A US company decides to send an engineer to Bucharest, a sales lead to Dubai or a project manager to Belgrade. The flight gets booked quickly. The questions that set the real cost of the move often get asked months later, usually when a payroll error or a foreign social security bill turns up.
Most of those questions have answers before departure. This article covers the ones HR and mobility teams should settle first.
The US doesn't stop taxing the employee when they leave
Moving abroad does not take a US citizen out of the US system. The IRS states that US citizens and resident aliens living abroad are taxed on their worldwide income. The host country will usually tax the same salary as well, because the work happens on its territory.
The foreign earned income exclusion (FEIE) softens this, but it has limits that assignment budgets need to reflect:
- The cap is fixed. For tax year 2026 the maximum exclusion is $132,900 per qualifying person. The foreign housing limit is generally 30% of that figure ($39,870 for 2026), though it varies by location. This is the general housing-expense ceiling, not the amount automatically excludable; a base housing amount and other eligibility limits apply.
- The employee has to qualify. Their tax home must be in a foreign country, and they must pass either the bona fide residence test (an uninterrupted period covering a full tax year) or the physical presence test (at least 330 full days abroad in any 12 consecutive months). Eligibility for the residence test also depends on citizenship and applicable treaty rules.
- It doesn't apply automatically. The IRS is explicit that the exclusion applies only if the person files a return reporting the income and claims the exclusion. Excluded income also pushes the rest of their income into higher tax brackets: tax on what remains is calculated at the rates that would have applied without the exclusion.
The practical consequence: a short or broken-up assignment can fail the 330-day test. A senior salary can exceed the cap. Either way, budgets built on the assumption that ‘the exclusion covers it’ come out wrong.
Social security is where costs pile up
Social Security can catch out a US employer that has already got income tax right.
According to the Social Security Administration, US Social Security continues to cover American citizens and residents employed abroad by American employers, regardless of how long the assignment lasts, subject to applicable agreement rules. Most host countries also charge social security contributions to anyone working on their territory. Without coordination, employer and employee can pay twice on the same salary.
Totalization agreements prevent that where their coverage conditions are met. Under the ‘detached-worker’ rule, a US employee temporarily sent abroad by the same employer stays in the US system only. US agreements generally apply this to assignments expected to last five years or less. Three details matter:
- The coverage is limited. The SSA lists agreements with 31 countries. The newest, with Romania, entered into force on 1 September 2026. There is no US agreement with the UAE, India, China or Serbia, so assignments to those destinations need a separate cost plan. Confirm the current agreement text and effective date before relying on an exemption.
- The exemption has to be proved. It applies only with a certificate of coverage, which the employer requests from SSA. A copy usually has to be presented to the host country's authorities.
- Structure can change the outcome. If the employee works for a foreign affiliate rather than the US entity, continued US coverage may require a section 3121(l) agreement with the US Treasury for that affiliate, depending on the relevant agreement. The Italy agreement works differently from the others and has no detached-worker rule.
The money at stake is large. In an SSA worked example, an employer that tax-equalises an assignee and pays foreign social security on their behalf sees the ‘pyramid’ of tax-on-tax push the total tax cost to 66% of salary. SSA notes that in some countries this effect has raised an employer's foreign social security costs to as much as 65–70% of the employee's salary. These are illustrative historical examples, not a forecast for a particular assignment.
The pre-departure checklist
Before an employee leaves, HR, tax, payroll and mobility should agree on each of these:
| Area | What to confirm | Why it matters |
|---|---|---|
| Employing entity | US employer, foreign affiliate, or local Employer of Record | Drives social security outcome and host-country payroll duties |
| Host-country work authorisation | Permit route, processing time, start-date dependency | The employee needs the applicable right to work before starting |
| Social security | Agreement country? Certificate of coverage requested? 3121(l) needed? | Avoids paying contributions in two countries where an exemption is available |
| US tax position | Expected days abroad, FEIE eligibility, housing costs | Decides whether exclusion applies and how much |
| Host-country tax and payroll | Local withholding, registration and filing obligations, including their start dates | Late registration can create penalties and back-payments |
| Compensation policy | Tax equalisation or protection, allowances, housing | Determines who pays the gap between systems |
| Assignment length | Planned end date and extension risk | The five-year detached-worker limit and the 330-day test both depend on it |
| Relocation and family | Housing, schools, dependants' status | Family logistics set the real start date |
What this means for your team
Each item on that list belongs to a different function and often to a different provider: an immigration firm in the host country, a tax adviser in the US, payroll in two places, a relocation agent. Each one does its own job properly. The risk sits between them, where nobody owns the full picture: when the assignment was extended past five years, when the employee moved from the US entity to a local affiliate, or when the start date slipped and the 330-day count broke.
The decision US employers face is less about whether to use outside help and more about how many separate parties should be holding pieces of the same assignment. Two operating models may work, depending on the destination and assignment:
- Keep the employee on US payroll, coordinated end to end. This can work when the destination has a totalization agreement, the assignment is genuinely temporary and the agreement's coverage conditions are met. Host-country payroll or reporting obligations may still apply.
- Employ locally through an Employer of Record. This may be an option when there's no agreement, no local entity, or the role is open-ended. The EOR handles local contracts, payroll, tax and social security compliance in the destination, subject to country rules. Eligibility depends on the worker's immigration status, role, employing entity and any regulated labour-leasing restrictions. An EOR does not automatically provide work-permit sponsorship or remove the employee's US tax obligations.
How xpath.global supports US companies sending people abroad
xpath.global manages international assignments as one programme rather than a chain of hand-offs. One case owner coordinates the destination work permit, host-country tax registration and monthly filings, social security certificates where applicable, relocation and settling-in. Where a US company has no entity in the destination, our Employer of Record service can support eligible local employment in Europe, the UAE and beyond, with compliant contracts, payroll and statutory reporting, subject to destination-specific assessment. The xpath.global platform shows HR the status, documents and deadlines for every assignee in one place.
If you're planning a move out of the US in the next quarter, talk to our US outbound mobility team before the flight is booked.
Sources
IRS, ‘Figuring the foreign earned income exclusion’ and ‘Foreign earned income exclusion’; US Social Security Administration, ‘U.S. International Social Security Agreements’ and ‘Totalization Agreement with Romania’. Publication date: 11 November 2026. Confirm current official guidance and assignment-specific advice before implementation.
- IRS: Figuring the foreign earned income exclusion ↗
- IRS: Foreign earned income exclusion ↗
- SSA: U.S. International Social Security Agreements ↗
- SSA: Totalization Agreement with Romania ↗
Editorial note: This article provides general information, not individual tax, legal or immigration advice. Country coverage, exemptions and EOR eligibility require specialist confirmation for the specific assignment.
