Digital nomads are a new breed of the workforce - they are unencumbered by location, only by availability of WiFi. Advances in technology have made remote work no longer taboo, and arguably “trending” as hoards of young people grab their laptops and travel the world either on their own, or with the help of new companies popping up that provide coworking spaces worldwide and arrange for travel.
While the lifestyle is certainly sexy, the one aspect that US citizens and GC holders cannot forget is the unsexy IRS and the requirement to file a US tax return declaring their worldwide income, no matter where they live and work. This is where TFX comes in - we work with thousands of digital nomads worldwide and understand your unique situation - filing U.S tax returns for Americans residing abroad is our main line of business, as clients in 175 countries can attest.
We consider it our primary job to remove the hassle of U.S. tax obligation so that our clients can focus on more fun things in their resident country.
Self-employed Digital Nomads - Choose Destinations Wisely
Digital Nomads employed by a US company, whether in the US or abroad, are not required to pay self-employment taxes (Social security and Medicare); it is the responsibility of your employer to pay this for you.
However, for the entrepreneurial bunch, awareness of SECA (Self-Employed Contributions Act) tax is vital & can have a large impact on your bottom line. Lifestyle, language, culture, and food are not the only factors that digital nomads need to be aware of when determining where they want to reside -- some countries have signed a ‘Totalization Agreement’. Residing in a country that has signed this agreement, if your tax return is properly filed, digital nomads can be exempt from SECA tax.
Essentially - you don’t have to pay into both SS systems, but you must pay into one (and this must be correctly accounted for on your US tax return). For example, if you are living in Spain, and pay into Seguridad Social - please be aware that the IRS may request a Certificate of Coverage.
The downside of moving to a country without a Totalization Agreement, even if you pay into the local Social Security system, you are still liable for U.S. SECA tax. However, you may still utilize this amount as ‘Foreign Tax Paid’ and use it for calculation of the foreign tax credit. If you choose to reside in a low-tax country like Hong Kong or Singapore, this is especially important.
U.S. International Social Security Agreements
If you are not covered in the resident country, then U.S. SECA tax cannot be exempt.