[gregjor]

US citizens who live abroad for at least 330 days a year, or establish permanent residence abroad, may qualify for the Foreign Earned Income Exclusion (FEIE). that FEIE excludes the first $112,000 of income from federal income tax, double that for a married couple. Social Security/Medicare (aka self-employment tax) are not excluded. Most states will want state income tax, so establish residence in a state with no income tax before going nomading.

https://www.irs.gov/individuals/international-taxpayers/fore...

This is a huge tax break. You can exclude income earned from US sources too.

If you live in a foreign country and pay taxes there you may be able to deduct those from US taxes, depends on reciprocal tax agreements.

I used ustax.bz to help me figure this out, was worth it to me.

[toastal]

> Medicare

What a joke. I'm all for getting medical care to people in general, but you can't redeem Medicare abroad. There are no shared medical treaties. You can't get a voucher. You can't even get exemptions for living abroad. You just pay in, and if you want value for paying in your whole life, you have to expend greenhouse gases flying back to the US and pay their extortionate health care prices which are probably cheaper uninsured where you are (at least it has been for me).

That picture people have of retiring on a beach abroad, well, most of them stop once they realize they won't be covered for basically anything at their retirement age. https://www.cnbc.com/2019/08/08/retiring-overseas-how-medica...

More info: https://www.medicare.gov/Pubs/pdf/11037-Medicare-Coverage-Ou...

[gregjor]

Medical insurance and health care abroad for expats costs a lot less in most places, compared the to US. As a US citizen you can’t get out of paying taxes for Social Security and Medicare, just cost of citizenship the way I look at it. Not something I get too wound up over. Even if I can’t benefit from Medicare I am paying in for my parents and other people who can benefit from it, while I pay $50 for a doctor’s visit in Thailand.

You can collect Social Security while living abroad.

[toastal]

If the goal is to get more people health care, then letting them deduct visits for cheaper care in the country they reside in would be a good thing. It more strain on the US healthcare system and the planet to have expats traveling back for a procedure and the deduction would be less because the healthcare cost is less.

And remember the reaction to the House press secretary Jen Psaki saying the US would provide vaccines to all Americans and then immediately walking that back when a reporter ask about those abroad with, "we have not historically provided private healthcare for Americans living overseas, so that remains our policy"? I'd say this was joke if it wasn't about the health of US citizens not getting care while paying their whole lives for it (this isn't Medicare, but still the reaction and aversion to health services aboard).

[gregjor]

Yes, we can imagine all kinds of ways the US health care system could work better. I was just mentioning that US citizens have to pay for Medicare regardless of where they live, and it’s not excluded with FEIE. And Medicare doesn’t work overseas. That’s the reality we have to live with. What could or should happen in our opinions is a different question, not really relevant to this topic.

Personally, my goal was traveling and living nomadically out of the US. I did that for over six years. Medical care was cheap almost every place I went, and I’m older than the typical 20- and 30-something nomads. My goal was not debating or trying to reform Medicare or the US health care system. Those are noble goals I suppose but not something I want to spend my time on.

[toastal]

> Those are noble goals I suppose but not something I want to spend my time on.

This is really why I should donate to the "abroad" political arms. Both Republican AND Democrats agree on fixing Medicare, FBAR, etc. because citizens abroad are always an afterthought. I wouldn't mind being an afterthought if it wasn't sapping the biggest part of my paycheck while being utterly useless to me later in life or sucking out all of my time come tax season.

[gregjor]

It doesn’t make sense to me to voluntarily donate money to politicians when you are complaining about taxes. You can write your members of Congress for free.

For a self-employed person Social Security is 12% on the first $147K of self-employment income, maxing out at $18,228/year. Medicare is 2.9% on the first $200K and 3.9% on income over $200K. So for a person making $200K+ the total of those is 12% + 3.9% = 15.9%.

For a person with a regular employer (you mentioned “paycheck” in your comment) the employer pays half of those taxes, so the employee portion is a little less than 8%.

That’s a significant chunk of income paid for Social Security and Medicare but I wouldn’t call it “the biggest part.”

Americans living abroad can collect Social Security, so that part is not necessarily utterly useless. Currently Medicare benefits only pay for treatment in the US, but in that case the percentage of income paying into that is no more than 2.35%.

