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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
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Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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I started working for a Qatari company

Resolved Question:

I started working for a xxxxxx company in Doha last year. They recently decided that they want to issue me a W2. On the W2, they used the name and the address of the Houston company belonging to the same group. My contract is not with the xxxxxxx company. My contract is with the xxxxxx company. Both the xxxxxx and the xxxxxxx company belongs to the same Holding group, whihc is not a xx company. Here is my fear: As an employee of a foreign company, I am not liable for xxxx and medicare taxes. As an employee of xx company, I am liable for FICA and medicare taxes. The xx issued to me and prepared by xxxxxxx and xxxxx shows a total amount under y eanrings and 0 taxes deducted under my xxxxx, federal and medicare, etc..which is true. I have been paying my own federal taxes online. xxx are saying that the comany name and address does not matter. I am confused. I work for xxxxx xxxxx but my xx says xxxxxxxxx. How can I absolutely be sure that I am not liable for social security taxes because my xx incorreclty shows that my employer is a xxx company. My employer insists that it does not make a difference and that I am not libale for social security taxes. I need references from the IRS code so I can feel absolutely confident that this is true. I need legal advice that is absolutely accurate and precise as this makes a big difference to me.

Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

 

NPVAdvisor :

Hi,

NPVAdvisor :

Your intuition is good ... If you DID work for a foreign organization in a country that dies not have what's called a totalization agreement, then you would NOT be subject to US social security

NPVAdvisor :

Further, here are the countries that US has a totalization agreement with:

NPVAdvisor :
Like Print
Totalization Agreements

The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country. As of this time, the following nations have entered into Totalization Agreements with the United States:

  • Australia
  • Austria
  • Belgium
  • Canada
  • Czech Republic
  • Chile
  • Denmark
  • Finland
  • France
  • Germany
  • Greece
  • Ireland
  • Italy
  • Japan
  • Luxembourg
  • Netherlands
  • Norway
  • Poland
  • Portugal
  • South Korea
  • Spain
  • Sweden
  • Switzerland
  • United Kingdom
NPVAdvisor :

According to IS there are four situations in which one DOES have to pay social security:

NPVAdvisor :

sorry, according to "IRS," Here's the lint to the IRS &A on this: http://www.irs.gov/Individuals/International-Taxpayers/Social-Security-Tax-Consequences-of-Working-Abroad

NPVAdvisor :

1.

NPVAdvisor :
Like Print
Social Security Tax Consequences of Working Abroad

When Social Security and Medicare Taxes Apply Outside Of U.S.

In general, U.S. social security and Medicare taxes continue to apply to wages for services you perform as an employee outside of the United States if one of the following applies:

  1. You are working for an American employer which includes:
    1. The U.S. Government or any of its instrumentalities
    2. An individual who is a resident of the United States
    3. A partnership of which at least two-thirds of the partners are U.S. residents
    4. A trust of which all the trustees are U.S. residents
    5. A corporation organized under the laws of the United States, any U.S. state, or the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, or the Commonwealth of the Northern Mariana Islands (with respect to the CNMI, refer to Revenue Ruling 80-167).
NPVAdvisor :

.

NPVAdvisor :

You perform the services on or in connection with an American vessel or aircraft and either:

  1. You entered into your employment contract within the United States, or
  2. The vessel or aircraft touches at a U.S. port while you are employed on it
NPVAdvisor :

.

NPVAdvisor :

You are working in one of the countries with which the United States has entered into a binational social security agreement (also known as Totalization Agreements), and the agreement provides that your foreign employment is subject to U.S. social security and Medicare taxes

NPVAdvisor :

.

NPVAdvisor :
  1. ou are working for a foreign affiliate of an American employer under a voluntary agreement entered into between the American employer and the U.S. Treasury Department

Foreign Affiliate

A foreign affiliate of an American employer is any foreign entity in which the American employer has at least a 10% interest, directly or through one or more entities. For a corporation, the 10% interest must be in its voting stock. For any other entity, the 10% interest must be in its profits.

