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I am a remote worker living abroad. What taxes do I pay as an expat? Do I pay state tax, too? What percentage of my earnings do I need to set aside for taxes?

I am a remote worker through UpWork. They will file a W-9. I am wondering how much I should save from each paycheck so that I can pay my taxes quarterly.
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I am a remote worker living abroad. What taxes do I pay as an expat? Do I pay state tax, too? What percentage of my earnings do I need to set aside for taxes?

This is just a start, and I’m sure that other experts will have more comments and suggestions.

In general, if you are a US citizen or green card holder, you are required to file a US tax return and report and pay tax on all your worldwide income, regardless of where you are living or performing the work.  As a self-employed person, that means that you will include a schedule C, with your tax return to report your business income and expenses.  The net profit flows to form 1040 where it is combined with any other income, deductions, and credits to calculate your total income tax. You also pay 15% self-employment tax, which is the self-employment version of Social Security and Medicare tax.


if you also pay tax in a foreign country on the same income, you can claim a deduction or credit for the foreign taxes, you pay, which reduces the impact of double taxation. For example, if you are in the 22% federal tax bracket, and you pay 10% in a foreign country, then you would get a 10% credit so you end up paying 10% to the foreign country and 12% to the US. However, if you are in the 22% bracket and you are in a foreign country that charges 30% income tax, you would get at most, a 22% federal tax credit.


If you live overseas at least 330 days of the year, you can claim a foreign earned income tax exclusion. This means that you are not required to report or pay US tax for foreign earned income. Earned income is compensation from performing work or providing a service. Earned income does not include investment income, gambling, prizes, and other types of income. Those are still taxable on a US tax return. 

You are required to pay state income tax if you maintain a domicile in a US state. A domicile is your true permanent home.  There is no single factor that determines your domicile, it is a combination of all factors, including where you live, work, the location of significant social relationships, your doctor, attorney, friends, church, and so on.  Your domicile is where you intend to return after any temporary absence. Temporary absences can last many years, and it is possible to live away from your domicile for a long time without actually changing your domicile. To change your domicile, you must not only take steps to create a new domicile, but you must take active steps to abandon your former domicile.  For example, if you own a condo in New York City, and when you moved overseas you kept the condo and rented it out, and you put all your property in storage, and you intend to return to the condo when your overseas adventure is concluded, then you are still domiciled in New York City, even though you are living far away.  On the other hand, if you sold the condo when you moved out, and you sold all your property that you couldn’t bring with you, then you have abandoned that domicile.


because you are a US taxpayer, you still follow all the normal US tax laws that would apply to you if you lived in the states. That includes the rules for reporting business income and deducting expenses, the rules for claiming deductions and credits, the rules for claiming dependents, and the requirement to pay estimated income taxes. There are a couple of exceptions, for example, you can only deduct real property taxes that you pay on property located in the US. If you own property overseas and pay property taxes, that’s not deductible. You also have the ability to take the foreign earned income, exclusion, and the foreign tax credit or deduction for foreign taxes you pay.

Level 15

I am a remote worker living abroad. What taxes do I pay as an expat? Do I pay state tax, too? What percentage of my earnings do I need to set aside for taxes?

With regard to quarterly estimated federal taxes, you want to pay at least enough to avoid an underpayment penalty.  Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they pay at least 90% of the tax for the current year, or 100% of the tax shown on their return for the prior year, whichever is smaller.  


A very general rule of thumb is to pay 20-25% of your gross income.


If you will still have a state income tax obligation as explained by @Opus 17, don't forget to make state estimated payments too.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.
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