As the world becomes increasingly interconnected—and virtual work opportunities remain prevalent post-Covid—more people are ditching a white picket fence for the more adventurous digital nomad lifestyle. In fact, countries around the globe have expressed their support for travelers, offering visas specifically designed for digital nomads. As of early 2024, 18 countries in Europe and 16 throughout the Americas offered such visas.1
If you’re working your way around the world for clients or companies back home in the U.S., however, certain challenges do arise. Besides time zones and currency exchanges, there’s one other especially tricky financial concern to consider—how to handle and file your taxes.
Do digital nomads living and working abroad have to pay the same taxes as those back home? We certainly can’t give you personalized financial planning or tax advice (please consult your own tax professionals!), but let’s dive in and discuss how being a digital nomad may impact your general tax situation.
The United States uses a citizenship-based taxation system, meaning the requirement to file a tax return is not based on where you currently reside but rather on your citizenship status. Notably, it’s one of only a few countries in the world (and the only major world power) to follow this system. Most others use a residence-based or territorial-based taxation system.2
If you are a U.S. citizen or green card holder—even if you’re living abroad—you need to file a tax return if your income (whether earned in America or elsewhere) exceeds the annual filing requirement minimum.
While it’s subject to change each year, here’s an example of the annual limits based on the 2025 tax year:3
The requirement to file a tax return (and even pay state tax) will vary by state. It will also depend greatly on whether you lived in that state for a portion of the year or earned income from there. Keep in mind, some states don’t impose any income tax, while others (like California) require former citizens to continue paying state income taxes under certain conditions like:4
If you plan on traveling nearly full-time, you may want to research which states don’t collect income tax or make it easy to change residency and consider relocating your mailing address, voter registration, and other residence-related information accordingly.
As we mentioned earlier, most other countries follow either a residence-based or territorial-based taxation system. That being said, you’ll need to review the tax policies of the specific countries you’re visiting and working in to determine whether filing a return is necessary.
For reference, a “residence-based” system means the country requires those who count as “residents” to file a return. The definition of a resident varies, but it generally means spending a certain number of days living in the country. A “territorial-based” system, on the other hand, only collects taxes on income earned from within the country. Even if you’re considered a resident of that country, you would have to work for a company based in that country as well to be obliged to pay taxes.
While you’ll likely still need to file a tax return with the U.S. while working abroad, you may be able to take advantage of some tax credits specifically designed for ex-pats, residents abroad, and digital nomads.
With the foreign earned income exclusion (FEIE), you’ll be allowed to exclude some foreign-earned income from your U.S. tax return.
“Foreign-earned income” refers to any wage, salary, or fees collected for your services while living in another country. This income can originate from any country, including the United States. If you’re self-employed (as many freelance digital nomads are), you can also use this exclusion if you meet all criteria. Keep in mind that this will only reduce your income tax liability, not your self-employment tax—though you may be eligible for other deductions or exclusions that can help with that.
Here’s what does not count as foreign-earned income:5
To qualify for this credit, you must have first earned foreign income, and your “tax home” needs to be in a foreign country. In addition, you’ll need to meet one of the following criteria:5
If you meet any of the criteria shared above, you may be allowed to exclude up to $130,000 per person, or $260,000 for married filers if both individuals meet the criteria for the 2025 tax year.3 This amount is adjusted for inflation annually.
Along with the FEIE, you may be able to deduct some of your living expenses from your U.S. taxes as part of the Foreign Housing Exclusion. This one is a bit complex, as it directly relates to your FEIE, and only applies to what has been paid for with either “employer-provided” earnings or “self-employment” earnings.6
Here’s where things get tricky: You’ll need to first determine your “base housing amount,” and whatever falls above that will be subject to the foreign house exclusion (though there is a ceiling cap, which varies by country).
The base housing amount is 16% of the FEIE. Expenses that fall above the 16% mark may be eligible for exclusion.6
For example, if you claim the full $130,000 FEIE, the base housing limit would be $20,800 (that’s 16% of $130,000). If your qualified housing expense added up to $25,000 for the tax year, you would be able to exclude $4,200:
$25,000 housing expenses - $20,800 base housing amount = $4,200 allowable exclusion.
While things like rent and utilities are generally applicable to this exclusion, some housing-related expenses are not. You will likely not be able to use the exclusion on things like:6
If you’re required to pay taxes in a foreign country (one you’re likely considered a “resident” of), you can typically deduct some of that foreign tax liability from your U.S. tax return using the Foreign Tax Credit.
Despite the name, this can either be taken as an itemized deduction or a credit. Keep in mind that if you take the FEIE or use the foreign housing exclusion, you cannot claim the excluded income as part of this particular tax credit, since the purpose of this tax credit is to reduce the likelihood of a U.S. citizen getting taxed twice on the same income.7
Aside from filing your individual tax return, there are a few additional documents that digital nomads and ex-pats might need to file—especially if you plan on claiming any of the credits or exclusions shared above.
These include (but are not limited to):
All of these forms have the same deadline as your tax return, April 15, unless you file for an extension.
If you’ve joined the five million or so Americans living and working abroad, your tax situation may look different in years ahead.8 While the IRS does provide some guidance on filing your tax return as a digital nomad, you may want to engage with a tax professional who understands your unique circumstances and challenges.