If you have parents or relatives on Medicare you are actually funding them, think of it that way. Because of demographic changes America has a growing aged population and a shrinking population of young people. If you want to address that problem have more children.

If preparing and filing tazes is sucking out all your time come tax season maybe get a professional tax preparer to do it for you. I have been self-employed for over a decade, earning well over $150K/year, lived overseas more than half that time, and I never spent more than a couple of hours a year preparing and filing my taxes. Some people have more complex tax situations than others but most returns are not that complex if you keep your records and receipts organized.

[gregjor]

Estimates of Americans living overseas vary from 5 million to 9 million. A lot of those are retirees (presumably past the age of contributing to Social Security and Medicare), and government employees and military posted overseas. The number also includes students (generally not earning a taxable income), "accidental" Americans who got citizenship by birth (like Boris Johnson). Actual expats and nomads are probably a fairly small number.

It would be nice if US tax laws and Medicare and so on accommodated expats and nomads. That would likely benefit me. But I chose to live an unusual and minority lifestyle as a nomad, so I have to take the good with the bad. It's not worth my time, effort, or money to get involved with political lobbying on a niche issue that doesn't interest or concern the vast number of US citizens or the people in Congress who might make changes. The government will always have bigger and more pressing issues than unfair taxation of expats, and we will always be a tiny minority of constituents.

More than once I have encountered Americans who interpret my choice to live abroad as somehow "abandoning" my country, or running away from it. And most Americans don't know about taxes on expats/nomads, they assume that if I live in, say, Thailand I am not paying US income taxes. When I explain that Americans are taxed based on citizenship they are surprised -- why would an American who lives and works in the US know about that? Likewise Americans are usually not aware that getting a tourist visa to visit the US (for a foreigner) is often difficult and time-consuming -- they have never had to deal with USCIS. So that presents a political challenge: the expat/nomad lifestyle is not something the majority of Americans (or their elected representatives) understand or care much about.

Good luck with the uphill battle. There is an advocacy/lobbying organization for Americans living abroad:

https://www.americansabroad.org

Of course they ask for money. I choose not to get too involved with trying to reform the government or tax policies. It's a fact of life I can deal with, I have better things to give my attention to.

[mellavora]

Did ustax.bz also tell you that if you are self-employed, you still need to file quarterly with the US, unless you are in a country with a totalitization treaty with the US?

unless you earn less than $400/yr.

> International Tax Gap Series

> If you are a self-employed U.S. citizen or resident, the rules for paying self-employment tax are generally the same whether you are living in the United States or abroad.

> The self-employment tax is a social security and Medicare tax on net earnings from self-employment. You must pay self-employment tax if your net earnings from self-employment are at least $400.

https://www.irs.gov/individuals/international-taxpayers/self...

[gregjor]

Self-employed taxpayers are supposed to file quarterlies regardless of where they live. If you don’t you get a penalty assessed. And yes, ustax.bz told me that, but I already knew.

[seanmcdirmid]

> double that for a married couple

Only if your spouse also qualifies, which isn’t necessarily just because they have an ITIN (oh, and it only applies to their income, and not yours…which often won’t work out if your spouse is earning local wages). SS and Medicare aren’t collected on income earned abroad, but you also have to be careful because your credits towards benefits don’t accrue either.

I quickly dropped the FEIE in favor of the foreign tax credit. Turns out I paid more in Chinese taxes than I would have paid USA taxes, and computing the FTC on top of the FEIE was just too complex by hand.

[gregjor]

Digital nomads generally aren’t getting permanent residency or work permits, so they aren’t paying local taxes wherever they happen to stay. Longer-term expats and retirees will have different visas and tax situations.

[seanmcdirmid]

A lot of countries require you to pay local income taxes even if you don't have permanent residency or a work permit (as long as you do the work in country, you are supposed to pay taxes on what you earn from it). But they have no way of tracking the worker's income, so won't know unless somehow they happen to find out about the tax fraud.

[gregjor]

Can you name any countries that tax foreigners who work there without a work permit (or a visa that allows remote work)? Suppose I'm a US citizen working for a US company while I enjoy living in Thailand. I don't have a work permit in Thailand. Technically (according to Thai immigration and labor law) I am not allowed to work at all, so I'm breaking the law. In practical terms there's no way for the Thai authorities to enforce those laws unless I go around telling everyone I'm running a business or working for a foreign employer. If I try to pay taxes there without a work permit I am either going to get confused looks or deported.