NPVAdvisor :

.

<span class="JA_chatAuthorName"Customer:

Hi

NPVAdvisor :

Now if they are telling you, specifically, that the name on the xx doesn't matter, because the "payor ID number" is for a foreign corporation, THAT may be valid

xxxAdvisor :

Hi

xxxAdvisor :

but, if the payor ID is that of an American company? ... I think you have a valid concern

xxx Advisor :

spells it out, and should be shown, sent, emailed, to them

<span class="JA_chatAuthorName"Customer:

Hi , I am quite familiar with your answer. This still does not answer my question regarding the xx issued to me with the name and address of a xxx company belonging to the group I work for. How can I be sure that the IRS is not going to ocnsider that I am working for xx company. My xx is showing a xx company. please read the question again. I need references to my particular question so I can discuss with E&Y.

NPVAdvisor :

You missed my point

NPVAdvisor :

It is the PAYOR ID that the IRS will use (more specifically, the IRS system) will use to check the w-2 against a need to pay SS and medicare

NPVAdvisor :

as the IRS site (published to the public, therefore can be used) state very specifically that you WILL be paying into the system as an employee of an AMERICAN company, they will need to correct

NPVAdvisor :

THe ONLY reasonable explanation as to why they would tell you that you don't have to worry, would be that the name field on the W-2 is really irrelevant ... its the PAYOR ID that tells the IRS who the employer is

<span class="JA_chatAuthorName"Customer:

you are referring me to what I am familar with and does not answer my question. My question revolves around the W2 issued with a US company address. I am quite famialier with the xxx sites. They just don't answer my questions.

NPVAdvisor :

Again, if we do not have a totalization agreement.... an we DO NOT with xxxxxx or any subdivisionm you are not liable for SS/medicare

NPVAdvisor :

there are 2 issues here

NPVAdvisor :

(1) the address is irrelevant ... it is the PAYOR ID that tells the IRS who the employer is please ask xx who the payor ID is for

NPVAdvisor :

(2) I am giving you the IRS statement that documents that your are CORRECT ... take this to them and say ... LOOK I DO have to pay social security

NPVAdvisor :

IF the PAYO R ID is for a xx company

<span class="JA_chatAuthorName"Customer:

the name is XXXXX XXXXX US company name, the address is Housotn and the ID is the americna company ID. Which references form the code will help me argue with E&Y. They are saying: don't worry about it.

NPVAdvisor :

Then they are completely wring.... the very first IRS explanation I gave you is the following:

<span class="JA_chatAuthorName"Customer:

I do understand and I am familar with what you have referred to. It just does not answer my question. This is why I used this site.

NPVAdvisor :

"wrong"

NPVAdvisor :

In general, xx. social security and Medicare taxes continue to apply to wages for services you perform as an employee outside of the United States if one of the following applies:

  1. You are working for an American employer which includes:
    1. The xx. Government or any of its instrumentalities
    2. An individual who is a resident of the United States
    3. A partnership of which at least two-thirds of the partners are U.S. residents
    4. A trust of which all the trustees are xx residents
    5. A corporation organized under the laws of the xx, any U.S. state, or the xxxxx of xxxxx, xxxxx xxxx, the xxxx xxxxx, xxxx, xxxxx xxxxx, or the xxxxxxxxxxx of the xxxxxxx xxxxxx Islands (with respect to the xxxxI, refer to Revenue Ruling 80-167).
NPVAdvisor :

specifically number 5

NPVAdvisor :

This isn't rocket science ... they are wrong ... you are right ... and here is the {UBLISHED documentation of it from IRS

NPVAdvisor :

"PUBLISHED"

NPVAdvisor :

when something is codified, written, especially in a public form, meant to be used by the public, it carries the weight of law

NPVAdvisor :

ther is nothing that says, specifically under social security administration regulations that you don't have to

