- Working from somewhere other than your home state could have tax implications.
- Some home states are friendlier than others to digital nomads.
- Researching local laws and keeping logs of your travels can ensure that you stay compliant.
In 2019, Karen Akpan, now 33, was tired of living in debt. She and her husband, Sylvester, were paying $4,200 per month for their California home, as well as paying off more than $110,000 in student loans. "I told my husband, 'Let's sell it all and get on the road,'" she says.
And get on the road they did. In early 2020, after selling most of their possessions, including their home, the Akpans purchased a used RV and began living as digital nomads—workers who aren't tethered to one location and who use technology to stay connected to work. In the past 6 months alone, the Akpans, along with their young son, Aiden, have been to 9 states and 5 countries.
Karen, who founded BlackKidsDoTravel.com and TheMomTrotter.com, shares her family's travels on Instagram and TikTok (both @themomtrotter), and earns money through social media collaborations with brands and through freelance writing.
The Akpans untethered just as the US started grappling with COVID-19. Now, a staggering 15.5 million US workers describe themselves as digital nomads. That's up 42% since 2020 and 112% since 2019, and millennials make up 44% of that 15.5 million, according to MBO Partners, a freelance talent platform and marketplace.*
In the past, with few exceptions, only independent workers like Karen Akpan could do their jobs on the go. In 2020, though, the unexpected push for so many to go remote allowed former office workers to become digital nomads too. In fact, the number of digital nomads who hold so-called traditional jobs more than tripled in just 2 years, from 3.2 million in 2019 to 10.2 million in 2021.*
Want to join them? Here's how working from around the globe may affect your tax filings.
Mapping your tax requirements
Taxes are rarely simple, but working while traveling can further complicate them. That's something Adam Nubern, 34, knows well. A digital nomad himself, Nubern runs Nuventure CPA LLC and prepares taxes for other untethered workers.
His advice for those considering the untethered life: "Pay attention to state-specific laws, which can vary vastly from state to state. They can also vary vastly based on the type of money that you make, whether it's salary or freelance." For example, a Michigan resident who is a W-2 salaried employee for a California-based company wouldn't get taxed by California. But California might tax a Michigan-based freelancer working for a California client, depending on how much the California client paid the freelancer.
This is why Nubern suggests using a spreadsheet to track travel dates and earnings for each location. Your tax obligations depend on not just where you go but also how long you stay and how much revenue you generate while there.
Another consideration is your home base. If you're a law-abiding, tax-paying US citizen, you'll file a resident tax return in your "domicile" state. That's the place you left when you began your adventure, or the place where you'll eventually return.
Before hitting the road, some digital nomads relocate to take advantage of certain states' tax benefits. The Akpans, for example, adopted Florida as their domicile state because of its low cost of living and lack of state income taxes. That's where they make periodic returns and organized and established their S Corp—a tax classification, usually for small businesses, that offers federal tax benefits.
If you intend to change your domicile state, you'll need to prove your intent to live in or return to that state. When adopting Florida as a new domicile, for example, Nubern says that you should do the following:
- Secure a mailing address in the state.
- Establish relationships there, such as with doctors, CPAs, and insurance agents, and meet with those people.
- Update your driver's license, voter registration, and vehicle registration.
- Fill out state and/or county forms to declare your domicile and certify your address.
- Create "appearance in the state" by paying taxes and storing belongings there.
It would also be wise to spend more time in that domicile state than any other state, says Nubern. You can prove this in your travel log if you face a domicile audit.
Both Nubern and Barry Kaufman, a CPA at Pittsburgh, Pennsylvania–based Goldstein Tax Prep, who has prepared individuals' and businesses' taxes for more than a decade, agree that it's wise for digital nomads to seek counsel from CPAs and lawyers before untethering. "You need to consider the potential tax benefits and consequences," Kaufman advises. "As much as there's an allure of going somewhere else, there could be financial consequences—all of which aren't bad but could be significant enough to alter how you go about that decision."
Considerations for international travel
"No matter where you go, or what you do, you have to pay taxes," says Beth Goldstein, owner of Goldstein Tax Prep. If you're a US resident who wants to work while abroad, "odds are that place is going to want to tax you," Nubern adds. So research your destination countries' tax requirements.
Working while abroad will alter your US filings as well. But Nubern cautions about the sought-after foreign earned income exclusion. That can allow US citizens to exclude foreign-earned income from their US federal tax returns if they were outside the US for more than 330 days and earned less than $108,700 in 2021 or $112,000 in 2022. "If you don't speak the language of this other country and never attempted to learn, or you don't have a bank account and social ties in this other country," Nubern explains, "then if you're audited, those facts could be grounds that your intent is not to permanently live there. Then, the IRS could say that your abode is still in America, and you can't have the foreign income exclusion."
People who want to work internationally also need to check on the immigration laws in the country where they want to earn money. Many countries don't allow people to work on a tourist visa.
Alerting your employer
With states still trying to update tax law for teleworkers, individual employees and their full-time employers, in many cases, are required to comply with applicable withholding and tax-filing procedures in the states where employees work.
Some states burden the employer with withholding taxes if an employee works within that state for just one day. That's leading to some companies saying, "'Sure, we will let you work remotely, but only in this state, this state, and this state,' because maybe they've paid their lawyers and tax attorneys to figure things out in those states," Nubern says.
Having an employee work from a different state can also complicate corporate income, sales and use, and property taxes. So there are additional financial, legal, and regulatory ramifications for a company beyond income tax withholding requirements. For full transparency and to ensure that both you and your company comply with states' tax laws, let your HR representative know where you plan to visit while working, and how long you'll stay.
Don't let taxes stop you
If taxes are one of the certainties in life, so are tax-law changes. Each year, you—and your CPA—will have to determine if and how filing requirements have changed in states and countries you visit. But that and the many other considerations don't have to deter you from jet-setting.
"If you're curious about becoming a digital nomad, you should scratch that itch," Nubern says. "There are tons of folks to help you figure out tax compliance along the way."
Kaufman suggests getting advice from various voices in your world, such as your family, your HR representative, tax professionals, and financial planners. "Everyone's going to come at it from a different perspective, and that should be helpful," Kaufman says.