Do I Have to Pay US Taxes If I Work for an American Company While Living Abroad?

The Real Answer: It Depends (But Not in a Vague Way)

When I get this question, my first thought is always the same set of questions:

• Are you W-2 or 1099?
• What country are you living in?
• How much are you making?
• Are we using FEIE, FTC, or both?

Because those answers change everything.

Real Client Stories (What This Actually Looks Like)

W-2 vs 1099 Abroad (What Actually Matters)

People love to overcomplicate this. Here's how I explain it: it's not really about W-2 vs 1099. It's about which country's system you're paying into.

• If you're in a country without a totalization agreement → you could pay into both systems
• If you're in a country with one:
  • W-2 → usually tied to US Social Security unless structured properly
  • 1099 → you often have flexibility, but you need to choose correctly and get a certificate of coverage

My honest take? There's less difference than people think — what matters is how it's structured.

The Mistake That Can Cost You Thousands

If you move abroad and do nothing else, do this: break ties with your US state (especially NY or CA). Because if they consider you domiciled, they can still tax you. Fully. I've seen people move abroad and still get hit with state tax just because they didn't properly cut ties.

Another Big One: Trying to "Game" Residency

This one is huge in Spain. People think: "I'll just stay under 183 days and I'm fine." No. That's not how it works. You also have:

• Center of vital interests
• Family location
• Economic ties

And when people try to game it? They miscount, they misunderstand, they get audited — and they often end up paying more tax than if they just structured it correctly from the start.

If you're in Spain, read our complete U.S. expat tax guide for Spain.

When Do You Actually Pay Tax in Both Countries?

Yes — it happens. A common situation I see: someone tries to avoid being a tax resident (Spain is a big one), but they're clearly living there, working there, functioning there. Spain still considers them resident. Now they're filing in Spain and the US, trying to fix it after the fact.

Could it have been avoided? Almost always — yes, with proper planning.

For Portugal specifically, check out our U.S. expat tax guide for Portugal.

FEIE vs FTC (Where the Real Strategy Happens)

This is where people either save money — or lose it. Here's how I actually approach it:

• Lower to mid income → FEIE can work well
• Higher income → usually FTC becomes more valuable
• Complex cases → often a combination of both

Big misconception: "You can only use one." Not true. If one maxes out, you can often use the other on remaining income. This is where real planning happens.

For the 2025 tax year, the Foreign Earned Income Exclusion is $130,000 per qualifying person.

The Thing People Ignore (Until It's Too Late)

FBAR / FinCEN filings. People think: "It's just a form, it's not a big deal." Until the penalties show up. They're not small.

The good news? The Streamlined Program still exists. And when handled properly, it can fix past mistakes cleanly. But ignoring it is not the move.

For a full breakdown, see our FBAR & Compliance authority guide.

So… Do You Actually Pay US Taxes?

Here's the real answer: more often than not, yes — you are paying some form of tax. It might be:

• Income tax
• Social Security / FICA
• Or taxes in your country of residence

But just because you're not writing a check to the IRS doesn't mean you're not paying tax somewhere.

One Last Thing Most People Miss (The Stacking Rule)

Even if your income is excluded under FEIE, it still counts. It's used to determine your tax rate on everything else. So people think: "My income is exempt, so I'm in a low bracket." Not exactly. Your worldwide income still pushes you into higher rates. And that catches a lot of people off guard.