If you live in the United States and work remotely for a company based abroad, your pay is subject to U.S. federal income tax, and usually state income tax too, no matter where the company sits or which currency lands in your account. The IRS sources personal service income to the place where the work is physically performed, not to the employer’s country of incorporation or the location of the bank sending the money.1Internal Revenue Service. Source of Income – Personal Service Income The rest of what you owe, and how you pay it, depends on one question: are you an employee or an independent contractor?
Employee or Independent Contractor
This is the classification that shapes every other answer on this page. A foreign company with no U.S. presence typically engages American workers in one of three ways, and each puts you in a different tax posture.
The simplest is a direct independent contractor arrangement. You invoice the company, it pays you, and you handle your own taxes, insurance, and benefits. This is the most common setup when the foreign employer has no U.S. entity and doesn’t want to create one.
The second is an Employer of Record (EOR): a U.S.-based organization that becomes your legal employer on paper. The EOR runs payroll, withholds taxes, and issues your W-2. You do the day-to-day work for the foreign company, but on paper the EOR is your employer for federal and state purposes.
The third is a U.S. subsidiary. If the foreign company has incorporated a U.S. entity, that subsidiary hires you directly and functions like any other domestic employer.
The IRS uses a common-law test to decide whether a working relationship is truly contracting or actually employment, based on behavioral control (who decides how the work gets done), financial control (who bears expenses and business risk), and the type of relationship (benefits, permanence, written terms).2Internal Revenue Service. Employee (Common-Law Employee) A written contract labeling you a contractor doesn’t override the facts. If you set your own hours, use your own tools, and take on other clients, you look like a contractor. If the foreign company controls your schedule, provides your equipment, gives you benefits, and treats the engagement as open-ended, you look like an employee even if the paperwork says otherwise. Misclassification is common in cross-border setups because foreign companies often don’t know the U.S. rules.
What You Owe as an Independent Contractor
If you’re contracting directly with the foreign company, you’re self-employed for U.S. tax purposes, and the entire tax burden sits with you. No one is withholding anything from your payments.
Self-Employment Tax
Self-employed workers pay both halves of Social Security and Medicare under the Self-Employment Contributions Act. The combined rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare.3Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) The Social Security portion applies only to the first $184,500 of net earnings in 2026.4Social Security Administration. Contribution and Benefit Base Medicare has no cap. If your net self-employment income exceeds $200,000 (or $250,000 married filing jointly), an Additional Medicare Tax of 0.9% applies to the excess.5Internal Revenue Service. Topic No. 560, Additional Medicare Tax Self-employment tax is calculated on Schedule SE with your Form 1040.
Quarterly Estimated Payments
Because nothing is being withheld, you have to make estimated tax payments during the year using Form 1040-ES.6Internal Revenue Service. Estimated Taxes For a 2026 calendar-year filer, the deadlines are April 15, June 15, and September 15, 2026, and January 15, 2027.7Internal Revenue Service. Publication 509 (2026), Tax Calendars Miss a deadline or underpay, and you’ll pick up penalties and interest.
Two Deductions That Soften the Bill
You can deduct half of your self-employment tax when calculating adjusted gross income. This comes off directly on Schedule 1 of your Form 1040, not as an itemized deduction.8Internal Revenue Service. Topic No. 554, Self-Employment Tax
The Qualified Business Income deduction under Section 199A lets eligible self-employed individuals deduct up to 20% of qualified business income. The One Big Beautiful Bill Act, signed July 4, 2025, extended and modified the deduction for tax years beginning in 2026.9Internal Revenue Service. One, Big, Beautiful Bill Provisions Phase-outs begin at roughly $201,750 of taxable income for single filers and $403,500 for joint filers. Certain service professions, including law, accounting, consulting, and financial services, face stricter limits above those thresholds. Architecture and engineering are exempt from those service-profession restrictions.
You May Never Get a 1099
A foreign company with no U.S. office and no U.S. tax presence generally has no obligation to file Form 1099-NEC. Many contractors in this situation never receive any tax form from their employer. That changes nothing on your side. You report all self-employment income on Schedule C whether or not a 1099 arrives, so keep your own records of invoices, contracts, and payments.
What You Owe as a W-2 Employee
Through an EOR or a U.S. subsidiary, your tax picture looks like any other American job. Your employer withholds federal income tax and your share of FICA: 6.2% for Social Security and 1.45% for Medicare, with the employer matching both.10Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates Wages above $200,000 also trigger employer withholding of the 0.9% Additional Medicare Tax.5Internal Revenue Service. Topic No. 560, Additional Medicare Tax You get a W-2 at year-end and file your 1040 as usual.
