN 114) required at $10K aggregate in foreign accounts any day of the year
• 6Most digital nomad visas prohibit local employment — income must come from foreign clients; tax residency typically triggers after 183 days in most countries, creating potential local filing obligations
• 7State tax residency is independent of federal: establish domicile in a no-income-tax state (FL, TX, TN, NV, SD, WA, WY, AK, NH) before departure to avoid California/NY/VA clawback claims