NPVAdvisor :

its the reverse (ad I said, your intuition is good)

NPVAdvisor :

If you work for an american company you do

NPVAdvisor :

you need to ask them for a corrected W-2

NPVAdvisor :

The IS a process for complaining to the IRS that you have been given an incorrect W-2, The first step is ask them to correct, and have them tell you they won't do it

NPVAdvisor :

See this: (ALSO FROM IRS):

Like Print
W-2 - Additional, Incorrect, Lost, Non-receipt, Omitted

Question: I received an incorrect W-2 form. I can't get my former employer to issue a corrected W-2. What should I do?

Answer:

If your attempts to have an incorrect Form W-2 (PDF) corrected by your employer are unsuccessful and it is after February 14, contact the IRS toll-free at(NNN) NNN-NNNNto request that an IRS representative initiate a Form W-2 complaint.

  • A letter will be sent to the employer requesting that they furnish a corrected Form W-2 to you within ten days. The letter advises the employer of their responsibilities to provide a correct Form W-2 and of the penalties for failure to do so.
  • You will be sent a letter that provides instructions and Form 4852 (PDF), Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. The Form 4852 may be used in the event that the employer does not provide you with the corrected Form W-2 in time to file your tax return.
NPVAdvisor :

STIL WITH ME?

NPVAdvisor :

TO recap:

NPVAdvisor :

You have been given a w-2 that is incorrect and shows (again pay particular attention to PAYOR ID)that you are employed by a US company

NPVAdvisor :

You are actually employed by a company formed in a country for which we have no totalization agreement, therefore you are NOT subject to social security (and medicare)

NPVAdvisor :

Your employer's accounting firm is refusing to supply a corrected xx, hence you have to right to initiate a xx complaint

NPVAdvisor :

Finally, you need to contact xx, show them (link provided) that the IRS clearly states that those employed by xx companies ARE subject to SS&Medicare withholding, and request for them to correct your xx

NPVAdvisor :

If they refuse to do so, contact the IRS toll-free at xxx-xxx-xxxx to request that an IRS representative initiate a Form W-2 complaint.

<span class="JA_chatAuthorName"Customer:

I already had this conversation with xx and they said not to worry becuase thexxshows no social sec taxes since I worked overseas for a xxxxxxi company etc..they are just using the xx company as a vehicle to report my earning...not sure who is right. I wish I could ask the IRS for an audit

NPVAdvisor :

As I said before ... the IRS statement is clear ... YOU need to SHOW E&Y this IRS guidance ... If they continue to refuse to correct the W-2, you have every right to make the complaint to IRS ... (there IS a process for this, and it happens all the time) ... You're probably dealing with goof on the front lines at E&Y that doesn't really understand and doesn't want to do the work, or go to the trouble

NPVAdvisor :

By making the "W-2 complaint" O mentioned you are doing exactly that (making IRS audit E&Y's W-2 practices)

NPVAdvisor :

The ohne number, again, at IRS for doing this is ... (from them) "contact the IRS toll-free at(NNN) NNN-NNNNto request that an IRS representative initiate a Form W-2 complaint."

NPVAdvisor :

by contacting IRS you are PRE-EMPTING trouble ... even if it turns out that there is some accepted practice of " just using the US company as a vehicle to report my earning." as hey said ... you are covering yourself

NPVAdvisor :

WHAT?

NPVAdvisor :

Why would you do that?

NPVAdvisor :

This poor rating affects my pay and my ratings here

NPVAdvisor :

THis is what it is ... I am giveing you very good, documented information

NPVAdvisor :

I answered your question, gave you the IRS information as you requested, and gave you the process for handling this

NPVAdvisor :

I would request that you give me the chance to make you a satisfied customer, and understand what would be repreent good service ... I had hoped that having all the facts would help you "see around some corners"

NPVAdvisor :

Too bad

NPVAdvisor :

... was trying to help

Miel-cssm41427.3899844444
Expert:  Lane replied 1 year ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

What happens now?

