Tax Home

Home is where the heart is...and where the taxes are at. Really, though.

Your tax home is where you work, which determines where you're taxed. If you work abroad...say, in Malaysia, for a Malaysian company, and therefore you pay taxes in Malaysia...you can tell the U.S. that Malaysia is your tax home. But you still have to pay some U.S. taxes. Namely, Social Security and Medicaid taxes.

A trickier scenario: if you’re a U.S. citizen in a location working abroad for a U.S. company via your laptop for over a year...your tax home is not in the U.S. of A. You can probably avoid paying state taxes if you’re abroad long enough, since you didn’t live in any states that year, and you can even get out of some federal taxes, like income tax...but you’ll still have to pay the taxes that go towards Social Security and Medicaid.

In both cases, to avoid paying these state and federal income taxes, you’ll have to prove your tax home is not in the U.S., which would allow you to claim the Foreign Earned Income Exclusion.

Different countries and states treat tax homes differently, but they generally serve as a way for them to decide how to tax you. If you live in one state and work in another, your tax home will be the "where you work" state.

There are special cases, like for healthcare workers who move around a lot. Their tax homes are where they live. For digital nomads on the go monthly...well, the tax system isn’t really set up for that to be an option, so it’s up to them to figure out whether to try to claim a tax home abroad, set up a company in another country, or give up and just pay all the U.S. taxes, since it’s difficult to prove a different tax home.

Who knew that taxes were actually not complicated enough?