The US is like this -- it's illegal to work in the US without a work permit or visa that allows work. If a French citizen comes to the US on a tourist visa and works for their employer remotely they are technically violating the conditions of their tourist visa, which prohibits any kind of work. Practically there's little to no enforcement for people working on laptops from coffee shops.

I'm not saying I don't believe you, I just haven't heard of any country requiring local taxes unless you have a work permit or some kind of visa that specifically allows you to work remotely. I can't see how those governments would enforce that unless they raided every coffee shop and hotel room looking for foreigners with laptops.

I know some countries have so-called digital nomad visas that allow working for a foreign employer remotely. I don't think that's what you're describing, though.

[idontwantthis]

Yeah this article is really pointless because it doesn't mention this. I'm an American citizen living abroad (still digital, no longer nomadic). I only pay SS and Medicare tax to the US.

Do not give up your US Citizenship for tax avoidance unless you are earning > $200k per year or making a lot of unearned income outside of the US.

Or you are in some weird situation where you permanently want to be in the US more than 35 days a year, but you don't work in the US, and don't want to be a citizen for some reason.

[brobinson]

There's also FATCA, FBAR, and a bunch of other nonsense you still have to deal with. Lots of foreign banks won't do business with Americans. You're also paying for an unnecessary tax return preparation each year. Renouncing in light of all this stuff makes sense for a lot of people.

[gregjor]

TurboTax has the FEIE worksheet and forms.

If you make enough money that renouncing citizenship looks like a good option the cost of tax preparation and opening a foreign bank account are going to be trivial details someone else will handle for you.

It’s a hassle for Americans to open bank accounts in some countries because of IRS reporting, but if you have a few million dollars to deposit you won’t have any problems.

[toastal]

TurboTax lobbies to keep the taxes overly complex so they can sell their services, so actually screw them. Almost all of their competitors don't offer service to those without a US address and US filing so your other choice is hiring a CPA.

[gregjor]

Nomads and expats should keep a US address and bank account. It makes everything simpler. You don’t have to tell the IRS or your bank your moved overseas. No one comes looking for you, no reason to complicate your life with foreign addresses.

Intuit may be an evil company, that’s a different subject. But their TurboTax product does handle the FEIE, which is the point I meant to make. You don’t have to hire a tax pro for that, though it may be worth it for complex tax situations or if you have income over $200k/year.

[toastal]

Paragraph 1 & 2 are definitely relate though. I just want to pay the bill and TurboTax has a line that says something to the effect of "Yes! You can pay the service if you use a US-based bank" while you go to the next screen where credit card is the only option and they will not accept cards from US-based banks with a foreign address. I canceled my old credit card when it expired because I wanted to simplify my life having less accounts, to not support their business and the shoddy support on Firefox/Linux from them, and to just have less entities tracking me. Now I have to go beg for a favor from family in the US to borrow credit card details pay for the privilege to give the government money. I tried doing taxes by hand two years ago and it was such a mess and I couldn't verify correctness with my situation that I had to bow out to a service.

[beagle3]

How do you pay SS and Medicare? I know someone in your situation who was trying to and was told you can only do that if you have US income source (which they don’t have)

[silverpepsi]

I'm going to assume they didn't know what they were talking about as my employer is US based. And by legal definition, the income I'm getting from them is foreign sourced income at least 330-365 days of the year. I'm taking the FEIE deduction yearly.

Source doesn't mean what it does to the layman for intl taxes.

[beagle3]

I didn't ask "why", I asked "how". That someone wants to pay SS and Medicare in order to accrue rates (planning to come back and perhaps retire in the US at some point, keeping options open), but was advised there is no way to accrue those rights without US income, even if they pay out of pocket.

[silverpepsi]

That's what I'm confused about. It seems you were advised to engage in illegal tax evasion or something? If you do your US taxes, which is required until the day you die, those charges will simply come out of completing the forms properly. It's unavoidable. The reason I clarified about US income is that the way you described it doesn't exist as a concept in tax law. The money amounts you're going to write down on your taxes don't ask where the person who sent you the money was seated in the world.

[gregjor]

https://www.irs.gov/individuals/international-taxpayers/soci...

