The Global Commute: Navigating US Taxes When You Work Remotely for a Foreign Company

There’s a certain magic to the idea, isn’t there? You, in your comfortable home office in the US, collaborating with a team in Berlin, Tokyo, or Sydney. The rise of remote work has blasted open the doors to global opportunities that once felt like a distant dream. You get the international exposure, the interesting projects, and you can still make it to your local coffee shop for your afternoon pick-me-up. It feels like the ultimate career hack. But then, tax season looms, and that beautiful, simple picture gets… well, complicated.

Honestly, when I first started exploring this world, I had a vague notion that if my employer was in another country, my US tax situation might somehow be simpler. Maybe the IRS wouldn't be as concerned with that income? It turns out, that's not just wrong, it's the complete opposite of reality. The United States taxes its citizens and resident aliens on their worldwide income. It doesn’t matter if your paycheck comes from a company in France or a startup in Singapore; if you're a US person, the IRS wants to know about it. This single, fundamental rule is the starting point for a journey into a surprisingly complex tax landscape.

It’s not just about declaring income. It’s about understanding your employment status, navigating international tax treaties, and keeping up with reporting requirements that your domestically-employed friends have never even heard of. It’s a different world, but navigating it successfully is entirely possible.

Employee vs. Contractor: The Most Important Question

The very first thing you need to figure out is your classification: are you an employee or an independent contractor? This distinction is the fork in the road that determines almost everything about your tax life. A foreign company might call you an "employee," but if they don't have a legal presence (a nexus) in the US, they likely won't be withholding US income taxes, Social Security, or Medicare. They aren't set up to issue you a Form W-2 like a US employer would.

Because of this, for all practical purposes, the IRS will almost certainly view you as a self-employed individual. This means you're operating as a business of one. You won't have taxes automatically deducted from your paychecks. Instead, you receive the gross amount of your earnings and are personally responsible for settling up with the government. It’s a major mental shift. You have to be disciplined, setting aside a portion of every single paycheck for your future tax bill.

This is where the paperwork begins. You'll report your income and expenses on a Schedule C, "Profit or Loss from Business." This is also where you'll have to start thinking about things like quarterly estimated tax payments. The US has a "pay-as-you-go" system, and when you don't have an employer withholding for you, the burden falls on you to send the IRS a payment four times a year. Forgetting to do this can result in underpayment penalties, which is a nasty surprise nobody wants.

The Reality of Self-Employment Taxes

When you're a traditional employee, you pay 7.65% of your income in FICA taxes (for Social Security and Medicare), and your employer pays a matching 7.65%. It’s a partnership. But when you're self-employed? You are both the employee and the employer. This means you are responsible for the entire 15.3% yourself. This is known as the self-employment tax, and it's often a shock to new freelancers and contractors.

This tax is calculated on your net earnings from self-employment. It's a significant number that you absolutely must budget for. I’ve seen people get excited about a high hourly rate from a foreign company, only to be floored by how much of it goes toward their self-employment tax obligation. It’s a cost of doing business as an independent contractor, and it applies on top of your regular federal and state income taxes.

There is a small silver lining. You get to deduct one-half of your self-employment tax when calculating your adjusted gross income (AGI). It’s a bit of a concession from the IRS, acknowledging that you're covering the employer's share. It doesn't make the tax go away, but it does slightly lower your overall taxable income, which helps.

Don't Forget Your Foreign Bank Accounts: FBAR & FATCA

Here’s where things get even more interesting. If your foreign employer pays you into a foreign bank account, you've just unlocked a new level of reporting requirements. The US government is very serious about tracking money held by its citizens in offshore accounts to prevent tax evasion. This brings two acronyms into your life: FBAR and FATCA.

FBAR stands for the "Report of Foreign Bank and Financial Accounts." If the total, combined value of all your foreign financial accounts exceeds $10,000 at any point during the year—even for a single day—you must file a FinCEN Form 114. This isn't a tax form; it's a disclosure form filed with the Financial Crimes Enforcement Network, a bureau of the Treasury Department. The penalties for failing to file are steep, so it's not something to ignore.

FATCA, or the "Foreign Account Tax Compliance Act," is a similar but separate requirement. It requires you to report your specified foreign financial assets on Form 8938, which you file along with your federal tax return. The reporting thresholds for FATCA are higher than for FBAR, but there is overlap. It’s entirely possible you’ll need to file both. The key is to be meticulously aware of the money you have in foreign accounts and understand that the US government requires you to report it, even if it doesn't generate any taxable income.

A Word on Tax Credits and Exclusions

You may have heard of the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC) as ways for Americans abroad to avoid double taxation. It's easy to assume these might apply to you. However, these tools are designed for US citizens who are physically living and working outside the United States.

The FEIE allows you to exclude a significant portion of your income from US taxes, but only if you meet strict residency tests in a foreign country. If you are living in the US and working remotely, your income is considered US-sourced, and you cannot claim the FEIE. Similarly, the Foreign Tax Credit is meant to give you a credit for taxes you've paid to a foreign government. If your foreign employer isn't withholding any foreign taxes (which is common in these remote arrangements), then you have no foreign taxes paid to claim a credit for.

This is one of the most common points of confusion. The location where you perform the work is what matters most. Working in your Ohio apartment for a company in London means you're earning US-source income, and the primary tax jurisdiction is the US. Always remember that. Your physical presence dictates the source of your income, and therefore, how it's taxed.