Digital Nomad Taxes: Frequently Asked Questions

03/16/2023

Since it was first coined in the early 90s, the phrase “digital nomad” has gone from obscure to commonplace, in large part due to the post-COVID-19 remote work boom.

It makes sense: who wouldn’t want to explore new countries and cultures on a regular basis? Working as a digital nomad can even be beneficial from a tax perspective. But how do digital nomad taxes work exactly, and what do you need to know about them? Read on to learn the answers to these and other frequently asked questions.

Do digital nomads pay taxes?

Probably. If nothing else, digital nomads must file a US tax return with the IRS (assuming that they’re citizens/permanent residents who meet the minimum income threshold). Depending on which country they work in, how much time they spend there, and what type of visa they have, they may need to pay taxes to a foreign government as well. However, many digital nomads don’t stay in one country long enough to be considered tax residents.

Where do I pay taxes if I’m a digital nomad?

Whether they live within the country or abroad, all Americans must declare their income to the IRS by filing a US tax return. Whether they will actually owe the IRS any money depends on a number of factors, but digital nomad-ing can be a way to creatively reduce (and in some cases, completely eliminate) your federal tax liability.

How do digital nomads pay US taxes?

Digital nomads declare their taxes by filling out their forms online, using tax software, printing and mailing their return (less common due to the challenges of international shipping), or having a tax firm like Bright!Tax file their taxes for them. After completing their return, they will learn how much they owe.

Working with an expat tax specialist is often the best way to minimize tax liability due to the complexities that come with navigating expat tax forms. A specialist in expat taxes can help you claim the correct exemptions and credits and file to your maximum benefit, thereby reducing your overall tax liability and ensuring Uncle Sam doesn’t feel the need to come poking around.

What is the tax rate for digital nomads?

The tax rate you pay as a digital nomad will differ based on factors like how much you earn and whether you file jointly with a spouse. For single filers, the tax rates for the 2022 tax year (aka the taxes you pay in 2023) are as follows:

Income	Tax Due
$0 to $10,275	10%
$10,276 to $41,775	$1,027.50 + 12% of anything over $10,275
$41,776 to $89,075	$4,807.50 + 22% of anything over $41,775
$89,076 to $170,050	$15,213.50 + 24% of anything over $89,075
$170,051 to $215,950	$34,647.50 + 32% of anything over $170,050
$215,951 to $539,900	$49,335.50 + 35% of anything over $215,950
$539,901+	$162,718 + 37% of anything over $539,900

Again, these figures vary, though, for those who are filing with their spouse (jointly or separately) or as the head of their household. And beyond income taxes, anyone who is self-employed will pay an additional tax of 15.3% — 12.4% for social security, and 2.9% for Medicare.

Do digital nomads owe state taxes?

Digital nomads usually don’t have to pay state taxes as long as they don’t retain any significant ties to the last state they lived in (like owning a permanent home there or having dependents still residing there). There are a few states that have stricter guidelines on tax residency, though — namely, New Mexico, Virginia, South Carolina, and California.

I’ve been a digital nomad for years and had no idea I was supposed to be filing an annual tax return – what do I do?

Hey, genuine mistakes happen! If you are behind on tax filing and did not intentionally neglect to file, good news. The IRS created an amnesty program called the Streamlined Filing Procedures specifically to encourage US taxpayers to catch up.

Catch up on filing US taxes with the Streamlined Procedures

In order to successfully apply, digital nomads must file their last three tax returns and last six FBARs (as applicable), pay any back taxes due (often nil once they claim the exemptions available for expats), and self-certify that their previous non-compliance was non-willful (essentially, that they weren’t purposefully evading US taxes).

Digital nomad tax season planning

While taxes are typically due on April 15th, Americans abroad on that deadline automatically qualify for an extension until June 15th (although any taxes they owe should be paid by April 18th). Upon request, that filing deadline can be bumped back even further to October 15th.

When it comes to navigating taxes while being a digital nomad, organization is the name of the game. Although the lifestyle is often portrayed as whimsical, successful digital nomads know that it’s important to keep clear records of everything related to their remote work.

Record-keeping can be tricky, especially when you’re on the go! If you want to get ahead of the curve and be prepared for tax season, you can start by ensuring that you:

Have access to your income statements
Have received your W-2s and 1099-NECs (as applicable)
Know which tax breaks you qualify for and how to claim them
Have tracked any deduction-eligible expenses
Know whether you must fill out any additional forms (such as the FBAR or Form 8938)
Understand what triggers foreign tax reporting obligations in your country/countries of residence and plan carefully and accordingly

What tax write-offs do digital nomads get?

There are a couple of tax write-offs offered specifically to Americans abroad. This includes:

The Foreign Earned Income Exclusion: Allows you to exclude up to $112,000 of earned income from taxation (as of tax year 2022)
The Foreign Tax Credit: Allows you to subtract any income taxes you’ve paid to foreign governments from what you owe the US government

Why become a digital nomad in Europe?

There’s a lot to love about Europe: having so many distinct cultures in such close proximity to one another, being able to easily travel between countries for much less than it costs in the US, the high standard of living that Europeans enjoy… the list goes on and on.

And if that weren’t enough, some countries even offer special visas and/or tax incentives for digital nomads, like:

Why become a digital nomad in Asia?

Asia is another common choice for digital nomads, due to its low cost of living, natural beauty, fascinating history, and great food (and that’s just for starters). A few popular countries for digital nomads in Asia include:

Is working remotely as a digital nomad the same thing as freelancing?

No. While many digital nomads are freelancers, not all of them are — some work remotely as employees for companies with work-from-anywhere policies. Freelancers are self-employed and taxed as such, while employees are taxed according to standard guidelines.

Plan to become a digital nomad? Let Bright!Tax set you up for success!

Becoming a digital nomad can be the adventure of a lifetime, but it’s not something that you should jump right into without planning. It’s important to do your research and prepare ahead of time, especially when it comes to things like visas and taxes.If you want your digital nomad taxes done right and on time with minimal tax liability and effort on your part, Bright!Tax is here to help. Reach out today to schedule a consultation with one of our experienced team members!