Us Foreign Earned Income Exclusion

[grnelson75]

I'm wondering if my earnings while living in Thailand would qualify for the foreign earned income exclusion.

I meet the physical presence test (>330 days living in Thailand). My earned income is from working via remote desktop connection to companies in the US while residing in Thailand. I could do this work just as well in the US, but choose to live in Thailand. Anyone have thoughts on whether this income would still qualify for the foreign earned income exclusion?

[MattFS218]

no i do not believe you can

the foreign earned income exclusion requires that you pay taxes on your income to a foreign country, ....so u have a choice between paying thai taxers (which are higher) and not paying US taxes or paying the lower us tax rates, and hoping nobody from thailand cares u are working in their country and not paying taxes (which is very likely)

Edited March 14, 2010 by MattFS218

[lanny]

Yes, you can. What matters is where you provide the service of your labor, not where the employer is located or pays you from. However, since you do not pay Thai taxes, you would not qualify as a bona fide resident; you would have to meet the physical presence rules to be able to claim the exclusion.

[grnelson75]

the foreign earned income exclusion requires that you pay taxes on your income to a foreign country, ....

From my reading of IRS Pub 54, I see there is an income tax exemption that covers credit for taxes paid to a foreign country and the foreign earned income exclusion that allows one to exclude income up to $91,400, but I don't see anything that says one must have paid taxes on that income to a foreign country to claim the exclusion. Did I miss something in my reading of this publication?

[grnelson75]

Yes, you can. What matters is where you provide the service of your labor, not where the employer is located or pays you from. However, since you do not pay Thai taxes, you would not qualify as a bona fide resident; you would have to meet the physical presence rules to be able to claim the exclusion.

That's my take on the exclusion too. I'm guessing my situation wasn't the intent of the tax code, but as long as it's legal I'd like to take advantage of whatever tax savings I can realize.

[Lifer]

Very simply, if you earn any income outside the US you must report the income in a US tax return. If you meet the requirements of being overseas for a portion or all of the year, than all your foreign earned income up to the limit of $70,000 or higher (it increases every year) is tax free; however, you must report the income earned abroad.

Use the 2555 EZ form in most cases. Its simple and easy to fill out once you've done it the first time. On the 1040 you report the income as income (wages) earned and then down farther on the page you subtract it back out. If you do not report any other income, then you end up with a zero amount to pay taxes on US taxes.

Now the questions becomes, if I don't report my foreign earned income will the US Internal Revenue office find out. The answer is they could. Its the chance you take; however, the law is you report it.

Hope this helps.

[taxout]

"However, since you do not pay Thai taxes, you would not qualify as a bona fide resident . . . ."

First, the OP hasn't said anything about his Thai tax status.

Second, the test isn't whether he "pays taxes" as such, but is more subtle. To quote the IRS:

"You are not considered a bona fide resident of a foreign country if you make a statement to the authorities of that country that you are not a resident of that country and the authorities hold that you are not subject to their income tax laws as a resident. If you have made such a statement and the authorities have not made a final decision on your status, you are not considered to be a bona fide resident of that foreign country."

http://www.irs.gov/businesses/small/intern...d=96960,00.html

[orchidlady]

how does one get some document (and what would it be) to declare their Thai earnings? I am a Thai government employee and all of my paycheck earnings are ldeposited in an account from which I have to withdraw the money monthly and move it to another bank...

(They don't appear to understand automatic deposit or choose not to) It is all written in Thai and I don't get anything at the end of the year. I earn below $91,000 US so that is not a problem but I have substantial interest income in the US to offset. I have asked previously for my monthly paycheck to be printed in English and I get shined on. I have the bank statements but iIdon't think that is sufficient.

[taxout]

". . . but I have substantial interest income in the US to offset."

You can't use Thai tax on excluded earned income to reduce US tax on your interest income.

[hhgz]

"how does one get some document (and what would it be) to declare their Thai earnings? I am a Thai government employee and all of my paycheck earnings are ldeposited in an account from which I have to withdraw the money monthly..."

Regardless how you are paid, and the pay period length, you should receive a document indicating your gross and net salary.

As posted earlier, as a US citizen you can exclude (some) foreign income. You are required to pay taxes on the foreign income: either in the country in which you earn the income, or the US.

[Lifer]

"how does one get some document (and what would it be) to declare their Thai earnings? I am a Thai government employee and all of my paycheck earnings are ldeposited in an account from which I have to withdraw the money monthly..."

Regardless how you are paid, and the pay period length, you should receive a document indicating your gross and net salary.

As posted earlier, as a US citizen you can exclude (some) foreign income. You are required to pay taxes on the foreign income: either in the country in which you earn the income, or the US.

Your really making it harder than it is. Don't worry about the Thai form indicating your income in Thai. For one thing the total Baht recieved will always be listed in numbers.For 8 out of 11 years I've received a statement of earnings from a company in Thai. Just indicate the company name and address. Use the exchange rate from the internet on the last day of the year and use that rate to turn your Thai baht into estimated $. Indicate your name on the document, make a copy for your records and send in a copy with your US Tax return.

