U.S. Federal Taxes & Living Abroad--U.S. Agency as Employer
Thread poster: Alex Farrell

Alex Farrell  Identity Verified
Japan
Local time: 13:15
Japanese to English
Aug 15, 2008

Hello everyone. I have a U.S. tax-related question. I am an American citizen, and up 'til now I have been working here in Japan for agencies that are located outside the United States, mostly in Japan. Recently I have been asked to work for an agency based in the U.S., and I would like to clarify the taxation situation. Now of course I know that if you make under a certain amount while living a certain number of days abroad (330 or more I think), then you don't have to pay federal taxes, though you do have to file and show what your income was.

What my question is, however, is whether working for a U.S. employer changes that situation? The agency in question sent me a W-9 to fill out. Now I would ask them about this issue, but in their contract they have a clause which states that no taxes will be deducted from payments and that the translator is responsible for any and all tax burdens, so I'm guessing they don't want to be bothered with questions like this.

Obviously I'm hoping not to pay any tax, but it also sounds like more bothersome paperwork for me to put off until the last minute if I do have to pay. In addition, I have a (probably unfounded) fear that working for one U.S. employer may make all my income subject to federal income tax, which would be a nightmare. As of right now I'm thinking this is all too much of a hassle, and I have a good amount of work anyway, though the agency has a perfect Blue Board rating from several people and it might be a good opportunity.

Any advice?

- Alex


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bigedsenior
Local time: 20:15
Spanish to English
+ ...
This is a tax area with its own set of rules ... Aug 15, 2008

....and any answer to tax questions will not be complete without having all the details.

You have to have a "tax home" established abroad. The current exemption is $85,700 and you have to be abroad for 330 days in a 12 month period. It can overlap more than one year.

Generally, US employers are supposed to withhold taxes -unless they believe you qualify for the exemption, which may or may not be the case.

However, the exemption does not apply to self-employment taxes (social security and medicare) and it sounds as if you might be self-employed.

There are some allowances, such as housing, which could reduce your taxable amount.

For more detail - see IRS Pub 54. Page 12 has a flow chart which might help.

http://www.irs.gov/pub/irs-prior/p54--2007.pdf


[Edited at 2008-08-15 04:58]


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Kaiya J. Diannen  Identity Verified
Australia
Member (2008)
German to English
What he said Aug 15, 2008

Alex Farrell wrote:

Recently I have been asked to work for an agency based in the U.S....

In addition, I have a (probably unfounded) fear that working for one U.S. employer may make all my income subject to federal income tax...


Doing "work for an agency" and having a "U.S. employer" are two completely different things.

Technically speaking, as a US citizen, *all* your income is *always* subject to taxation in the US - it's just that you get an exemption up to a certain level (as bigedsenior states) and you are presumed to be paying foreign taxes on this.

You will be familiar with this already if you have been (properly) filing as a US citizen living abroad, and I can tell you from my own experience that nothing should change - provided you have been and will continue to be self-employed.

If you were actually becoming an "employee" of this new agency (and it doesn't sound like they consider you one), that would be a different matter.

[Edited at 2008-08-15 07:07]


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Alex Farrell  Identity Verified
Japan
Local time: 13:15
Japanese to English
TOPIC STARTER
Am I self-employed? Aug 15, 2008

Thanks for the link! Good info there. Now, is a freelancer who hasn't established an official business entity considered self-employed, or is it somebody who has several employers?

- Alex


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Kurt Porter  Identity Verified
Local time: 09:15
Russian to English
+ ...
U.S. Taxes and living abroad Aug 15, 2008

Alex,

You're self-employed (if working as a freelancer for these Japanese agencies)

Unfortunately, whether we (as U.S citizens earn money while living in Japan, Moscow or wherever, it's subject to U.S. taxes. As stated, the first 80K+ is tax free.

The crux of your issue is you've received money from Japanese agencies that have no reporting obligation to the IRS. U.S. agencies will report to the IRS how much money you earn from them.

All of your answers can be found here: www.irs.gov


[Edited at 2008-08-15 10:41]


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hannahroberts
Canada
Local time: 23:15
French to English
+ ...
Certificate of Coverage? Aug 15, 2008

If you live in Japan legally, and pay taxes there (it is your tax home), you can obtain a Certificate of Coverage and not have to pay taxes on your income earned from a U.S. employer.

http://www.ssa.gov/international/agreements_overview.html

This is for countries with Social Security agreements with the U.S. I see there is an agreement with Japan.

I have been doing this for years (had one client in the States for a while for writing/editing who sent me W9 forms). I am a U.S. citizen living in Canada with a permanent resident visa.

I renew my Certificate of Coverage each time I renew my permanent resident visa (5 years). It is easy and free to do.

I also have to fill out a Schedule SE, which I just copied from my Canadian Statement of Business Activities. You are considered self employed when you engage in any activity for which you are paid.

If there is anything at all you don't understand (whether Japan is your tax home, etc.) , you can call the IRS and they will help you. I had to call several times and everyone was always extremely patient and helpful.

It doesn't matter where the employer is located, or on your own nationality, it depends on your tax home and the country to which you are paying income taxes. You are not supposed to be double-taxed.

Lots of citizens living abroad don't know this. Your obligation as a U.S. citizen is to file a return, not to pay if you meet exemption requirements. I haven't paid the U.S. a dime since two years after I moved (I pay plenty enough to Quebec and Canada, that's for sure!) And, I even got one of the economic stimulus cheques. Filing those returns and keeping a current address with the IRS paid off!

Hope this helps,
Hannah


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hannahroberts
Canada
Local time: 23:15
French to English
+ ...
IRS Publication 54 Aug 15, 2008

Publication 54 (Tax Guide for U.S. Citizens and Resident Aliens Abroad) is the IRS Bible for expat freelancers.
Check out Chapter 3, Self-Employment Tax. That's where I found out about the Social Security agreements.


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Alex Farrell  Identity Verified
Japan
Local time: 13:15
Japanese to English
TOPIC STARTER
Thanks! Aug 16, 2008

Thanks to everyone for their useful advice. I now have the resources to do what I need with regards to U.S. taxes.

- Alex


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