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Taxes Working Overseas
Old 01-17-2009, 06:52 PM   #1
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Taxes Working Overseas

I retired early and need some income until Im 55 . I do some contract work, I have a job offer coming in a few weeks it will be in a foreign country (I live in the US) my question is what are the rules to qualify for the tax break of 75k or 85k not sure of the amount. I have been told I have to stay out of the US for 330 out of 365 days to qualify. What if the project only lasts for 300 days can I just stay in the host country for 35 days and still qualify even if I dont work the last 30 or so days? Would I owe any taxes to the host country? Thanks in advance for any help.

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Old 01-17-2009, 07:12 PM   #2
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I was told that you have to stay in the host country. I do not think you have to be working all the time there. That is not a problem for me, but if you think it might be for you, talk to a real tax man.
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Old 01-17-2009, 07:15 PM   #3
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Yep. out of the country for 330 out of 365 days. Or you can become a resident of a foreign country which is a little harder to do. The rules are at the IRS web site ... read the instructions for Form 2555.

Be careful that you qualify and don't come back for deaths in the family, wedddings, etc are at least plan for those kinds of events.

If project only lasts 300 days, you can go on a 30 day vacation (I'd do a 31 day vacation just to be sure). You don't have to stay in the host country, but you cannot come back to the US.

You need to sort out a work visa in the country you will be in. Be careful because they can just cancel your visa and kick you out. A tourist visa will probably not cut it.

I don't know about foreign taxes. When we worked overseas, we didn't have to file locally. They just took taxes out of your paycheck. We were told that if folks made enough money they could "file" to get a refund, but otherwise folks didn't file. Of course, this all depends on which country you are in.
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Old 01-17-2009, 09:14 PM   #4
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We have many delegates at work who work overseas, send from here to Europe and Asia. And we have others who come to the U.S. on delegation.
The general rule seems to be that you pay your (income) taxes where you work and live. In your case this means to pay your taxes in the foreign country.
The U.S. seems to be the only country requiring their citizen to pay additional taxes on income received while working and living out of the country.
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Old 01-17-2009, 09:17 PM   #5
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Yep. out of the country for 330 out of 365 days.
No, you must be in THAT country for 330 days. It doesn't work to just stay out of the US for 330 days.

I work in Canadistan. I must file first in Canada, then file in the US. Get an automatic extension. YMMV in another country.
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Old 01-17-2009, 09:37 PM   #6
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Yes I believe you must be in that country. If you pay taxes there, you will also be eligible to exclude those taxes as a credit, assuming you make more than the foreign income exemption. You may also qualify for housing cost exclusions, incl some utils, and more if you have left your family behind due to harsh living conditions.

If I were you, I would seek the counsel of a qualified tax person before I went, and that definitely should not be your local H&R Block on the corner. They are alright for what they do, but what they do is help locals figure out local issues. Expat assignments are a whole 'nuther ball o' wax.

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Old 01-17-2009, 09:45 PM   #7
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Instructions for Form 2555 (2008) describes the physical presence test. I have quoted it below. I have added underlining myself.

Quote:
Physical Presence Test

To meet this test, you must be a U.S. citizen or resident alien who is physically present in a foreign country, or countries, for at least 330 full days during any period of 12 months in a row. A full day means the 24-hour period that starts at midnight.
To figure the minimum of 330 full days, add all separate periods you were present in a foreign country during the 12-month period shown on line 16. The 330 full days can be interrupted by periods when you are traveling over international waters or are otherwise not in a foreign country. See Pub. 54 for more information and examples.
Maybe don't sign on the dotted line unless your employer guarantees 330+ days even if 60 days are unpaid vacation.
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Old 01-18-2009, 01:17 AM   #8
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Originally Posted by Ed_The_Gypsy View Post
No, you must be in THAT country for 330 days. It doesn't work to just stay out of the US for 330 days.
.
The IRS form tracks the dates you are in the US
(or perhaps when you aren't in the US). It doesn't track the dates you are in a particular foreign country so it feels like the test is out-of-the-US time.
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Old 01-18-2009, 03:57 AM   #9
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330 days outside the US and you qualify for the foreign income tax exclusion which in 2009 went up to $91,400. That is exclusion for federal income tax only NOT Medicare/Social Security - if you are self-employed, then you pay 15.3% of your net earnings, if you are an employee, then the 7.15% is payed by your employer. (For an example of what could happen if you don't do that, check out the Timothy Geithner tax issues in the news lately :-))

What I haven't figured out is if you can 'pro-rate' for the days less than 330 that you might end up in the US - in my readings of the info from the IRS, you can pro-rate (they give an example).
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Old 01-18-2009, 05:08 AM   #10
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This may help you (It is a pdf and, if you need it, you can down load the reader at adobe.com): http://havana.usinterestsection.gov/...baw/irstax.pdf
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Old 01-18-2009, 07:07 AM   #11
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330 days outside the US and you qualify for the foreign income tax exclusion which in 2009 went up to $91,400. That is exclusion for federal income tax only NOT Medicare/Social Security - if you are self-employed, then you pay 15.3% of your net earnings, if you are an employee, then the 7.15% is payed by your employer. (For an example of what could happen if you don't do that, check out the Timothy Geithner tax issues in the news lately :-))

What I haven't figured out is if you can 'pro-rate' for the days less than 330 that you might end up in the US - in my readings of the info from the IRS, you can pro-rate (they give an example).
My overseas employer did not pay FICA and neither did I on my foreign wages. FWIW, when I paid FICA on my US-based consulting income while a foreign resident, the IRS refunded that money to me.

The pro-rata example is when your physical presence of 330 days spans 2 tax years. You cannot go under 330 days and pro-rate anything.
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