If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Expert:  Lane replied 1 year ago.

Hello Elias,

As I said before, I really don't understand (and quite honestly am hurt) by your response.

This reflects poorly my ratings here, and everything I given you is completely accurate AND responded to all of your requests.

If you'd like to dig into this further, I'd be glad to.

I do think, however, that the next step is to contact E&Y, show them the IRS guidance I provided, and then if they continue to refuse to change, contact the IRS to make the W-2 complaint.

In my heart and mind,this is the right thing to do ... REALLY don't understand you rating my work this way.

Let me know,

Lane
Expert:  Lane replied 1 year ago.


Elias,

Are you a U.S. citizen?

Lane
Expert:  Robin D. replied 1 year ago.

Hello and thank you for using Just Answer,

Ernest & Young are correct in their reporting for you and the company they represent. IRC 3121(b) states that employment for FICA purposes includes any service performed outside the US by a citizen or resident of the US as an employee (defined in 3121(d)) for an American employer (defined in 3121(h)). You are not paid by the American Company but it's foreign affiliate.

Most temporarily seconded assignees meet the definition of employment with both their foreign host company and their US home country company. This dual employer/employee relationship means the accountants must be cognizant of payroll rules in both locations.

US expatriates working abroad for a US employer must still receive a W-2 reporting their worldwide income. All of these worldwide compensation items must be reported on a W-2 even if not paid from the US company.

US corp. can elect to “disregard” a controlled foreign entity for all US tax purposes (i.e., “disregard” the fact that it is foreign). This foreign entity becomes an American employer. Reg 31.3121(d)-1(c)(2) describes a common law employer-employee relationship to exist where the right to control and direct the individual who performs the services is there. Under such agreements, all wages paid to US citizens or greencardholders employed by that affiliate will be subjected to FICA, whether the wages are required to be reported or not.

You would not be privy to this choice but if no FICA has been withheld then it is a good estimate that the US corp did not request the affiliate be treated as such. If the base salary is paid from a foreign affiliate and maybe some allowances are paid by the US employer, the full amount must be reported on a W-2 even though it was not all paid from the US payroll system.

You are concerned about the W2 but the accounting company knows that as you are a US citizen and because the foreign corporation is affiliated with the US corp, a W2 is required.

I sincerely XXXXX XXXXX information, although not supporting your position to contest the issue with Ernst & Young, assist you in understanding the situation.

Expert:  Lane replied 1 year ago.

I have a different answer, that corresponds to your actual concern as we discussed (NOT that you have a W-2, or that a W-2 was required, but that no FICA was withheld and the company listed was an american company).

Although the answer above doesn't address your concern, specifically, it DOES address the rationale/method that's being used by E&Y for using the US company name.

Hope this helps clarify, that you should have no concern.







Customer: replied 1 year ago.


NPV advisor gave me all the xxx regulations I was familiar with. In fact, this was why I asked the question.I am sorry for the low rating but I am looking for an answer.

Robin D's answer was consistent with my question. Although, it was not complete. I need to make sure I am not liable for xxxxx if the xxxxxx company that I do not work for reported my earnings.

The xxxxxxxx company and the xxxxxxi company are not affiliated. Both are owned by different companies that at the end of the day are owned by the same company. I am not seconded to the xxxxxx company. I am an employee of the xxxxxx company. I have no association with the xx company. My boss belongs to a different company based in Ireland.

Expert:  Robin D. replied 1 year ago.