[gregjor]

You file quarterly tax returns and pay the IRS. If you have a full-time job in the US your employer normally deducts and pays those taxes as part of payroll processing.

[beagle3]

In context, the question is this:

Mr X is a US citizen who lives outside the US, files and pays US taxes (with deductions taken for locally paid taxes). Mr X wants to also pay into social security and medicare (and whatever other right accrual systems) so that, if they decide to go back to the US so that -- when they retire -- they are entitled to social security benefits and medicare coverage.

The question is: How does Mr X technically pay into these systems, without having any US based income. He knows how to pay income tax (and does), but can't figure out a way to pay SS/Medicare (and doesn't).

[gregjor]

https://www.irs.gov/individuals/international-taxpayers/soci...

If Mr. X has no US-source income and earns income in a country with no totalization agreement with the US he can save the money he’s not paying for Social Security and Medicare in a savings account, IRA, etc. it’s not like the government-run programs are paying high interest.

[plugger]

from my understanding the US is the only G20 country that taxes citizens living and working abroad. given that I'm not sure your statement makes sense about when you should give up your US citizenship, as you'll still be out of pocket if you earn less than $200k pa.

On the flip side currently if you renounce your US citizenship it immediately triggers a 5 year back tax audit by the IRS and you have to clear your bill before they'll let you renounce.

[idontwantthis]

No you're not really if you know what the FEIE is. You don't get taxed on the first $112,000 of earned income this year. It's one extra page you need to file with your taxes. That means no income tax on any earned income up to that amount.

"Income tax" on "earned income" does not include Social Security, medicare/caid tax so you still pay some. It also doesn't cover "unearned" income like capital gains or rent.

I said earn > $200k because I'm sure citizenship is worth at least $88000 per year to most people. You would also need to be very confident that that income level is never going to to go away.

Further, most developed countries where you would be more likely to be earning that much money have tax reciprocity treaties with the US that cover the rest of your earned income.

[plugger]

I understand what FEIE is. but as you said, it's the first $112k. BUT, you still have to file every year, which incurs a time and financial penalty. W2 forms aren't designed for mere mortals to fumble their way through, so most outsource it to a tax accountant at a financial cost. Also, tax accountants abroad that specialise in US tax law are both rare and expensive.

> medicare/caid tax so you still pay some

exactly. You're still 'on the hook' annually to pay for subpar services you'll most likely never use, assuming they exist when you're eligible for them.

> I'm sure citizenship is worth at least $88000 per year to most people.

I'm sorry, but that makes me laugh HARD. By your math I would have paid approximately $1.9 million dollars in the past 21 years just to hold the US passport I might have used 10-15 times in that timeframe to gain entry to the US. Do you honestly think the right to visit the US 15 times over 2 decades is worth $2 million USD? Especially when you can visit the US without a US passport fairly easily (assuming you're not a cryptobro acting like a fool?).

Full disclosure, I'm a US expat who's lived in Australia for over 20 years and was granted Australian Medicare YEARS before I was a permanent resident.

[idontwantthis]

That’s great you’ve found a home in a country with similar security and stability to the US. None of what I’m saying matters to you because you found a new home to pay taxes to.

There’s no good reason for you to keep your US citizenship just like there’s no good reason for the average Australian citizen to gain US citizenship.

This is in the context of digital nomads who probably aren’t seeking citizenship in Australia or a similar country.

Ending US citizenship purely for tax avoidance without considering FEIE (like this article does) aimed at a target audience of young people who probably don’t know much about where they are going or how taxes work (digital nomads) is not smart.

[gregjor]

If you make more than $100k a year a few hundred dollars a year for professional tax prep shouldn’t be a big deal. And the cost of tax preparation and advice is deductible.

US citizenship has benefits beyond the passport. What that is worth depends on the individual. People from all over the world wait years for US visas and work permits, so there’s some value and demand implied.

I have children and family in the US, so I don’t put a price tag on my passport. Any place desirable enough for me to get citizenship there and renounce my US citizenship is going to tax me too.

[anonymoushn]

If it cost "a few hundred dollars a year" and less than 1 day of my time I would be ecstatic. That is nothing like what it actually costs.

[mschuster91]

You should not be forced to file taxes for a country you do not live in. Even if there are reciprocity agreements in place.

