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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3991
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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I just accepted a job in a foreign country. However, the company

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I just accepted a job in a foreign country. However, the company is technically a U.S. corporation, and I will be doing most of my work at home in a different U.S. state. All of the company's business is done in the foreign country, and when I go into the office periodically, it will be in that foreign country.

So the question becomes, is my paycheck subject to income tax withholding, FUT, and FICA?
Submitted: 11 months ago.
Category: Tax
Expert:  Lane replied 11 months ago.

Lane :

Hi,

Lane :

YOU should ask the company's payroll dept. but yes, if this is a US company and you are a US citizen they should be withholding normal payroll taxes (especially since you are not an expatriate)

Lane :

I'm not sure I understand the comment, accepted a job in a foreign country, if the US is a doemestic US corporation and you are working from the US ... IS there something I'm missing? Just want to e sure we're on the same page here)

Lane :

Sorry for the typo there ... Meant to say if the "company" is a US domestic corporation .... (which simply means incorporated and domiciled in the US)

Lane :

I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here)


Please let me know if you have any questions at all ...


Lane

Expert:  Lane replied 11 months 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 11 months ago.
Hi,

... just checking back in HERE, as I never saw you come into the chat.

PLease let me know if you have any further questions at all.

Lane
Customer: replied 11 months ago.

Sorry, I didn't even know there was a chat mode. It's a small start-up company without a payroll dept. yet. Their actual offices and all business is done abroad. They just happen to be incorporated in a U.S. state. I will be working on projects in the foreign country, and will often travel there, but will also be working from home.


 


I think I am the only U.S. employee they have, all others are from the foreign country, so it's not their regular practice to do U.S. withholding. I just need to see if it will apply to me.

Expert:  Lane replied 11 months ago.


Hi,

A couple of follow-up questions.

(1) Will you be an independent contractor or an employee (given that you are NOT working on-site) this may be VERY simple by treating this as an independent contractor, rather than as an employee:

(You have a very good case of filing your taxes this way because they are not controlling your workplace)

In this scenario, you simply file a schedule C, as an attachment to your tax return and report the income (actually profit, after any non-reimbursed expenses), which will flow to line 12 of your tax return (business income or loss).

Schedule C (Form 1040)

And you'll notice on Schedule that it says "If a profit, enter on both Form 1040, line 12 (or Form 1040NR, line 13) and on Schedule SE, line 2."

Schedule SE (Form 1040)

Schedule SE is where you'll pay the social security and Medicare tax.







IF you are certain, that you will be categorized as an EMPLOYEE, then the answer depends on a couple of things:

See this from IRS: http://www.irs.gov/Individuals/International-Taxpayers/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).
  2. 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
  3. 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.
  4. You 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.

Form 2032, Contract Coverage Under Title II of the Social Security Act(PDF), is used by American employers to extend social security coverage to U.S. citizens and residents working abroad for foreign affiliates of the American employers. Coverage under an agreement in effect on or after June 15, 1989, cannot be terminated.

Excludable Meals And Lodging

Social security tax does not apply to the value of meals and lodging provided to you for the convenience of your employer and excluded from your income.

Totalization Agreements

Under aTotalization Agreement, dual coverage and dual contributions (taxes) for the same work are eliminated. The agreements generally make sure that you pay social security taxes to only one country.

Covered by U.S. only.If your pay in a foreign country is subject only to U.S. social security tax and is exempt from foreign social security tax, your employer should get a certificate of compliance from the Office of International Programs of the Social Security Administration.

Covered by foreign country only.If you are permanently working in a foreign country with which the United States has a social security agreement and, under the agreement, your pay is exempt from U.S. social security tax, you or your employer should get a statement from the authorized official or agency of the foreign country verifying that your pay is subject to social security coverage in that country.




Sorry, for the data-dump, but maybe this will get us to the pace where we can have a efficient conversation.

Lane

Customer: replied 11 months ago.

I think you raised more questions than I even knew about. The foreign country is the Netherlands, which looks like has a Totalization Agreement with the U.S. So presumably I would not have to pay social security in both locations.


The original plan was to be counted as an employee, since the Netherlands has very employee-friendly laws compared to the U.S. However, it seems like the tax situation might get exceedingly complicated, which could be solved by being an independent contractor.


So, does all this change if the company I work for decides to incorporate itself in the Netherlands?

Expert:  Lane replied 11 months ago.

:)

If they just pay as a contractor, it works no matter what.

(Not sure of your objectives, but if you want to build time in the US SS system, then the contractor route does that, keeps things simple AND will likely keep your TAXABLE income down, unless the company reimburses you for everything, because all sorts of business expenses would become deductible)

Actually, where the company is incorporated is not an issue if ALL the business is actually done in the Netherlands.

What I can't really do here is calculate whether you'd be better off on the pay from a Netherlands based system (plus what you'd still earn from social security as long as you get 40 quarters into the US system) than just doing everything as a contractor, and building up the Average Indexed Monthly Earnings (AIME) is the US social security system only.

We HAVE, however answered the basic question though...

Since there's a totalization agreement. If you are an EMPOYEE there, you'll simply be paying into their system will not pay into FICA and FUTA.


Hope this helps

Lane

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3991
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 11 months ago.

Thanks so much for the rating!

If you'd like to work with ME again just say "For Lane only," at the beginning of your next question.

OR you can also add me as your preferred expert on your home page if you'd like.

Regardless, thanks again for the feedback!

Lane


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