American Expats: Income Tax & Social Security

[toptuan]

This is concerning USA tax liability only (I understand my tax liabilities to Thailand). This also relates to personal income (not business).

Is it correct that USA citizens are exempt from the first $80,000 of annual income earned in Thailand?

Also, is it correct that USA citizens are still liable for full Social Secuirty tax on their Thai income (normally the employer + employee's share), with no special exemption for foreign-earned income?

I spent about 90 minutes searching the forum and reading some of Thaivisa's informational pages. After that, these questions still linger in my mind. Please feel free to redirect me to a thread I might have missed. Thanks.

[lopburi3]

For a little light reading while you await an answer download Publication 54 at this LINK

It is probably a good idea to read up rather than just trust us for answers as it is rather important to get it right. Don't forget you are required to report foreign bank accounts if they exceed 10k each year with TDF 90-22.1

[Tywais]

This is concerning USA tax liability only (I understand my tax liabilities to Thailand).  This also relates to personal income (not business). 

Is it correct that USA citizens are exempt from the first $80,000 of annual income earned in Thailand?

Also, is it correct that USA citizens are still liable for full Social Secuirty tax on their Thai income (normally the employer + employee's share), with no special exemption for foreign-earned income?

I spent about 90 minutes searching the forum and reading some of Thaivisa's informational pages.  After that, these questions still linger in my mind.  Please feel free to redirect me to a thread I might have missed.  Thanks.

I'm an American citizen working here for 14 years. You are exempt from $80,000 of foreign earned income. Be sure you submit a form 2555-EZ to declare the amount to exclude. Also make sure you read the 2555 instructions to be sure you satisfy the residency requirements, this is the most important issue. The following are the specifics:

Bona Fide Residence Test

To meet this test, you must be one of the

following:

A A U.S. citizen who is a bona fide

resident of a foreign country, or countries,

for an uninterrupted period that includes

an entire tax year (January 1 –

December 31), or

A A U.S. resident alien who is a citizen

or national of a country with which the

United States has an income tax treaty in

effect and who is a bona fide resident of

a foreign country, or countries, for an

uninterrupted period that includes an

entire tax year (January 1 – December

31).

Physical Presence Test

To meet this test, you must be a U.S.

citizen or resident alien who is physically

present in a foreign country, or countries,

for at least 330 full days during any

period of 12 months in a row. A full day

means the 24-hour period that starts at

midnight.

To figure the minimum of 330 full days'

presence, add all separate periods you

were present in a foreign country during

the 12-month period in which those days

occurred. The 330 full days may be

interrupted by periods when you are

traveling over international waters or are

otherwise not in a foreign country. See

Pub. 54 for more information and

examples.

Line 3

Tax Home Test

To meet this test, your tax home must be

in a foreign country, or countries,

throughout your period of bona fide

residence or physical presence,

whichever applies. For this purpose, your

period of physical presence is the 330 full

days during which you were present in a

foreign country, not the 12 consecutive

months during which those days

occurred.

Your tax home is your regular or

principal place of business, employment,

or post of duty, regardless of where you

maintain your family residence. If you do

not have a regular or principal place of

business because of the nature of your

trade or business, your tax home is your

regular place of abode (the place where

you regularly live).

You are not considered to have a tax

home in a foreign country for any period

during which your abode is in the United

States. However, if you are temporarily

present in the United States, or you

maintain a dwelling in the United States

(whether or not that dwelling is used by

your spouse and dependents), it does not

necessarily mean that your abode is in the

United States during that time.

I don't know about social security since when working in the US I had state retirement plan and no longer paid SS. Working here I also do not and am not required to pay SS. However it may be elective that you can pay SS from foreign income and as lopburi said need to check that more specifically. Information easy to get at http://www.irs.gov/

Edited December 25, 2005 by tywais

[toptuan]

Very helpful, Lop. I have been doing a lot of reading (and will check out your link as well.).

The "is it correct...?" questions I pose actually represent my conclusions. Now I'm looking for some outside input to see if I'm in the ball park or way off base.

But ultimately you're right--get it in print from the horses' mouths.

[lopburi3]

I have never worked where I could exclude income so not up on the regulations but I suspect you can find your exact questions with a Google search. Then it just becomes a matter of "do I trust that reply or not". If you are ever in doubt the Embassy has the tax man come each year to answer specific questions and you can make appointment. If you have not registered for Embassy email updates you really should and they announce visits ahead of time in them.

[lanny]

U.S. citizens and permanent residents (greencard holders) are liable for taxes on income from all sources, worldwide. If the taxpayer meets the requirements (see tywais' previous post) up to $80,000 of earned income may be excluded. You must file a return to claim this exemption. These rules seem simple but can be quite complex when applied to actual situations -- particularly in the first or last two years.

If you make more than $80,000, you may be able to take a housing exclusion but you cannot use Form 2555EZ, you must use Form 2555. If you pay Thai taxes, you may also claim a credit for a portion of those taxes against any U.S. tax that you owe. Again, the rules are often difficult to apply to real life. Use Form 1116 for this credit.

Taxpayers are liable for both halves of the social security tax on any self-employment income, regardless of where earned. Thus, if you work for yourself or as an independent contractor in Thailand, you have to pay this tax. If you are employed by a U.S. company or affiliate, the employer is supposed to withhold your half and pay the tax to IRS, just as it does in the U.S. On the other hand, if you work for a non-U.S. employer, you are liable for social security taxes only if you entered into your employment contract while still in the U.S. I have many clients who work for Thai, Hong Kong, British, companies, etc. and none of them did this -- none of them pay the social security tax.

U.S. income taxes are my business and, over the years, I have seen many, many returns with mistakes on these issues.

[toptuan]

Again, very helpful stuff. Thanks for confirming or debunking some of my conclusions from the material I've worked through. A super-advantage of this forum--the sounding-board factor. Lanny, I'll probably look you up someday when my returns start getting more complicated. Thanks!

Edited December 26, 2005 by toptuan