Parent guide: This article is part of our taxes for digital nomads hub. Start there for the full picture on residency, visas, and destination comparisons.

If you're a US citizen or green card holder working abroad, the IRS follows you. Living in Lisbon or Dubai doesn't remove your US filing obligation — it changes which forms, exclusions, and credits apply. This guide covers what US nomads actually owe in 2026 and how to reduce double taxation legally.

US taxes worldwide income — nomads aren't exempt

The United States taxes its citizens and permanent residents on worldwide income, regardless of where they live or earn. This is citizenship-based taxation — shared by only a handful of countries globally.

What this means in practice:

You must file a US return even if all your income is earned abroad and you pay zero US tax after exclusions
A foreign address on your return is normal — expats and nomads file from everywhere
Not filing is not the same as not owing — penalties accrue on unfiled returns, especially if you have foreign accounts

The two main relief mechanisms are the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC). They solve different problems and interact in specific ways.

First step: Compare your net pay as a US person abroad →

FEIE: $130,800 exclusion (2026)

The Foreign Earned Income Exclusion lets qualifying US persons exclude up to $130,800 of foreign earned income from US taxation in 2026. "Earned" means wages, salary, and self-employment income — not dividends, rent, or capital gains.

Qualifying tests

You must meet one of two tests:

Test	Requirement	Best for
Physical presence	330 full days outside the US in any 12-month period	Nomads who travel frequently
Bona fide residence	Genuine tax resident of a foreign country for a full calendar year	Nomads with a clear home base abroad

The physical presence test is the most common for nomads. A "full day" means 24 hours outside the US — travel days count if you're physically abroad at midnight.

Use the FEIE presence-day calculator to model your travel pattern against the 330-day threshold.

What FEIE does not cover

Self-employment tax (FICA) — 15.3% on net self-employment income still applies even on excluded earnings
Income above the limit — earnings over $130,800 are taxed at normal US rates
Unearned income — dividends, interest, and capital gains are not FEIE-eligible
State tax — FEIE is a federal exclusion; states have their own rules

Foreign Tax Credit when FEIE isn't enough

If you pay income tax to a foreign country on the same income, the Foreign Tax Credit (FTC) on Form 1116 may reduce your US tax dollar-for-dollar on that income.

FEIE vs FTC: when to use which

Scenario	Better choice	Why
Low-tax country (UAE, Georgia)	FEIE	Little foreign tax to credit
High-tax country (Germany, France)	FTC	Foreign tax exceeds US tax on same income
Moderate-tax + high earner	Both (on different income portions)	FEIE on first $130,800, FTC on excess
Self-employed in low-tax country	FEIE + watch SE tax	FEIE excludes income but not 15.3% SE tax

You cannot claim both FEIE and FTC on the same dollar of income. The FEIE vs FTC guide includes a decision tree and worked examples.

For Premium users, the FEIE/FTC optimizer models both paths against your actual salary and destination.

State residency: CA, NY, TX examples

Federal exclusions don't automatically fix state tax. Several states assert residency aggressively:

California

California taxes worldwide income of residents. You're a resident if you maintain domicile in CA — even if you're physically abroad all year. Triggers include:

Maintaining a CA driver's license or voter registration
Owning or leasing property in CA (even if rented out)
Keeping a CA bank as your primary account
Having a spouse or children who remain in CA

Action: Break ties formally before leaving — change license, voter registration, and primary banking. Document your move date.

New York

New York uses a 183-day rule plus a permanent place of abode test. If you maintain an apartment in NYC and spend 183+ days in NY (even if traveling abroad part of the year), you're a NY resident.

Nomads from NY who keep an apartment "just in case" often remain NY residents unintentionally.

Texas (and other no-income-tax states)

Texas, Florida, Washington, and several others have no state income tax. Establishing domicile in a no-tax state before going abroad eliminates state filing entirely — but you must genuinely move (not just claim an address).

Compare: See how state residency affects your total bill in our US vs Portugal comparison.

Contractor vs W-2 abroad

Your employment structure changes both US and foreign tax:

W-2 remote employee

Employer may withhold US taxes (or not, depending on payroll setup)
FEIE/FTC claimed on your personal return
Social Security: totalization agreements may exempt you from US FICA if paying into a foreign system
Risk: employer's permanent establishment (PE) exposure in your host country

Contractor / freelancer (1099 or foreign contract)

Full self-employment tax (15.3%) on net earnings unless totalization agreement applies
FEIE excludes income from income tax but not from SE tax
May need to register for VAT/GST in client countries
Quarterly estimated payments required if US tax due after exclusions

At $80,000 freelance income, the 15.3% SE tax alone is $12,240 — even if FEIE eliminates all income tax. Factor this into salary comparisons.

Quarterly estimated payments and reporting

US nomads who expect to owe tax after FEIE/FTC must make quarterly estimated payments (Form 1040-ES) to avoid underpayment penalties. Even if FEIE zeros out your liability, filing is still required.

Foreign account reporting (high level)

US persons with foreign financial accounts exceeding $10,000 aggregate at any point during the year may need to file:

FBAR (FinCEN 114) — report foreign bank and brokerage accounts
FATCA (Form 8938) — report specified foreign financial assets above higher thresholds

These are reporting obligations, not taxes themselves — but penalties for non-filing are severe ($10,000+ per violation). Mention foreign accounts to your tax preparer even if you owe no tax.

This guide does not provide filing instructions. Use it to understand which topics to raise with a qualified CPA who handles expat returns.

Tools and next steps

Tool	Use case
FEIE calculator	Check 330-day physical presence
Tax calculator	Compare net pay US vs abroad
US vs Portugal	Popular nomad destination
FEIE vs FTC guide	Decision tree
FEIE/FTC optimizer	Premium: model both paths

Return to the complete nomad tax guide for residency rules, destination comparisons, and Schengen day-counting.

Planning tool, not tax advice. Consult a qualified tax professional before filing.