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?
Related or Semi-related Video
Finance: What is the IRS?19 Views
Finance allah shmoop What is the i r s Well
i rest might be the three most hated letters in
the alphabet Well after d m v a pms and
well maybe std The i r s is the internal
revenue service Their internal i e inside the government they're
in charge of collecting revenue A k a They take
money from your pocket in the form of taxes and
they deliver it to uncle sam and they you know
service you and it doesn't feel good So yeah these
are the guys from the us treasury department who checked
to make sure you filled out your income tax forms
correctly and submitted the proper amount And if you screwed
up in any way they will let you know about
it and a half in the form of angry letters
Phone calls knocks on your front door rocks through your
back window Whatever it takes to get you to pay
your fair share of taxes Like why should you get
away with not paying when the jones has paid all
they owed Or the irs can do even worse and
audit you with an audit he irs will request extensive
and very specific information and records from you Paycheck deductions
all kinds of things You claim that you did that
were deductible that may or may not have been forcing
you to spend hours upon hours at your public storage
unit digging through boxes you hoped and prayed you'd never
see again Well after the third solid week of having
your financial history poked and prodded like you've had to
turn your head and cough you uh might actually be
ready and willing to trade in those three letters of 00:01:35.13 --> [endTime] irs for rough one of those stds instead
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