Your not a resident of Thailand unless you have gone through the long process to become one. If you have been over here for the whole tax year, you can claim the whole amount of exemption for foreign earned income. If not, use the calculation table to calculate how much you exemption you can claim.

Your better off getting the 1040 and the 2555EZ forms and just work through it instead of listening to all the mixed advise from members, mine included.

[Lefty]

If you are willing to spend $49.95, Turbotax will walk you thru the whole foreign exclusion as well as the rest of the 1040.

Lefty

[WarpSpeed]

the foreign earned income exclusion requires that you pay taxes on your income to a foreign country, ....

From my reading of IRS Pub 54, I see there is an income tax exemption that covers credit for taxes paid to a foreign country and the foreign earned income exclusion that allows one to exclude income up to $91,400, but I don't see anything that says one must have paid taxes on that income to a foreign country to claim the exclusion. Did I miss something in my reading of this publication?

Correct...Off shore is excluded up to that figure regardless of taxes paid to any foreign entity or otherwise...

[prime]

I think some of you are missing the point. When you take the exclusion, you are paying taxes since you are declaring the income. It is just excluded since you are using the services of another country by living abroad. In other words, you file the return, declare the income, then exclude it because you have not lived in the USA for most of the tax year.There is no need to pay Thailand taxes. In theory, you are paying taxes. The income is just excluded since youi live abroad. You still need to pay social security and tax on interest and capital gains.It is just a different way of looking at it. Do not be afraid to take the exclusion, that is what it is there for !!!

[Gambles]

Do not be afraid to take the exclusion, that is what it is there for !!!

Indeed.

There's some good advice and info in this thread. One key point that comes out well is that the FEI is an earned income deduction, not investment income. Earned income was much more specifically defined in tax amendments a few years back. I'm no expert on the US filing side - we use an excellent CPA who is very reasonable for US tax advice and filings - but on the Thai side you do need to be careful; there are some specific guidelines in the Thai tax code about this kind of work but there are also many grey areas - there have been stories in the past of both the RD officers and of immigration officers sending away foreigners who wanted to apply for/obtain info about work permits and/or Tax IDs telling them that this kind of business didn't amount to employment in Thailand!

Remember that for establishing tax residence in Thailand the process is a very simple physical presence test - spend more than half the year within Thailand and you are tax resident as far as the RD are concerned (tax residence is very different to PR which I think was confusing one of the posters).

Cheers,

Paul

Edited March 15, 2010 by Gambles

[Naam]

Remember that for establishing tax residence in Thailand the process is a very simple physical presence test - spend more than half the year within Thailand and you are tax resident as far as the RD are concerned (tax residence is very different to PR which I think was confusing one of the posters).

Cheers,

Paul

the problem is that as a "tax resident" with only offshore income you can't obtain a tax ID and (miraculously) nobody is asking you to pay any taxes (even if you are willing to pay you can't) although you are liable to pay. the story, which is often told on TV, that offshore income is not taxed if not transferred in the same year as earned is a fairy tale and not mentioned anywhere in thai tax laws/regulations. it was however mentioned several years ago by some consulting company (forgot which one).

[lanny]

Paying tax to Thailand is not a requirement for claiming the foreign earned income exclusion. However, if you don't you cannot use the bona fide resident test to qualify, you would have to meet the physical presence test. The reason is simple: How can you say you are a bona fide resident if you don't pay the tax? Paying taxes is one of the indications that you really are a resident, not a visitor.

[Naam]

Paying tax to Thailand is not a requirement for claiming the foreign earned income exclusion. However, if you don't you cannot use the bona fide resident test to qualify, you would have to meet the physical presence test. The reason is simple: How can you say you are a bona fide resident if you don't pay the tax? Paying taxes is one of the indications that you really are a resident, not a visitor.

stamps in your passport which define length of stay are clearer evidence than paying taxes.

[thaihome]

Paying tax to Thailand is not a requirement for claiming the foreign earned income exclusion. However, if you don't you cannot use the bona fide resident test to qualify, you would have to meet the physical presence test. The reason is simple: How can you say you are a bona fide resident if you don't pay the tax? Paying taxes is one of the indications that you really are a resident, not a visitor.

But lanny, don't you have to meet both the Tax Home Test and either the Bona Fide resident or physical presence?

It just seems to me that this is not really foreign earned income. As the OP himself said, he could be either in the US or Thailand and it is his choice to live in Thailand. How does the fact he is sitting in Thailand working for US companies make this foreign income?

TH

[taxout]

"However, if you don't you cannot use the bona fide resident test to qualify, you would have to meet the physical presence test. The reason is simple: How can you say you are a bona fide resident if you don't pay the tax? Paying taxes is one of the indications that you really are a resident, not a visitor. "

Please re-read my post quoting the IRS rules; the test is more subtle than this, and it's a subtleness that can count.

The Tax Home test is indeed a separate requirement, and in close cases the location of your Tax Home can be debatable. But this is not a good place to debate the ins and outs of the Tax Home test.

[grnelson75]

Thanks all for the feedback. Interpreting tax law does make for an interesting discussion.