Can a US citizen be on US payroll if they live abroad?

Yes, a U.S. citizen can legally remain on a U.S. payroll while living abroad, but both the employee and employer have specific U.S. tax and compliance obligations.

Income Tax Treatment (Employee)

U.S. citizens are taxed on their worldwide income, regardless of where they live or where the work is performed.

• Salary paid through U.S. payroll is fully taxable in the U.S.
• The employee may be eligible to reduce or eliminate double taxation through:
  
  • the Foreign Earned Income Exclusion (FEIE), and/or
  • the Foreign Tax Credit (FTC)

Being on U.S. payroll does not disqualify a taxpayer from claiming these benefits, as long as the statutory requirements are met.

Payroll Withholding (Employer)

In general, a U.S. employer must continue to withhold and remit:

• Federal income tax (unless a valid Form 673 is provided)
• Social Security and Medicare (FICA) taxes, if applicable

Exception - Totalization Agreements

If the employee resides in a country that has a Social Security Totalization Agreement with the U.S., and the employee is covered under the foreign social security system, then:

• U.S. Social Security and Medicare taxes may not apply
• The employer must obtain a Certificate of Coverage from the appropriate authority

Without a totalization agreement, FICA generally continues to apply.

State Tax Considerations

State tax obligations depend on whether the employee:

• Maintains domicile in a U.S. state, or
• Has sufficiently severed ties with that state

Some states (notably California, New York, and Virginia) may continue to tax wages unless domicile is clearly terminated.

Foreign Country Compliance

Living abroad may trigger:

• Local income tax obligations
• Foreign payroll registration or withholding
• Employment law compliance (labor laws, benefits, permanent establishment risk)

These rules are governed by foreign law, not U.S. tax law, but they are critical from an employer risk perspective.

Reporting Obligations (Employee)

A U.S. citizen abroad may also need to file:

• FinCEN Form 114 (FBAR) - foreign bank accounts
• Form 8938 (FATCA) - specified foreign financial assets

These apply regardless of payroll location.

Summary

• U.S. citizens can remain on U.S. payroll while living abroad
• U.S. income tax filing always required
• Payroll withholding usually continues
• Double taxation relief may be available
• State and foreign compliance must be reviewed carefully

Updated 2025/2026 Thresholds

Related Questions

• What Is a GIIN?
• How long does it take to obtain a tax residency certificate?
• What is a check the box transaction for a foreign entity?

Sources:

IRS - U.S. Citizens and Resident Aliens Abroad

IRC §61 - Gross income defined

IRC §911 - Citizens or residents of the United States living abroad

IRS Publication 54 (2025), Tax Guide for U.S. Citizens and Resident Aliens Abroad

IRS - Totalization Agreements (International Social Security)

IRS Publication 15 (Circular E), Employer’s Tax Guide

FinCEN - FBAR Filing Requirements