Yes, there are several tax implications to consider if you work remotely for a U.S. company while living abroad.
As a U.S. citizen or resident, you are required to report your worldwide income to the IRS, regardless of where you live or work. This means you must file U.S. taxes on your wages, interest, dividends, and any other income you earn while living abroad.
However, you may qualify for the Foreign Earned Income Exclusion, which allows you to exclude a certain amount of your foreign earnings from U.S. taxation. For 2023, the exclusion amount is up to $120,000 (this amount is adjusted annually for inflation). To qualify, you must pass either the Physical Presence Test or the Bona Fide Residence Test, demonstrating that you have lived outside the U.S. for a significant portion of the year.
If you pay taxes to a foreign country on the income you earn while living there, you may be eligible for the Foreign Tax Credit. This credit is intended to prevent double taxation by allowing you to offset the taxes you've paid abroad against your U.S. tax liability on the same income.
In addition to your tax return, you may have additional reporting obligations if you have foreign bank accounts or financial assets. The Foreign Bank Account Report (FBAR) and the Foreign Account Tax Compliance Act (FATCA) require you to report foreign financial accounts and assets if they exceed certain thresholds. FBAR vs. Form 8938: Which Should You File?
Depending on your last state of residence before moving abroad and the nature of your remote work arrangement, you may still have state tax obligations. Some states continue to tax residents even if they live abroad, especially if they intend to return or maintain significant ties to the state.
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