[gregjor]

Yeah there’s always a difference between how the world actually works and how each of us think it should work. The advice here is for the reality-based contingent who want to minimize their tax obligation. For the rest there’s Cryptoland.

[anonymoushn]

Sure yes. Those people should definitely renounce.

[anonymoushn]

Because the U.S. prefers to penalize market participants who provide services like market making and reward market participants who speculate for periods of at least 1 year, all of my income is taxed at income tax rates but none of it is "earned income."

[0xy]

>Most states will want state income tax, so establish residence in a state with no income tax before going nomading.

Is this true? I thought that was only the case if they could prove you are an active resident. Of course, if you maintain a mailing address or residence in California/NY then you better believe they'll make sure you pay. If you cut ties completely, they don't have grounds to come after you.

[Ancapistani]

I moved from Virginia to Arkansas a few years ago, with my move-in date as January 1 to simplify taxes. After filing my previous year’s taxes (both VA and federal), the state of Arkansas sent me a letter demanding that I pay an estimated AR tax for the previous year because I had filed my federal taxes from an Arkansas address, but had not filed AR taxes.

I ended up having to go to court over it, twice so far. The first time was a “tax court”, and they deferred the judgement until I could obtain acceptable proof that I had held a driver’s license in another state for that year. The license itself wasn’t enough. The second time was after the judgement was issued anyways, and I had to file for it to be vacated.

[beagle3]

If you maintain a mailing address in a state, it will be on you to prove you don’t live there (and expect to have to do it on a yearly basis).

If you have an address outside the US, it is a good idea to tell the IRS to mail you at that address, the states seem to be content with that as evidence that you live out of state.

[gregjor]

Until you renounce US citizenship I would advise keeping a US address in a no income tax state, and a US bank account. Don’t tell the IRS or your bank that you moved out of the country. You don’t have to prove where you live or don’t live, just file the forms, pay the taxes, they don’t care. No one comes to the house looking for you unless you have done something criminal.

If you don’t have family or friends that will let you use their address you can use a mail receiving service (I used Traveling Mailbox for years). An attorney will usually let you use their address for a nominal fee. There’s actually a pretty big selection of services geared to expats and constant travelers, like people who live in RVs. Do some research, it’s not a big deal.

[beagle3]

I am not a US citizen, but I do know one who lives outside the US, and for several years, had to prove to Maryland that they are not a resident -- each year anew -- until they gave up and listed their non-US address with the IRS, which made everything simple.

Indeed, Maryland is not a no-income-tax state; However, tax issues are not the only thing one should care about, and I wouldn't just move to a state "on paper" without a good knowledge of what that might legally require me to do.

Do no-personal-income tax states never require that you file anything? Whether it is tax related, or not?

[toastal]

One option: Schwab offers international accounts that can help once you lose your address and can no longer open any US accounts. You can't use ACH or their roboadvisors, however they do pay ATM fees internationally.

[gregjor]

I use Schwab and recommend them. Open an account before leaving the US. You don’t need an international account, use a US address. If Schwab ever asks if you live overseas tell them no, you just travel a lot. They asked me once in six years, accepted my answer. They refund ATM fees on the regular investor checking account too.

[gregjor]

Get a driver’s license and an address in a state with no income tax: Washington, Nevada, Texas, Florida, etc. It’s not hard to do but you need to plan a little bit if you want to move overseas long enough that the FEIE will kick in.

Some states hold on to former residents harder than others: California and Virginia are notorious for trying to continue taxing people who leave. How you deal with this will depend on individual circumstances. Get professional tax advice if you expect problems with state tax authorities.

[brobinson]

California actually has a guide for this: https://www.ftb.ca.gov/forms/2019/2019-1031-publication.pdf

[Stevvo]

I imagine if someone is considering revoking their citizenship just to avoid tax, they make a lot more than $112,000

I wouldn't call it a tax break; the US is the only country that double taxes its citizens on foreign-earned income.

[gregjor]

The US is one of only two countries that taxes based on citizenship.

Double taxation would only happen if you had to pay taxes to a foreign country and the US. If you plan to work or earn income abroad as a US citizen it would be wise to choose a country that has tax reciprocity with the US, to avoid double taxation. That would include most countries that would be on the list of places worth renouncing US citizenship for.