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Marvin,EA
Marvin,EA, Enrolled Agent
Category: Tax
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Experience:  Enrolled to Represent Taxpayers Before The IRS
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Need assistance advising my father...............he is a US

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Need assistance advising my father...............he is a US citizen. He works for a US employer who has operations in Mexico. He has worked/lived in 3 different capacities and I'm trying to figure out if the foreign earned income exclusion applies to him. 1) He lived in US and commuted to Mexico to work for 4 years. Received W-2 - all US wages - filed that way. 2) He lived and worked in Mexico for 18 months. He was paid US wages. He was reimbursed by his employer for all living expenses while in Mexico. 3) He now is living in US, working in US but he is being paid from a Mexico company (US dollars though) and no taxes are being deducted. Please advise on 2 and 3 above. Confused on the foreign earned income exclusion - is that only on dollars paid from non-US company? Now that he is being pd by Mex comp, still owes US taxes, correct?
Submitted: 8 years ago.
Category: Tax
Expert:  Marvin,EA replied 8 years ago.

Hello and thank you for using Just Answer. An individual generally qualifies for the exclusion if his tax home is in a foreign country and one of the following tests is met:

 

1) Bona fide residence test. The individual must be a resident for an uninterrupted period that includes an entire tax year.

 

2)Physical presence test. The individual must be physically present in a foreign country 330 full days during a period of 12 consecutive months.

 

If an individual qualifies under the residence or physical presence test for only part of the year, the exclusion is reduced on a daily basis. Stay in a foreign country does not have to continuous. Days of travel between foreign countries count as full days.

 

Your father still have to pay federal income tax on wages paid by the Mexico company.

Customer: replied 8 years ago.
I did pull those requirements from pub 54. What confuses me is the terminology of "earned wages/salaries in a foreign country"...........does that mean they have to be paid by a non-US company to be considered "foreign wages"? Or would the wages he earned, while living in Mexico, that were paid to him by US company qualify as "foreign wages."?

Also, for the mexican wages he will now receive.................he will owe fica/medicare and fed/state, correct?
Expert:  Marvin,EA replied 8 years ago.

The wages does not have to be paid by a foreign company. You father must meet the physical presence test or bona fide residence test.

 

Excluded income for income tax purposes is subject to Social Security tax if work is performed outside the US by a citizen or resident of the US as an employee for an American employer, or regardless of where or by whom services are performed, the work performed is recognized as employment under an agreement entered into Section 233 of the Social Security Act. Since the company your father worked for is not a US company Social Security tax is not due on his wages when he worked in Mexico.

 

Since your father now worked in the US all wages he received is subject to FICA, Medicare, State and Federal tax.

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