As a digital nomad, you have the luxury of being able to travel all over the world, working as you go. Providing you have an internet connection and a laptop, anything is possible when it comes to building a career online.

With that being said, there are some gray areas when it comes to international law and taxes. Whether that’s establishing tax residency or preventing double taxation, there’s plenty you should inform yourself about to make sure your taxes are filed correctly.

In this guide, we’ll take a look at the tax gray areas every digital nomad should understand when paying it.

Why state taxes aren’t as simple as ‘leave and forget’

When you’re a digital nomad, it’s important to determine where it is you’re officially a tax resident, especially if you don’t have a fixed address or you move frequently.

While a growing number of countries are now offering digital nomad visas, they don’t necessarily clarify or resolve tax issues that are more complex in nature.

It’s not possible to simply leave and forget state taxes because many states will pursue former residents for taxes if they haven’t completely severed ties.

Defining tax residency

The most difficult of challenges is determining where you are when it comes to being an official tax resident. This is particularly important to determine when you don’t have a fixed address.

The 183-day rule

Many countries have a 183-day rule, where if you spend more than this number of days (roughly six months) within the country in a tax year, you then become a tax resident. However, it’s not a threshold that’s universal and might be lower in some countries.

Ties to a country

Tax authorities will look beyond just a simple day count. They’ll look into your ties to the country, as well as where you live and work. In some countries, you can be a tax resident, even when working abroad.

‘Resident nowhere’ risks

The idea of being a tax resident nowhere is simply a myth. Attempting this strategy as a digital nomad could prevent you from accessing benefits, and that might lead to a higher overall tax burden in comparison to adhering to the tax laws and rules for each country.

Citizenship-based taxation

For US citizens, worldwide income must be reported to the IRS regardless of where you live. For other countries, it differs, so it’s good to know what your native country does in this regard.

Key rules for when digital nomads pay state taxes

For digital nomads, there are some key rules to stick to so that you’re paying your taxes correctly. Regardless of where you are in the world, here are some tips for adhering to the law.

Domicile vs Physical Presence

When referring to domicile, this is your legal and permanent home. This is the property you intend to return to after traveling.

You can be physically absent from the domiciled state for years, but legally owe state income tax.

The ‘Convenience of the Employer’ rule

A handful of states will use the ‘Convenience of the Employer’ rule. This rule is to tax remote workers based on the location of their employer, regardless of where the employee is living and working.

States with this rule include New York, Delaware, Nebraska, Connecticut, and Pennsylvania.

If you’re a digital nomad who is domiciled in one of the nine states, then you can easily avoid state taxes by leaving the state. These states include:

Alaska
Florida
Nevada
New Hampshire
South Dakota
Tennessee
Texas
Washington
Wyoming

Professional tips for keeping finances stress-free

With that being said, there are plenty of professional tips for keeping your finances stress-free. Understanding tax obligations for each of the countries you’re looking to visit is important, as well as hiring a tax advisor where needed.