International Tax Basics for Remote Workers: Withholding and Reporting

Why this matters

Remote work across borders creates overlapping tax obligations. A worker’s country of residence, the employer’s country, and the country where the payor is located can all assert taxing rights. For many U.S. taxpayers, the U.S. taxes worldwide income regardless of residence; other countries use residency or territorial rules. Mistakes can lead to double taxation, unexpected withholding, missed credits, or penalties for failing to file information returns (for example, FBAR/FinCEN Form 114 and IRS Form 8938). (IRS: International Taxpayers — https://www.irs.gov/individuals/international-taxpayers)

Core concepts remote workers must know

• Tax residency: The central test used by most countries to determine whether they can tax global income. Common residency tests include physical presence (e.g., 183-day rules), permanent home, and center-of-life or domicile tests. Treaties often include tie-breaker rules for dual residents.
• Source of income: Some countries tax based on where the services are performed (source jurisdiction) rather than where the employer is located.
• Withholding tax: Employers or foreign payors may deduct taxes at source (pay-as-you-earn / PAYE). Independent contractors often receive gross pay and must make estimated tax payments in their tax home.
• Relief mechanisms: Tax treaties, the foreign earned income exclusion (FEIE, Form 2555), and the foreign tax credit (Form 1116) are primary tools to avoid or reduce double taxation.
• Reporting obligations: Beyond income taxes, U.S. taxpayers may have to file the FBAR (FinCEN Form 114) and IRS Form 8938 (FATCA) to declare foreign accounts and assets.

(Internal resources: see our guides on the Foreign Earned Income Exclusion, the Foreign Tax Credit, and Form W-9 vs W-8BEN: Which Tax Form Do You Need?.)

How withholding typically works for remote workers

• Employer in host country: If you are an employee working physically in Country A and that country requires payroll withholding (PAYE), your employer will withhold local income tax and social contributions. You may need a local tax ID to ensure correct withholding.
• Employer in home country (but worker abroad): A U.S. employer paying a U.S. citizen living abroad may or may not withhold U.S. payroll taxes differently. Social Security and Medicare withholding depends on whether the employer is a U.S. employer and whether a totalization agreement applies.
• Independent contractors: Non-employee payors often do not withhold. Contractors must make estimated tax payments in their tax home and monitor tax obligations where they perform services.
• Nonresident payors and treaty claims: A non-U.S. payor may require a Form W-8BEN or W-8BEN-E to document foreign status and claim treaty benefits; U.S. persons use Form W-9 to certify U.S. status. (See our internal primer on W-9 vs W-8BEN.)

U.S.-focused rules remote workers should not miss

• Worldwide taxation: U.S. citizens and resident aliens are taxed on worldwide income regardless of residence. (IRS: International Taxpayers — https://www.irs.gov/individuals/international-taxpayers)
• Foreign Earned Income Exclusion (FEIE): If you qualify under the bona fide residence test or physical presence test, you may exclude part of your foreign earned income using Form 2555. FEIE is a tool, not an automatic waiver—proper filing is required. (See our FEIE guide: https://finhelp.io/glossary/how-to-qualify-for-the-foreign-earned-income-exclusion/ and IRS Form 2555 guidance).
• Foreign Tax Credit: If you pay income tax to a foreign country, you may be eligible for a credit against U.S. tax on the same income using Form 1116. The credit preserves U.S. tax credits for foreign taxes paid and often is preferable when foreign rates exceed U.S. thresholds. (IRS Form 1116 — https://www.irs.gov/forms-pubs/about-form-1116)
• FBAR and FATCA: If you hold foreign bank accounts, you may need to file FinCEN Form 114 (FBAR) and IRS Form 8938. FBAR filing thresholds and rules are enforced separately from the income tax return and carry significant penalties for noncompliance. (FinCEN FBAR guidance — https://bsaefiling.fincen.gov/ and IRS FATCA/Form 8938 — https://www.irs.gov/businesses/corporations/report-of-foreign-bank-and-financial-accounts-fbar)

Tax treaties and how they help

Bilateral tax treaties allocate taxing rights, reduce withholding rates on passive income (dividends, interest, royalties), and include tie-breaker rules for residency. Treaties may allow a worker to be taxed only in the country of residence for employment income or permit credits for taxes paid in the source country. Always read the specific treaty article that covers employment income and residency tie-breakers. (See our article: https://finhelp.io/glossary/tax-treaty/)

State tax and residency traps for U.S. remote workers

Even if you live abroad, some U.S. states may continue to consider you a resident for state income tax purposes. Factors include domicile, voter registration, driver’s license, property ownership, and time spent in the state. If you retain ties, you could face state tax returns and audits. See our guide on How State Residency Tests Can Affect Your Tax Return.

Practical compliance checklist (before, during, and after moving)

• Before you move: Confirm how your employment status (employee vs contractor) will affect withholding; ask your employer about payroll setup and social security obligations.
• Establish residency status: Track days in each country, maintain documentation that supports your residency claim (rental agreements, utility bills, travel records).
• Request correct forms: Provide the appropriate tax form to payors (W-9 as a U.S. person or W-8BEN to claim treaty benefits as a nonresident).
• File timely estimated taxes: If U.S. source income continues and no withholding applies, make quarterly estimated payments to avoid penalties.
• Claim treaty relief or FEIE: Determine whether FEIE or the foreign tax credit is more favorable, and file Form 2555 or Form 1116 as needed.
• Report foreign accounts/assets: File FBAR (FinCEN Form 114) and Form 8938 where thresholds apply.
• Keep organized records: Save pay stubs, contracts, W-2/1099s, foreign tax receipts, and correspondence with tax authorities.

Common mistakes and how to avoid them

• Assuming you don’t owe taxes outside where you live: Check both home- and host-country rules and treaties.
• Ignoring payroll withholding: If host-country withholding is required, failing to account for it can create cash-flow and filing surprises.
• Failing to file information returns: Not filing FBAR or Form 8938 can lead to steep penalties even if tax due is zero.
• Misclassifying employment status: Being treated as an employee vs. contractor has social security and withholding implications.

Short case examples

• U.S. citizen in Canada working for a U.S. employer: Canada may require withholding under Canadian rules; the worker can claim a foreign tax credit on the U.S. return to mitigate double taxation. Also review the U.S.-Canada totalization agreement for social security coverage.
• Digital nomad moving between EU countries: Short stays in multiple countries can trigger tax residency thresholds in one or more states—track days carefully and consult treaty tie-breakers.

When to get professional help

Seek a cross-border tax professional if you: have multi-country income, significant foreign accounts or investments, complex employer withholding issues, or if treaty claims will materially affect your tax due. In my practice I’ve seen early planning (before a move) avoid six-figure tax surprises; a specialist can map withholding, social security, and reporting into a single compliance plan.

Authoritative resources and further reading

• IRS — International Taxpayers: https://www.irs.gov/individuals/international-taxpayers
• IRS — Form 2555 (Foreign Earned Income): https://www.irs.gov/forms-pubs/about-form-2555
• IRS — Form 1116 (Foreign Tax Credit): https://www.irs.gov/forms-pubs/about-form-1116
• FinCEN — FBAR filing: https://bsaefiling.fincen.gov/ (see FinCEN Form 114 requirements)
• IRS — Form 8938 (Statement of Specified Foreign Financial Assets): https://www.irs.gov/forms-pubs/about-form-8938

Professional disclaimer

This content is educational and general in nature and does not constitute tax advice. Tax laws and treaty interpretations can change and vary by specific facts. Consult a qualified cross-border tax advisor or the IRS and foreign tax authorities for guidance tailored to your situation.