Yes, you can keep working for a U.S. company while living abroad, and it’s a common arrangement, but working for a US company while living abroad reshapes your employment paperwork, your tax filings, and your legal status in the host country. U.S. citizens and green card holders owe the IRS a return on worldwide income no matter where they live, the country you move to will likely want its share, and your former state may not release you without a fight. Sorting the mechanics before you go is what separates a smooth move from penalties that can run into five figures.
How Your Paycheck Actually Reaches You Abroad
Three arrangements cover almost every remote worker overseas: staying on your U.S. employer’s W-2 payroll, moving to a local Employer of Record, or switching to a 1099 contractor relationship.
Staying on the regular W-2 payroll is the simplest from the IRS’s side. Your employer keeps withholding federal income tax and FICA the way it always did.1Thomson Reuters. Paying Foreign Employees: Working Abroad The problem is on the other end. Most countries require any company with a worker inside their borders to register locally, follow local labor law, and contribute to local benefit programs. Standing up a foreign subsidiary for a single employee is expensive and slow, which is why most employers won’t do it.
The common workaround is an Employer of Record. The EOR becomes your legal employer in the foreign country for payroll and compliance purposes, handling in-country tax withholding, social contributions, and labor law. You keep doing your actual job for the U.S. company. Fees typically run a few hundred to over a thousand dollars per employee per month, and the U.S. company usually absorbs that cost.
If the company balks, the fallback is often a shift from W-2 to 1099 contractor. That changes the legal relationship entirely. You become a self-employed service provider under a business-to-business agreement, and you lose federal labor protections such as minimum wage and overtime.2Federal Register. Employee or Independent Contractor Status Under the Fair Labor Standards Act You also pick up the full 15.3% self-employment tax, plus your own health insurance, retirement savings, and liability coverage. The tradeoff for you is autonomy; the tradeoff for the company is cost and simplicity, which is why they often prefer it.
U.S. Taxes Follow You Everywhere
The United States taxes based on citizenship, not location. If you hold a U.S. passport or a green card, you owe the IRS a Form 1040 reporting worldwide income every year, even if you haven’t set foot in the country in a decade.3Internal Revenue Service. U.S. Citizens and Residents Abroad Filing Requirements The filing obligation stands even when credits and exclusions reduce your bill to zero. Skipping the return itself triggers penalties.4Internal Revenue Service. Reporting Foreign Income and Filing a Tax Return When Living Abroad
The Foreign Earned Income Exclusion
The main tool for avoiding double taxation on your salary is the Foreign Earned Income Exclusion under Section 911. For the 2026 tax year, you can exclude up to $132,900 of foreign earned income from your federal return.5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 The figure is indexed to inflation. To qualify you must pass one of two tests: the Physical Presence Test, which requires being physically in a foreign country for at least 330 full days during any 12 consecutive months you choose,6Internal Revenue Service. Foreign Earned Income Exclusion – Physical Presence Test or the Bona Fide Residence Test, which requires establishing a genuine home in another country for at least one full uninterrupted tax year.
If your income tops the exclusion or you don’t meet either test, the Foreign Tax Credit is the backup. It gives you a dollar-for-dollar offset against your U.S. bill for income taxes already paid to a foreign government.7Internal Revenue Service. Foreign Tax Credit You can’t stack them on the same dollars. It’s one or the other for any given piece of income.8Office of the Law Revision Counsel. 26 USC 911 – Citizens or Residents of the United States Living Abroad
Section 911 also permits a Foreign Housing Exclusion for costs above a baseline. For 2026 the baseline is 16% of the FEIE maximum ($21,264 for a full year), and qualifying housing expenses are capped at 30% ($39,870), leaving up to about $18,600 in excludable rent and related costs above the baseline. High-cost cities have higher caps, listed by location in IRS Publication 54.9Internal Revenue Service. Figuring the Foreign Earned Income Exclusion10Internal Revenue Service. Publication 54 (12/2025), Tax Guide for U.S. Citizens and Resident Aliens Abroad
The Self-Employment Tax Trap
Contractors get an unpleasant surprise here. The FEIE does not reduce your self-employment tax. You owe the full 15.3% Social Security and Medicare tax on your entire net self-employment income, even if every dollar qualifies for the income exclusion.11Internal Revenue Service. Self-Employment Tax for Businesses Abroad On $100,000 of net profit, that’s roughly $15,300 to the IRS regardless of the exclusion. Many new expat contractors assume “excluded income” means no federal tax at all. It doesn’t.
The Filing Deadline
Living abroad on April 15 gets you an automatic two-month extension, moving your deadline to June 15. You don’t apply for it. Attach a statement to your return noting you were outside the United States on the regular due date.12Internal Revenue Service. Automatic 2-Month Extension of Time to File Interest on unpaid balances still accrues from April 15, so pay what you can by then.
Reporting Your Foreign Bank Accounts
Once you’re abroad you’ll open local bank accounts, and that triggers separate reporting rules with penalties that are independent of whether you owe any tax.