One thing to notice in an EOR setup: the EOR, not the foreign company, is your employer on the W-2 and for federal and state labor-law purposes. That matters if you ever file for unemployment or bring a workplace complaint.
The Foreign Earned Income Exclusion Does Not Apply to You
People sometimes assume that working for a foreign company qualifies them for the Foreign Earned Income Exclusion. It doesn’t. The exclusion requires your tax home to be in a foreign country and requires you to be physically outside the United States for at least 330 full days during a 12-month period.11Internal Revenue Service. Foreign Earned Income Exclusion If you’re doing the work from the U.S., you fail both tests. Where your employer is based has nothing to do with it.
Avoiding Double Social Security With a Totalization Agreement
If the foreign company is in a country that also collects social security contributions, you can find yourself paying into two systems for the same work. The United States has totalization agreements with 30 countries to prevent that.12Social Security Administration. International Programs – US International SSA Agreements
The general rule is territorial: you contribute only to the country where the work physically happens. Doing the work from the U.S. means you generally pay into the U.S. system and are exempt from the foreign country’s social security tax. A limited exception covers detached workers temporarily sent abroad by an employer, who can keep contributing at home for a set period.
The current agreement countries are Australia, Austria, Belgium, Brazil, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, South Korea, Luxembourg, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, the United Kingdom, and Uruguay.13Social Security Administration. Country List 3 – International Programs If your foreign employer sits in a country not on this list, talk to a tax professional about dual contributions.
To prove your exemption from a foreign social security system, request a Certificate of Coverage from the Social Security Administration through its online portal.14Social Security Administration. Certificate of Coverage
Reporting Foreign Bank Accounts
Getting paid into a foreign account triggers two separate U.S. reporting obligations that many remote workers miss. The penalties are severe relative to the effort involved in filing.
FBAR (FinCEN Form 114)
If the combined value of your foreign financial accounts crosses $10,000 at any point during the calendar year, you have to file a Report of Foreign Bank and Financial Accounts with the Financial Crimes Enforcement Network.15Financial Crimes Enforcement Network. Report Foreign Bank and Financial Accounts The threshold is the aggregate across every foreign account you hold or have signature authority over, not a per-account figure. A single-day spike above $10,000 creates the obligation for the whole year.
FBARs are due April 15 with an automatic extension to October 15 that requires no separate request.16Financial Crimes Enforcement Network. Due Date for FBARs Filing is electronic through FinCEN’s BSA E-Filing System, separate from your tax return. Non-willful failure to file can draw penalties up to $10,000 per violation. Willful violations can reach the greater of $100,000 or 50% of the account balance.17Office of the Law Revision Counsel. 31 U.S. Code 5321 – Civil Penalties
FATCA (Form 8938)
Form 8938 is a separate filing under the Foreign Account Tax Compliance Act, submitted with your annual tax return. Its thresholds are higher: single filers living in the U.S. file if foreign assets exceed $50,000 on the last day of the year or $75,000 at any point in the year, and married joint filers use $100,000 and $150,000.18Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets
Failing to file Form 8938 draws a $10,000 penalty, with additional penalties up to $50,000 for continued non-compliance after IRS notice, plus a 40% accuracy-related penalty on any tax underpayment tied to undisclosed foreign assets.19Internal Revenue Service. FATCA Information for Individuals FBAR and Form 8938 are separate. Filing one does not satisfy the other.
State Income Tax
You owe income tax to the state where you physically perform the work. If you live in a state with an income tax, you file a state return and pay on your earnings just as any other resident would. Your employer being overseas creates no exception. If you’re a W-2 employee through an EOR, the EOR usually handles state withholding. If you’re contracting, you’re on your own for state estimated payments too.
Work Authorization Is Still Required
One point that isn’t a tax question but sits underneath everything above: performing work while physically in the United States requires legal work authorization regardless of who pays you or in what currency. You need to be a U.S. citizen, a lawful permanent resident, or the holder of a valid Employment Authorization Document from USCIS.20U.S. Citizenship and Immigration Services. 13.0 Acceptable Documents for Verifying Employment Authorization and Identity A foreign company with no U.S. entity cannot sponsor an H-1B or similar work visa, because employment-based sponsorship requires a U.S. employer to file the petition. The authorization has to be in place before you start.