Hi,
I currently live in the US and I am preparing to teach abroad for the first time for the 2019/2020 school year. I've tried reading about the Foreign Earned Income Tax exclusion, but I'm still a bit confused. Is the Foreign Earned Income Tax exclusion dependent on how many days I've spent in the US during a calendar year? If so, since I am going to be living in the US up until August 2019, does that mean I will pay US taxes on foreign earned income for all of 2019? Any advice/experience is greatly appreciated!
Thank you.
US taxes?
-
wrldtrvlr123
- Posts: 1173
- Joined: Sat Feb 06, 2010 10:59 am
- Location: Japan
Re: US taxes?
There's been some very informative and detailed threads on this subject so you might try doing a search. In general, yes, the first year can be a bit confusing. As I recall, the number of days does not need to be in one calendar year, as long as it's during 12 consecutive months. Many people end up requesting an extension (and possibly a second extension) and THEN filing because they will have met the physical presence test.
Also, you can (or at least used to be able to) qualify for a partial exclusion which would generally cover your partial overseas income for the first year. We used TurboTax for filing and their software generally does a good job with the whole foreign income/exclusion area. We haven't had to worry about it (for good or bad) in a number of years since we now work for a US gov't entity.
Also, you can (or at least used to be able to) qualify for a partial exclusion which would generally cover your partial overseas income for the first year. We used TurboTax for filing and their software generally does a good job with the whole foreign income/exclusion area. We haven't had to worry about it (for good or bad) in a number of years since we now work for a US gov't entity.
Response
There are three types of foreign tax benefit schemes, the foreign tax deduction, exclusion, and credit. The deduction and exclusion really dont apply in this case, what you want is the foreign tax credit. Most ITs simply claim extensions until they meet the physical presence test of 330 days. You could also meet the Bonafide resident test based on intent. If for some reason you cant claim the credit for reasons, you can just not file for the year, and then next year file based on physical presence.
Re: US taxes?
Except “just not filing” is against the rules. PG doesn’t mind that sort of thing, but many people prefer to stay straight with the IRS.
Just file for extensions and submit your taxes once you meet the requirement.
Just file for extensions and submit your taxes once you meet the requirement.
Discussion
@Sid assumes you can take advantage of the extensions and meeting the physical presence test and thus pay no taxes. The IRS has no idea what your doing in another country and if youre just on a sabbatical or what not.
Re: US taxes?
Nope. I don’t.
In the first year, an IT will almost certainly owe taxes on their US earnings January to July. And even more likely, be due a nice refund if you had tax withheld along the way. Your withholding rate is based on twelve months of earnings at that level, but what you owe in the end will be based on about eight months of earnings. Probably a lower tax bracket. And all the more reason to file.
The IRS might not know what you were doing overseas, but they surely know what you were doing in the US. And filing is required.
Honestly it’s not that bad. Getting extensions is simple. Used to be a single simple page.
After the first year it’s even easier. No more worries about extensions and days in or out. I’ve had continual overseas status for over 25 years now. You can keep it even when moving to a new country.
If you’re worried, there are tax guys that specialize in expatriates and fees are reasonable. If your taxes are based solely on work income, you can probably be fine doing your own. If you have property or investments, consider a guy. And get an expat specialist.
In the first year, an IT will almost certainly owe taxes on their US earnings January to July. And even more likely, be due a nice refund if you had tax withheld along the way. Your withholding rate is based on twelve months of earnings at that level, but what you owe in the end will be based on about eight months of earnings. Probably a lower tax bracket. And all the more reason to file.
The IRS might not know what you were doing overseas, but they surely know what you were doing in the US. And filing is required.
Honestly it’s not that bad. Getting extensions is simple. Used to be a single simple page.
After the first year it’s even easier. No more worries about extensions and days in or out. I’ve had continual overseas status for over 25 years now. You can keep it even when moving to a new country.
If you’re worried, there are tax guys that specialize in expatriates and fees are reasonable. If your taxes are based solely on work income, you can probably be fine doing your own. If you have property or investments, consider a guy. And get an expat specialist.
