• As remote work increases in popularity, more telecommuters are taking their work abroad
  • What are the potential tax benefits and liabilities for foreign taxpayers?
  • Why speaking with your tax expert prior to traveling can save you from high tax liability

The percentage of our country’s vaccinated population is steadily growing. The past year has increased remote work opportunities more than ever before. And everyone is itching to get out of the house. That’s right—traveling is back, and with new tax benefits and liabilities.

Remote Working Is Still On The Rise

Companies are continuing to offer remote work even as pandemic restrictions die down because it offers several benefits like increase talent pools and decreased office costs. Even Forbes has already come out with a top 100 companies to remote work for.

Potential Benefits

Two potential tax breaks for telecommuters working remotely from outside the U.S. are the Foreign Tax Credit and the Foreign Earned Income Exclusion.

Foreign Tax Credit:

  • Credit for foreign taxes that are imposed on a taxpayer by a foreign country or U.S. possession. Generally, only income, war profits, and excess profits taxes qualify for the credit.
    • Taken under itemized deductions, foreign income taxes reduce your U.S. taxable income.
    • • Taken as a credit, directly reduces your U.S. tax liability.

Foreign Earned Income Exclusion:

  • Taxpayers who are living in a foreign country for an extended period of time can exclude foreign earnings from income up to certain amounts that are adjusted annually for inflation.
    • For the 2020 tax year, the exclusion max is $107,600 and for 2021, it’s $108,700.
    • Can also exclude or deduct certain foreign housing amounts.
  • Taxpayer must have foreign earned income, with tax home in a foreign country, and must be one of the following:
    • A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months
    • A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year
    • A U.S. resident alien who is a citizen or national of a country with which the U.S. has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year

Potential Liability

Unfortunately, New Yorkers (and other high-tax state residents) taking advantage of the opportunity to travel may be opened up to increased tax liability. Telecommuters in New York and other high-tax states like California and Virginia may be required to pay income taxes, even if claimed as foreign residents.

With so many dependent factors that determine your tax liability, you’ll want to consult a tax expert before jumping into a remote work vacay. Save money with tax benefits, so you can spend more on your travels! Call DSJCPA at 516-541-6549 and visit our website for more news updates.

Devin McQuillan
Associate, Creative Solutions

Contact:
516-541-6549 | Email

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