Section 14 Payroll for US Employees Abroad Aliens in the US

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Section 14 Payroll for US Employees Abroad
Aliens in the US
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Terms

• Expatriates US employees working abroad
• Aliens foreigners working in the US

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US Citizens Resident Aliens Working Abroad

• Wages earned in a foreign country are subject to
  federal income tax withholding unless
• Foreign earned income exclusion
• Foreign housing exclusion
• Credit for paying foreign taxes
• Exempt if required to withhold foreign taxes

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Foreign Earned Income or Housing Exclusion

• Employee provide a signed statement Form 673
• Employer not withhold tax to the extent the
  employer reasonably believes wages will be
  excluded.
• Not available for Federal govt employees
• 2005 first 80K

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Social Security Medicare Taxes

• Foreign Earned Income and Housing Costs Exclusion
  has NO impact
• Employees who work abroad for a foreign affiliate
  are not subject
• Expatriates may be subject to foreign social
  security tax.

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Totalization Agreements

• Used to avoid double taxation for social security
  and Medicare taxes and provide integration
• Temporarily (5 years) pay US social security
  and Medicare
• Permanently pay foreign social security

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Establishing Coverage

• Certificate of US coverage send letter to SSA
• Foreign Certificate coverage or get a a statement
  from SSA International Policy
• State employees wages are NOT covered by US
  social security system

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FUTA

• US citizens working abroad for a US employer is
  covered.

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Foreign Earned Income or Housing Exclusion

• To qualify
• Foreign earned income
• Tax home in foreign country
• Bona fide resident or physical presence test
• 330 full days during many consecutive 12-month
  period
• Brings family
• Purchase or long-term lease
• Culture and social life
• Type of Visa
• Employment terms

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Foreign Housing Cost Exclusion

• Base housing amount
• 16 of annual salary of GS-14 step 1 (or 11,894)
• For foreign housing expenses exceeding a base
  housing amount.
• rent
• Utilities
• Taxes
• Furniture rental
• Household repairs
• Parking

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Exclusion Limits

• Foreign earned income exclusion is limited to the
  lesser of 80,000 or the excess of the employees
  total foreign earned income over the elected
  housing cost exclusion. (p.14-14)

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US Tax Treaties

• Have priority over conflicting IRC
• Purpose avoid double taxation and clarifying
  taxing jurisdictions
• Type of Income Covered
• Personal Services (dependent and independent)
• Professors and Teachers
• Students, Trainees and Apprentices
• Tax Credit Provisions
• Tax Savings Clauses

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Tax Reimbursement Policies

• General Compensation
• Housing allowance
• Relocation expenses
• Education allowance
• Vacation allowance
• Deferred comp payments
• Hardship allowance for undersirable conditions.
• Auto allowance
• Cost-of-living allowance
• Foreign service premium

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Tax Protection Plans

• Attempts to leave the employee in the same
  financial position as if he or she had remained
  in the US or to make taxes a neutral factor.
• Tax Protection Plans
• Tax Equalization Plans

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Expatriate State Tax Issues

• Determining domicile true and fixed permanent
  home
• Determining residence where the employee lives
  for more than a temporary or transitional
  purpose. Intent is irrelevant physical
  presence.
• Page 14-19

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Residents and Non Residents Working in the US

• Resident aliens taxed on worldwide income (just
  like US citizens)
• Non Resident Aliens tax on US source income

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Determining Status

• Only applies to tax status and NOT immigration
  status visa determines immigration status
• Green Card aka lawful permanent resident
  (applies to entire year)
• Substantial Presence Test - SPT

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SPT Test (page 14-20 and 21)

• Some days dont count
• Must be present in the US for at least 31 days
  during the current calendar year
• 3 Year Look-back period
• 100 of the days in current year
• 1/3 of the days in previous year
• 1/6 of the days in the 2nd preceding year

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Alien Can Claim Resident Status

• Complete form W-9

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Federal Income Tax Withholding

• ITIN
• Individual tax identification number
• Issued by IRS
• NRA who is NOT entitled to SSN
• Same format as SSN but starts with a 9

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W-4 Special Instructions for NRA

• Claim only claim SINGLE regardless of actual
  marital status
• Claim only ONE allowance (some exceptions)
• Additional tax (15.30 biweekly)
• Cannot claim exempt

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Tax Rates

• Non resident aliens who are independent
  contractors are subject to 30
• Scholarships and fellowships are subject to 14
• Employees see W-4
• Exceptions to the rules (page 14-26 27)

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Earned Income Credit

• NRA are NOT entitled to the EIC.

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Tax Treaty Exemptions

• Professors and teachers
• Students, trainees and apprentices
• Foreign govt employees
• Artists, athletes and entertainers

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Treaty Benefits

• NRA submits form 8233 to claim treaty benefits in
  advance from employer OR
• Can claim the treaty benefit on tax return at the
  end of the year.
• Employer is NOT required to honor tax treaties.

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Social Security and Medicare Taxes

• Apply to all wages for worked performed in US
  regardless of the citizenship or residency status
  even though the NRA may be exempt from Federal
  Income Tax.
• Exceptions
• NRA students
• Agricultural workers
• Foreign govt
• International organizations

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Totalization Agreements

• Purpose avoid double social security taxation and
  to integrate coverage
• Requirements
• Working temporarily in US (less than 5 years)
• Covered by home countrys social security system
• Need certificate of proof

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Federal Unemployement

• FUTA tax applies to all wages paid for work
  performed in the US regardless of citizenship or
  residency status.
• Exception agricultural workers (H visa)

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Depositing and Reporting

• Wages paid without treaty
• W-2
• 941
• Wage paid but claiming a treaty
• 1042-S (given to individual)
• 1042 (submitted to IRS)