Hello, The company in the US reported your earnings because they are required to use the W2 for you. The foreign affiliate is not under the US reporting requirements. The fact that the wages were reported is correct for the US company to do. It does not make you liable for anything other than your normal reporting of wages for US tax purposes. It does not prevent you from claiming any tax relief from US taxation (if you are a US person) on the foreign wages and it does not require that SS or Medicare be paid from your wages. My answer was not given as an opinion but the law required for the accounting of the wages you earned. You are not liable for FICA because you are working outside the US for a foreign company. The affiliation of the foreign company with the US company is the reason and the US company has a requirement to either report the wages and not withhold or file the foreign affiliate under the disregarded rules and then you would have had FICA withheld because the foreign affiliate would have been requesting to be treated like a US company.

The code E&Y is working under is as follows:

In general, wages paid to US citizens and resident aliens working abroad for aUS employer are subject to FICA tax BUT Employees that work abroad for a foreign affiliate of an employer are not subject to FICA coverage & taxes unless the
employer elects coverage under 3121(l).

 

 

Customer: replied 1 year ago.


Hi and thanks


So you are saying that the IRS will not wonder how come I made all that money with an American company (employer ID)..and did not pay any FICA. My income is very high so it does make a difference.


In my past, I worked for a company out of Dubai and they reported all of us Americans but had an employer ID for the Dubai office...so we never paid FICA.


I am not sure why this company took the easy route of having the US company ( that is not affiliated with the Qatari company) report my earnings. It jsut threw me off. I know if the IRS audits me, there is no contract between me and the American company.


This is compaletely against everything I have learned in my past ten yrs of working outside the US.


cheers


 

Expert:  Robin D. replied 1 year ago.
That is correct. E&Y knows that this company has not opted for the 3121(I) and that the FICA would not apply to you. As such the IRS knows the affiliate has not opted for that too.
Customer: replied 1 year ago.

THis American company has American employees working in the USA and they all pay FICA. I woudl be the only one wiht a W2 form the American company who does not pay FICA.


Where can I find 3121 (I)


thanks again

Expert:  Robin D. replied 1 year ago.
The American employees are working in the US and are direct employees of the US company. The W2 is a requirement for the company which shows the wages paid to the US person (you) but not subject to the withholding because the employee is really paid by the affiliate (foreign) and the work is abroad.
You can find the 3121(I) under the IRC codes for tax law. If you are wanting to discuss this further with E&Y then ask them directly if that is why they prepared the W2 under the US company's name but did not subject you to FICA.
Your initial request was to know if the procedure was correct and what you could use as instructions for E&Y to correct.
Here is a copy of the section under 3121 that accounting is related to and the issue of the W2:
(1) Agreement with respect to certain employees of foreign affiliateThe Secretary shall, at the American employer’s request, enter into an agreement (in such manner and form as may be prescribed by the Secretary) with any American employer (as defined in subsection (h)) who desires to have the insurance system established by title II of the Social Security Act extended to service performed outside the United States in the employ of any 1 or more of such employer’s foreign affiliates (as defined in paragraph (6)) by all employees who are citizens or residents of the United States, except that the agreement shall not apply to any service performed by, or remuneration paid to, an employee if such service or remuneration would be excluded from the term “employment” or “wages”, as defined in this section, had the service been performed in the United States. Such agreement may be amended at any time so as to be made applicable, in the same manner and under the same conditions, with respect to any other foreign affiliate of such American employer. Such agreement shall be applicable with respect to citizens or residents of the United States who, on or after the effective date of the agreement, are employees of and perform services outside the United States for any foreign affiliate specified in the agreement. Such agreement shall provide—(A) that the American employer shall pay to the Secretary, at such time or times as the Secretary may by regulations prescribe, amounts equivalent to the sum of the taxes which would be imposed by sections 3101 and 3111 (including amounts equivalent to the interest, additions to the taxes, additional amounts, and penalties which would be applicable) with respect to the remuneration which would be wages if the services covered by the agreement constituted employment as defined in this section; and(B) that the American employer will comply with such regulations relating to payments and reports as the Secretary may prescribe to carry out the purposes of this subsection.
Expert:  Lane replied 1 year ago.
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3739
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.

Thanks

Glad we were all able to get your there.

Lane

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