Reply
@sid
Almost certainly is not certainly. The issue is not paying taxes on the overseas income for those final 4-5 months since youre also likely paying local taxes as ell, you dont want to pay taxes twice. Whats nice about a refund, you loaned the US Gov. coin at no interest, and they take their cut and send you less than you sent them back, and they had full use of your coin during that time and paid you nothing for it.
The IRS MAY know what your doing in the US not everyone in edu is a salaried employee.
Filing is required like jaywalking is illegal. Why pay experts or anyone else wither you dont owe and the filing is 30 minutes or you owe for some archaic reason based on some CSR at the IRSs interpretation, and youre better off just not filing.
Almost certainly is not certainly. The issue is not paying taxes on the overseas income for those final 4-5 months since youre also likely paying local taxes as ell, you dont want to pay taxes twice. Whats nice about a refund, you loaned the US Gov. coin at no interest, and they take their cut and send you less than you sent them back, and they had full use of your coin during that time and paid you nothing for it.
The IRS MAY know what your doing in the US not everyone in edu is a salaried employee.
Filing is required like jaywalking is illegal. Why pay experts or anyone else wither you dont owe and the filing is 30 minutes or you owe for some archaic reason based on some CSR at the IRSs interpretation, and youre better off just not filing.
Re: US taxes?
I guess the OP will just have to decide how to play it. Clearly you and I won’t be changing our minds.
-
wrldtrvlr123
- Posts: 1173
- Joined: Sat Feb 06, 2010 10:59 am
- Location: Japan
Re: Response
PsyGuy wrote:
> There are three types of foreign tax benefit schemes, the foreign tax
> deduction, exclusion, and credit. The deduction and exclusion really dont
> apply in this case, what you want is the foreign tax credit. Most ITs
> simply claim extensions until they meet the physical presence test of 330
> days. You could also meet the Bonafide resident test based on intent. If
> for some reason you cant claim the credit for reasons, you can just not
> file for the year, and then next year file based on physical presence.
=====================
Why do you assume the OP will only want/need the foreign tax credit? If they will not be paying significant tax on their foreign income (varies greatly by location), they may be better off using the exclusion.
> There are three types of foreign tax benefit schemes, the foreign tax
> deduction, exclusion, and credit. The deduction and exclusion really dont
> apply in this case, what you want is the foreign tax credit. Most ITs
> simply claim extensions until they meet the physical presence test of 330
> days. You could also meet the Bonafide resident test based on intent. If
> for some reason you cant claim the credit for reasons, you can just not
> file for the year, and then next year file based on physical presence.
=====================
Why do you assume the OP will only want/need the foreign tax credit? If they will not be paying significant tax on their foreign income (varies greatly by location), they may be better off using the exclusion.
Reply
@sid
We often disagree on the best way of doing things, yours is usually the leadership way, and mine is the easiest way. You tend to advance the position that the "right" way as defined by rules and reasons (and leadership) is superior by arbitrary values like merit or virtue. Mine is that merit and virtue are for sheeple, incapable of doing the ana1ytics themselves and determining the best course of action for their scenario at that time. Its 4 months for the fall term, why bother with the foreign earned income at all, its a holiday as far as anyone at the IRS is concerned or needs to know. Yeah.. blah, blah rules.. blah, blah requirements.. blah, blah leadership says so.
@WT123
I dont and I didnt, I mentioned the deduction, and the exclusion and the credit, but while they the exclusion may very well be suitable it by definition implies your not making the relocation overseas permenant, which eliminates the probability of successfully meeting the bonafide residence test. Which while the physical residence test is much easier to understand and has higher confidence, many of the ITs who would be unsuccessful with the physical presence test would be successful at the bonafide residence test.
We often disagree on the best way of doing things, yours is usually the leadership way, and mine is the easiest way. You tend to advance the position that the "right" way as defined by rules and reasons (and leadership) is superior by arbitrary values like merit or virtue. Mine is that merit and virtue are for sheeple, incapable of doing the ana1ytics themselves and determining the best course of action for their scenario at that time. Its 4 months for the fall term, why bother with the foreign earned income at all, its a holiday as far as anyone at the IRS is concerned or needs to know. Yeah.. blah, blah rules.. blah, blah requirements.. blah, blah leadership says so.
