Is the US about to expand its borders in the most unexpected way?
From talks of reclaiming Greenland to regaining control of the Panama Canal, territorial ambitions are in the air. Meanwhile, private US companies like SpaceX and Blue Origin are pushing the boundaries of space exploration, leading to discussions about the future of space and Mars colonization. As we look toward these new frontiers, one important issue comes up: taxation. How would new territories be taxed, and could Mars become a tax haven? To better understand the issues at hand, we will explore how space and future colonies would be taxed. How would astronauts be taxed in a space colony? Would inhabitants of a colony on Mars even be taxable? Let’s take a closer look at what might happen as humans begin to explore and settle beyond Earth.
Taxation of Astronauts in Space
Are astronauts taxable?
The short answer is that US astronauts pay state and federal taxes because most of their lives is on Earth.
In most countries, tax residency and tax domicile are the same. Determining tax residency involves several criteria that vary by country. One of the most common methods is the physical presence test, where many countries consider individuals tax residents if they spend more than 183 days in a tax year within their borders. However, many nations with a common law system, such as the US, Australia, New Zealand, and Ireland, treated tax residency and tax domicile as separate concepts. Here are simplified explanations:
Definition of Tax Residency – expand
Tax residency refers to the country or jurisdiction where an individual or business is considered a tax resident. This status is determined by specific rules, often based on factors such as the amount of time spent in a country. Alternatively, the location of economic activity can be used. Being a tax resident means they must follow that country’s tax laws.
Definition of Tax Domicile – expand
Tax domicile refers to the legal concept of an individual’s permanent home or the place they consider their true, fixed, and long-term residence. It is the country where a person has the closest personal, professional, and financial ties. It is where they intend to return, even if they are temporarily residing elsewhere.
Establishing a Tax Footprint
Countries have different rules for determining tax residency. These often include the following:
- Physical Presence: Most countries use a “days present” rule, where spending more than 183 days in a country in a tax year can make you a tax resident there.
- Permanent Home: Owning or having a permanent home in a country can also establish tax residency, even if you spend less time there.
- Economic Interests: Employment, business activities, and family connections in a country can impact your residency status.
For example, in a well-known tax case Spanish authorities accused Shakira of not paying taxes on income earned while living in Spain. They argued that because of her strong connections to the country, she should have declared her earnings. Shakira claimed to be a tax resident in the Bahamas, but her ties to Spain through her partner and children were considered stronger. In the end, she agreed to pay millions in back taxes.
Where Is an Astronaut’s Tax Home?
Tax Homes for Astronauts
Applying tax residency and domicile rules to astronauts can be tricky. One key factor is having a permanent home in a country. If an astronaut owns or rents a home that is available for them to use, they may be considered a resident there, even if they don’t spend much time at the property. A “permanent home” can include long-term rentals or owned property, not just where someone lives full-time.
Another factor is where an astronaut’s main economic activities happen. Many astronauts work for US-based space agencies, so if they are employed or have significant financial interests in a country, they could be considered a tax resident there.
These factors are all part of the information tax authorities use to determine how to tax individuals.
Relationship Ties on Earth
Family and social ties can also affect residency status. Tax authorities may consider where an individual’s immediate family lives, as strong family connections can suggest a deeper commitment to that country. Factors such as where children go to school, involvement in local communities, and social networks can all play a role in determining residency.
Lastly, an individual’s intention to stay in a country can affect their tax residency. This can be shown through actions including buying property, signing long-term leases, or enrolling children in local schools. All of which indicate a commitment to making the country their permanent home. However, these options are not available outside of Earth, at least not yet.
Even during a multiyear mission in space, astronauts would not establish domicile anywhere other than their country of residence on Earth, where their employer is based. Their tax residency being determined by their permanent address on Earth, not by their location in space.
Could US Astronauts Avoid Paying Taxes?