If the combined value of your foreign financial accounts crosses $10,000 at any point during the year, you must file the Report of Foreign Bank and Financial Accounts, known as the FBAR (FinCEN Report 114).13Financial Crimes Enforcement Network. Reporting Maximum Account Value It’s filed electronically through FinCEN’s BSA E-Filing system, separately from your tax return. The deadline is April 15 with an automatic extension to October 15. The non-willful penalty can reach $16,536 per account per year under the most recent inflation adjustment.14Federal Register. Inflation Adjustment of Civil Monetary Penalties Willful violations carry penalties of up to $100,000 or 50% of the account balance, whichever is greater, plus possible criminal charges.15Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
The Foreign Account Tax Compliance Act adds a separate form. On Form 8938, filed with your return, you report specified foreign financial assets when they exceed the thresholds. For taxpayers living abroad, an unmarried person must file if foreign assets exceed $200,000 on the last day of the tax year or $300,000 at any point during the year. For married couples filing jointly the numbers double, to $400,000 and $600,000.16Internal Revenue Service. Comparison of Form 8938 and FBAR Requirements The FBAR and Form 8938 cover overlapping but not identical categories, so you may owe both.
One investment warning worth carrying with you: opening a local brokerage and buying foreign mutual funds can create a tax mess. The IRS classifies most foreign mutual funds and many foreign ETFs as Passive Foreign Investment Companies, which face a punitive regime. Gains and certain distributions are taxed at the top ordinary income rate plus an interest charge that compounds for every year held.17Internal Revenue Service. Instructions for Form 8621 – Information Return by a Shareholder of a Passive Foreign Investment Company Most expat advisors recommend keeping investments in U.S.-based accounts and U.S.-domiciled funds.
Your Former State May Not Let Go
Federal tax gets the attention, but state tax is often the surprise bite. Some states treat you as a resident until you affirmatively prove you severed your ties, and they place the burden of proof on you.
The controlling concept is domicile, your permanent legal home as shown by your intent and your actions. You can only have one at a time. Changing it generally requires both establishing a new one and cutting meaningful ties to the old one. States look at where you own property, where your driver’s license is issued, where you’re registered to vote, where your bank accounts are, where your car is registered, and where you receive mail. Keeping a home, a license, and a voter registration in your old state while living overseas is exactly the pattern a state auditor uses to conclude you never really left.
The cleanest path is establishing your last U.S. domicile in a state with no individual income tax — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming — before moving overseas. If you’re currently in a state with an income tax and aggressive residency rules, take deliberate steps to sever ties: sell or lease out your home, surrender your driver’s license, close local bank accounts, update your voter registration, and change the address on all financial accounts. Every connection you cut strengthens your position if the state pushes back later.
You Need the Right Visa
A tourist visa does not permit work, period. That’s true even when your employer and paycheck are entirely in the United States. This is the most common mistake remote workers make abroad, and consequences run from fines to deportation to multi-year entry bans. “But I’m not working for a local company” is not a defense immigration officers accept.
A growing number of countries now offer Digital Nomad Visas designed for people working remotely for foreign employers. These permits typically last one to two years and require proof of a minimum monthly income, usually between $2,000 and $5,000 depending on the country. Some also require health insurance, a clean criminal background check, or proof of accommodation. Options exist in Europe, Latin America, Southeast Asia, and the Caribbean, and the list has grown quickly since 2020.
Spending enough time in a country also makes you a local tax resident, which usually happens after more than 183 days in a calendar year. Once you cross that line, the host country can tax your worldwide income, not just money earned locally. Combined with the U.S. filing obligation, you’re now dealing with two countries claiming the same dollars. The FEIE and Foreign Tax Credit exist for exactly this scenario, but you need to learn the host country’s own rules and deadlines to avoid penalties on that side.
Social Security on Two Sides at Once
Your U.S. employer withholds FICA for Social Security and Medicare, and the host country may require contributions to its own social system. Paying both at once buys you no extra benefit.
The United States has bilateral Totalization Agreements with 30 countries to prevent this overlap, covering most of Western Europe, Canada, Australia, Japan, South Korea, and others.18Social Security Administration. U.S. International Social Security Agreements Under these treaties you typically stay covered by your home country’s system for assignments of up to five years.19Social Security Administration. International Agreements – General Overview To claim exemption from the host country’s contributions, you request a Certificate of Coverage from the Social Security Administration as proof you’re already paying into the U.S. system.20Social Security Administration. Certificate of Coverage – International Programs
If your host country has no agreement with the U.S., and many popular destinations in Southeast Asia, Central America, and much of Africa don’t, you may contribute to both systems with no mechanism to avoid it. Self-employed contractors feel this hardest, since they already pay the full 15.3% U.S. self-employment tax before any foreign contributions get layered on.
Medicare Doesn’t Come With You
Medicare does not cover healthcare outside the United States in almost any circumstance. The narrow exceptions involve emergency treatment at a foreign hospital that happens to be closer than the nearest U.S. hospital, or certain emergencies while traveling through Canada between Alaska and the lower 48.21Medicare.gov. Medicare Coverage Outside the United States Routine care, prescriptions, and non-emergency treatment abroad are never covered.
If you’re on your employer’s W-2 payroll through an EOR, the local employment arrangement may include host-country health coverage. Contractors arrange their own. International health insurance plans built for expats typically cost less than comparable U.S. coverage and provide worldwide access. Many digital nomad visas require proof of insurance during the application, so you’ll likely need a policy regardless. If you continue paying Medicare premiums while abroad, you’re funding coverage you can’t use, though maintaining Part B enrollment protects you from late-enrollment penalties if you eventually return.