What would my tax rate be as a remote freelancer and indie maker? Living and working as a W2 employee in New York City, my current effective tax rate (federal, NY state and NYC combined) is about 40%.
What would happen to that tax rate if I went back to digital nomad life? Specifically, a nomad who spent less than 30 days a year within the US? Nomad Capitalist (highly recommended) said in one of his posts that remote freelance coders living abroad pay self-employment tax, but can otherwise exclude about the first $100,000 of income from U.S. federal income tax. So my tax rate would drop from about 40% to 15%.
There is a great deal of misinformation on the internet about taxes and remote freelancing, so I checked the IRS website and everything Nomad Capitalist says can be verified.
There's more to living abroad than tax savings--there's also the language study opportunities, meeting new people from all over the world, and experiencing adventures that you couldn't imagine before you started!
Self-employment income: A qualifying individual may claim the foreign earned income exclusion on foreign earned self-employment income. The excluded amount will reduce the individual’s regular income tax, but will not reduce the individual’s self-employment tax.
The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).