@WT123
I dont and I didnt, I mentioned the deduction, and the exclusion and the credit, but while they the exclusion may very well be suitable it by definition implies your not making the relocation overseas permenant, which eliminates the probability of successfully meeting the bonafide residence test. Which while the physical residence test is much easier to understand and has higher confidence, many of the ITs who would be unsuccessful with the physical presence test would be successful at the bonafide residence test.
-
wrldtrvlr123
- Posts: 1173
- Joined: Sat Feb 06, 2010 10:59 am
- Location: Japan
Re: US taxes?
PsyGuy wrote:
> @WT123
>
> I dont and I didnt, I mentioned the deduction, and the exclusion and the credit,
> but while they the exclusion may very well be suitable it by definition implies
> your not making the relocation overseas permenant, which eliminates the probability
> of successfully meeting the bonafide residence test. Which while the physical residence
> test is much easier to understand and has higher confidence, many of the ITs who
> would be unsuccessful with the physical presence test would be successful at the
> bonafide residence test.
==================
Are you sure you are not the current POTUS? You literally said, "The deduction and exclusion really don't
apply in this case, what you want is the foreign tax credit" without any information from the OP about what country they are relocating to, whether they will be paying any significant foreign income tax, how long they plan to stay overseas, etc.
As for the rest, again, it literally makes no sense. How does taking the exclusion give any indication of not making relocation permanent (or at least long term). We (and many other int'l teachers) use/used the foreign income exclusion, to great effect, for many, many years.
Are you privy to some information about the OP that the rest of us are not (or have you been eating too many fast food meals and staying up tweeting all night?
> @WT123
>
> I dont and I didnt, I mentioned the deduction, and the exclusion and the credit,
> but while they the exclusion may very well be suitable it by definition implies
> your not making the relocation overseas permenant, which eliminates the probability
> of successfully meeting the bonafide residence test. Which while the physical residence
> test is much easier to understand and has higher confidence, many of the ITs who
> would be unsuccessful with the physical presence test would be successful at the
> bonafide residence test.
==================
Are you sure you are not the current POTUS? You literally said, "The deduction and exclusion really don't
apply in this case, what you want is the foreign tax credit" without any information from the OP about what country they are relocating to, whether they will be paying any significant foreign income tax, how long they plan to stay overseas, etc.
As for the rest, again, it literally makes no sense. How does taking the exclusion give any indication of not making relocation permanent (or at least long term). We (and many other int'l teachers) use/used the foreign income exclusion, to great effect, for many, many years.
Are you privy to some information about the OP that the rest of us are not (or have you been eating too many fast food meals and staying up tweeting all night?
Reply
@WT123
I made assumptions thats what happens with most decision making processes, you have incomplete data, you make assumptions.
Because they really dont apply in this case, neither the exclusion nor the deduction are intended for permenant OS relocators, they are designed for transient employees and contractors. You cant meet the Bonafide test if your transient.
I know many who the exclusion has worked for and some who it hasnt, and others who used the exclusion and then later were denied the credit based on the Bonafide test.
I made assumptions thats what happens with most decision making processes, you have incomplete data, you make assumptions.
Because they really dont apply in this case, neither the exclusion nor the deduction are intended for permenant OS relocators, they are designed for transient employees and contractors. You cant meet the Bonafide test if your transient.
I know many who the exclusion has worked for and some who it hasnt, and others who used the exclusion and then later were denied the credit based on the Bonafide test.
-
Thames Pirate
- Posts: 1190
- Joined: Fri Jul 05, 2013 8:06 am
Re: US taxes?
PsyGuy doesn't place a lot of value on honesty, legality, or honouring contracts. While there might be times to break contract on occasion, tax filings are NOT one of those times. I agree with Sid. It isn't that big of a deal, and we got money back that first year. It's totally worth playing it straight now to avoid massive problems later. You would hate to return to the US someday and find yourself with a major tax burden or legal troubles just to avoid a tiny bit of paperwork now.
Discussion
It might not be a big deal, but having paid taxes most likely on the employment from January to August, you can stress about the taxes over 4 months OS, or you can just put it out of your mind, your not going to come back and find the IRS waiving a tax bill over those 4 months unless you tell them too. You will still get money back if your due a refund that first year based on the domestic employment, just forget the OS work when filing.