US Tax Benefits Beyond Borders
The US tax code requires flight crew members on international flights to divide their income based on where they work. For example, if a pilot flies through both US and foreign airspace, they can only exclude the income earned while flying over the foreign country or its airspace. However, this would only apply if the territories of multiple countries are involved. If a US citizen is living abroad (tax domiciled outside the US), they may qualify for tax benefits to reduce the impact of being taxed by both the US and another country, including:
- Foreign Earned Income Exclusion (FEIE): Allows US citizens to exclude up to about $130,000 of income earned abroad (for 2025).
- Foreign Tax Credit (FTC): Lets US citizens claim a credit for taxes paid to a foreign government, lowering their US tax bill.
To qualify for these benefits, taxpayers must earn income outside the US or be taxed by another country. Although a country’s airspace and territorial waters are included, international waters and the airspace above them are not considered “foreign countries” (IRS, 2023, p. 17). US territories such as Puerto Rico and Guam are also excluded.
How US Citizenship Follows You to Mars
Moreover, the United States is one of the few countries that uses citizenship-based taxation. This means US citizens (and green card holders) are taxed on their worldwide income, no matter where they live or work. They must file federal tax returns and report income earned both within and outside the US The tax code includes provisions for astronauts, but these primarily apply to death and estate taxes.
Philosophically, space missions are mostly, if not entirely, funded by the government. Astronauts are essentially passengers on spacecrafts paid for by taxpayer dollars. While they may not have direct access to all public services in space, astronauts benefit from the significant government provided resources needed for space exploration.
Can you even file your taxes in space?
This is an infrastructure issue that still needs to be resolved. For now, the best solution seems to be having all astronauts’ tax matters handled by their Earth-bound tax preparers. According to Space.com, NASA astronauts typically file taxes before they go to space. The available connection on board is extremely limited as missions cannot afford a computer virus stopping a mission. The most well-known tax filing issue happened in 1970 when astronaut Jack Swigert missed the tax filing deadline. This happened because he was unexpectedly assigned to the Apollo 13 mission. While in space, he remembered he hadn’t filed his taxes. The IRS later waived the penalty, understanding the unusual circumstances.
The US offers an automatic 2-month extension for those living outside the US, but to qualify, individuals must meet one of the following conditions:
- You are living outside of the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico, or
- You are in military or naval service on duty outside the United States and Puerto Rico.
However, for astronauts, meeting these conditions is tricky. First, major space exploration employers are based in the US, so the first condition doesn’t apply. Second, although many astronauts come from military backgrounds and may retain their military rank, those selected through NASA’s civilian astronaut program are considered civilian employees of NASA, not active military personnel. Jack Swigert, who had previously served in the US Air Force, was a civilian test pilot right before joining NASA.
Colonial Taxation Model
As astronauts become colonizers of Mars and expand their activities, we need to consider how residents of a colony on Mars would be taxed. Since the United States has a history of taxing its overseas territories, it’s likely that a similar system would apply when a space colony is established.
In the case of Mars, different countries involved in colonization could share control over the planet. However, it remains highly unlikely that companies would be able to create independent states on Mars. Over time, if a colony on Mars becomes self-sufficient enough, it could declare independence from Earth’s supply of resources and personnel. It might then establish its own nation with a tax system. Given Mars’ current environment, this is unlikely to happen for a long time.
Taxation of US Territories
How Are US Territories Taxed?
IRS Publication 570 outlines how taxation works for US territories based on factors including residency, income sources, and the specific territory involved. To qualify for certain tax benefits, individuals must prove they were bona fide (in good faith) residents of a US territory for the entire tax year.
Filing requirements depend on residency status. Bona fide residents of US territories may need to file both a US tax return and a territory tax return, or just one of the two. Focusing on Guam, the US Congress established the Territorial Government of Guam in 1950. It has its own tax laws, based on US income tax laws with some changes. The Government of Guam is the only taxing authority.
