U.S. Taxation while Abroad
U.S. Citizens
Paid by a U.S. employer:
If you are abroad for less than 330 days, Federal and State Income Taxes as well as Social Security and Medicare taxes will be withheld from your paycheck as usual. You can deduct Business Travel Expenses from your taxes however when filing your tax returns. There is no need to contact Payroll or Human Resources.
If you are abroad for more than 330 days, you can fill out Form 673 (see instructions below), which you can submit Human Resources. This will result in Federal and State Income Taxes not being withheld for that period of time. When it is time to submit your federal tax return, you will need to submit an additional form (Form 2555) with your tax return in order to get the tax benefit on your tax return as well.
Social Security and Medicare payments have to continue to be paid. There are a few exceptions for countries with a so-called Totalization Agreement. See here for a list of countries. Generally (except for Italy) the rules of the Totalization agreements are as follows: if still working for a U.S. employer and being sent abroad for less than 5 years, Social Security and Medicare are being withheld in the U.S., if staying longer than 5 years, Social Security is being withheld in the visiting country.
Paid Abroad:
U.S. Citizens are taxed on their worldwide income. Thus, you will have to report all income received in the U.S. AND abroad and will have to file Federal and if applicable State tax returns every year with the IRS and the appropriate State(s) by April 15th. You can however claim for Foreign Earned Income Exclusion when you file your U.S. Tax return. See this IRS Article for a quick summary and further information.
Note: For more detailed information on how to account for expenses abroad and excluding income while abroad see the IRS Publications Section on this website. For more information under what circumstances U.S. taxes do not have to be paid anymore see the IRS's information on Expatriation Tax. Often, you can use tax credits to avoid double taxation. Here is an article on this issue. The tax form is Form 1116. More information can be found in Publication 514. Even if you cannot use the entire tax credit in one given year, the IRS allows for carryback and carryover of tax credits (see publication 514 for more information).
Greencard Holder
Paid by a U.S. employer:
If you are abroad for less than 330 days, Federal and State Income Taxes as well as Social Security and Medicare taxes will be withheld from your paycheck as usual. You can deduct Business Travel Expenses from your taxes however when filing your tax returns. There is no need to contact Payroll or Human Resources.
If you are abroad for more than 330 days, you can fill out a Form W-4 as "Exempt", which you can submit to the Human Resources Office. This will result in Federal and State Income Taxes not being withheld for that period of time. In addition, you need to fill out a second Form W-4 stating what withholding you want after your return, sign it and date it with the date of your return. For internal purposes, please also fill out Form 673 (see instructions below). When it is time to submit your federal tax return, you will need to submit Form 2555 (check here for more information) with that return in order to get the tax benefit on your tax return as well.
Paid Abroad:
Greencard Holders are just like U.S. Citizens taxed on their worldwide income. Thus, you will have to report all income received in the U.S. AND abroad and will have to file Federal and if applicable State tax returns every year with the IRS and the appropriate State(s) by April 15th.
Note: For more detailed information on how to account for expenses abroad and excluding income while abroad see the IRS Publications Section on this website. For more information under what circumstances U.S. taxes do not have to be paid anymore see the IRS's information on Expatriation Tax. Often, you can use tax credits to avoid double taxation. Here is an article on this issue. The tax form is Form 1116. More information can be found in Publication 514. Even if you cannot use the entire tax credit in one given year, the IRS allows for carryback and carryover of tax credits (see publication 514 for more information).
Non-Resident and Resident Aliens for Tax Purposes
Resident Aliens for Tax Purposes:
If you are a resident alien for tax purposes, see above. You are treated like a Green Card holder for tax purposes for that calendar year. Contact the Tax Office to find out whether you will still be a resident alien the following year or whether you will revert back to a nonresident alien for tax purposes. You cannot fill out Form 673 though and we advice against filling out your W-4 with "Exempt".
Non-Resident Aliens for Tax Purposes:
For non-resident aliens all income received while outside the U.S. is considered "foreign source" income. Thus, this foreign source income is neither reported to the IRS nor are any taxes withheld. This applies to all types of income such as income from employment, self-employment, fellowship, scholarship, grants, prizes, royalties, etc. And it applies to income paid by a U.S. corporation or a foreign corporation. The Payroll office still requires you to fill out Form 673 (see instructions below) and submit the form to Human Resources in order to ensure that no taxes will be withheld from your U.S. paycheck while you are working abroad.
Note: If you received any payments while in the U.S., you will have to file a tax return by April 15th. If you were in the U.S. on a F, J, M, or Q visa, even if you did not receive any payments, you will have to file Form 8843 by June 15th.
Instructions for Form 673
- Go online to Form 673 and fill-in the form.
- Enter your name (first and last) and your social security number.
- On the next line in Part I enter the dates from when to when you will be abroad.
- If you will be gone for an entire year (365 days or more) and you are a U.S. Citizen, check the Bona Fide Residence Test.
- If you will come back in between, but all together will still be 330 days away from the U.S., check the Physical Presence Test.
- For either test, enter the country you will be in and the dates from when to when you will be there.
- You do not have to fill out Part II. See instructions on the second page of the form, if you want to fill out Part II.
- Print out the form.
- If you are not a U.S. citizen, scratch out the word U.S. citizen, and instead write either greencard holder, or if you are not a greencard holder, the country of your last tax residency before you came to the U.S. Tax residence country is usually the country you lived in last for at least 365 days.
- Sign and date the form and send it via interoffice or bring it to Human Resources, Service Building, 2nd floor.
Status: August 21, 2009
