Working abroad can be a lot of fun. It's an opportunity to see new places and learn things about a culture you can get only from first-hand experience. However, many people are surprised to find out that they owe American taxes on work done abroad. Although the process is more complicated than filing for work done here in the United States, it's not a difficult task. Specific rules vary by which country you've been working in, but some general principles apply.
Research the specifics. While your income tax rate is the same no matter where you work, the amount you owe for Social Security and Medicare tax varies depending on the country. If you worked for an American company, a foreign affiliate of an American company, on an American ship or plane, or in a country with a relevant agreement with the United States you still owe Social Security and Medicare taxes. Find out these specifics of your employment situation before filing.
Obtain all relevant documents and get all income information from every relevant employer. This may be difficult when your last known address does not match your current address. The onus is on you to obtain these documents. Not getting them is not an excuse for not filing taxes. In addition to your W-2s or other earnings statements, you need to file either Form 2555-EZ with a Foreign Earned Income Form, or the full Form 2555. If you're married to someone who isn't an American national, the easiest thing to do is file separately. If there are children, you are entitled to file as Head of Household. Finally, your spouse can be considered as a resident alien if you choose to file jointly.
Talk to a professional tax expert. The laws regarding taxes paid on work done overseas can be very complex. While you can do most of the work yourself, going to a local tax preparation service may save you lots of headaches during and after filing.
File in U.S. dollars. No matter where you work, you must report your income in U.S. dollars. Converting U.S. dollars to foreign currency is easier than you think. XE.com is a website that specializes in currency conversion rates. Put the dollar amount into the website and let it do the work for you. You can also use the annual average conversion rate, available on the IRS website.
File on time. A two-month extension is automatically allowed to anyone living abroad. However, any taxes due must be paid by the standard April 15 filing date, or interest charges will apply. Make sure that you have paid all of your taxes by April 15, but take advantage of the extension for filing if necessary. The extension is easily obtained by including a statement of qualification with all tax preparation you have done at the time.
- Call the IRS with any questions before filing. Even if you're getting professional help, make sure to consult the IRS with anything you may be confused about.
Items you will need
- Wage information
- Pen or pencil
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