In addition to Guam, the territories covered in Publication 570 include American Samoa, Puerto Rico, the Northern Mariana Islands (CNMI), and the US Virgin Islands (USVI). Tax rules vary by territory. For example, residents of CNMI, Guam, and USVI typically report qualifying investments on their territory tax returns. On the other hand, residents of American Samoa and Puerto Rico report them on their US tax returns.
Depending on their specific circumstances, some people may be able to exclude income earned in a US territory from US taxes. The publication also explains how to determine whether you are physically present in a US territory or the mainland US. An important factor for meeting residency requirements. Special rules apply to active-duty military personnel and certain government employees. Overall, the tax treatment depends on where you live, your income sources, and which territory you are in.
Expanding US Borders to Mars
If Mars were to become a US territory, residents living on the planet would need to meet bona fide residency requirements to qualify for tax benefits. Similar to Puerto Rico or Guam, individuals on Mars could potentially exclude certain income earned on the planet. Martian residents would file tax returns with both Mars’ governing authority (if one exists) and the US government. This would depend on their income sources and the tax treaties in place. Much like other US territories, the rules for determining tax liability would need to be established.
With no coming back to Earth, the situation of active-duty military personnel, astronauts, or other US government employees stationed on Mars would most likely be the same.
Painting of a toroidal colony (1970s), Rick Guidice for NASA Ames Research Center
The physicist Gerard O’Neil proposed the concept of rotating cylinders, where centrifugal force could generate artificial gravity. In theory, this would create habitats capable of supporting millions of people.
Mars Taxation: Lessons from Antarctica
Beyond countries and US territories, the continent of Antarctica has a very special tax treatment. Which leads to the question: Could Mars be taxed like Antarctica?
The 1959 Antarctic Treaty clearly states that no country can claim territorial sovereignty over the continent of Antarctica [1]. An interesting fact about Antarctica is that there are no cities, only research stations and bases. No one resides permanently on the continent; people stay temporarily for research or tourism. The largest research facility is McMurdo Station, which accommodates up to 1,400 people during the summer months. Given the lack of local resources, the station is not self-sustaining. It relies on regular shipments of food and supplies. The station shifted from nuclear to diesel power decades ago, with additional energy from nearby wind turbines. McMurdo produces its own water through desalination and manages waste with a treatment plant.
Since it has no government, US tax authorities do not consider Antarctica extraterritorial, meaning US tax law applies for US workers on the grounds. This was confirmed by several court cases in the early 2000s involving US workers in Antarctica. This is not applicable to all countries. For example, the British Antarctic Territory (BAT) tax is a 7% income tax for United Kingdom residents spending over 365 days in Antarctica. If workers are also subject to UK tax, a double taxation adjustment applies.
Alternative Economy in Space
An alternative economy in space could become a reality. If astronauts stopped receiving pay from their Earth-based employers, their financial obligations would change drastically. Without an income, there would be no employment taxes, no employer withholding, and no income tax to pay. For example, in most cases US citizens don’t have to pay taxes or file a tax return if their income falls under a certain annual amount (i.e., $15,000 for single filers in 2025). This shift could lead to new ways of handling taxes for people living and working in space.
- Phase 1: Completely work-related astronaut taxation with tax residency on Earth.
- Phase 2: Living on a space station permanently with expeditions on Mars.
- Phase 3: Establishment of a colony on Mars.
An alternative economy only becomes possible after Phase 1, when a one-way trip is involved.
Key Takeaways
- Unless they establish a domicile outside of Earth, astronauts will continue to follow the tax laws of their respective countries.
- The example of current US territories shows that compromises are made with lower taxation and a certain degree of independence.
- Mars could adopt the same model as Antarctica, a place where there can be no permanent residents.
- Even in a colony on Mars, US citizens may have to file their US federal taxes. This would be until Mars becomes an independent country, and they renounce their US citizenship.
Related Post
Cover Image: Painting of a toroidal colony (1970s), Rick Guidice for NASA Ames Research Center
References
- Secretariat of the Antarctic Treaty. The Antarctic Treaty. 1959. Available at: https://www.ats.aq ↩︎
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