Does income earned overseas need to be reported to the IRS?
I'm a United States citizen considering a job overseas. The company I'll be working for told me that they would deposit my salary into any bank account I told them to. Would it be legal to deposit my salary into a foreign account and not declare it on my taxes? Also, if you have any advice on how tobest handle this situation I'd appreciate that as well. Thanks! Please don't think I'm trying to evade income tax. Considering how responsibly our government spends tax $$$$ how could I NOT want to pay my share?
Public Comments
- US citizens and Resident Aliens are subject to US taxation on their world-wide income regardless of where they live or work. So, no, what you propose would NOT be legal. BTW, if you're working for a US company they will report your wages to the IRS and issue you a Form W-2 at the end of the year, just as if you worked in the US. Although they may be able to deposit your pay to any bank account in the world, the income is fully taxable regardless of how you are paid. Even if you don't work for a US company -- or if you work for a sham company formed by a US company in some place like the Cayman Islands as KBR is doing -- many countries share income information of foreign nationals with their home country. The practice is universal among all major industrialized nations and many smaller nations as well. As such, there's a good chance that the IRS will know about your income regardless of who pays it or where it's paid. You may qualify for some tax benefits as an expat living and working in a foreign country but you must ALWAYS file a US tax return if your income exceeds the filing requirement amount for your filing status. See IRS pub 54 for a wealth of information on living and working in foreign countries. Here's a link: http://www.irs.gov/pub/irs-pdf/p54.pdf You may be able to exclude some or all of your foreign earned income form tax by filing Form 2555 with your tax return. The limit is $87,500. It's only available if you have a bona-fide foreign residence for the entire tax year or if you meet the substantial presence test, i.e. 330 days of persence IN a foreign country out of any continuous 365 day period. Note that the presence test only counts time within the borders of a foreign country. Time on the high seas or time in a place that isn't a country such as Antarctica doesn't count. Alternatively, or if you're not eligible for the Foreign Earned Income Exclusion, you may take a credit for foreign INCOME taxes paid on Form 1116. In either of the above cases, you MUST file a US tax return to claim those benefits. Additionally if you miss the filing deadline for Form 2555 you may lose the benefit of the FEIE entirely.
- Read IRS publication 54. You MUST declare worldwide income. You *may* be eligible to use form 1116 if you pay income tax to another country and you *may* be eligible to use form 2555 to exclude the income to begin with (if you are outside the US for 330 days out of 366 days). To use either or both forms, you must file. Note, even with the form 2555, if you still have taxable income, it's taxed as if you still had the other income. For people who have already excluded $87,500, that puts them in the 25% tax bracket.
- You are supposed to pay tax on it but its a wierd way you do it. If you try to get over on Uncle Sam he will get you someday.
- No, it wouldn't be legal to skip reporting it. As a citizen, your worldwide income is taxable. But if you have to pay taxes to some foreign country on what you make, you can take a credit against your US tax for what you paid to the other country.
- Yes to the first question (does it need to be reported?). No to the second question (would it be illegal to hide it?). U.S. law requires U.S. citizens to report all income, from anywhere in the world, and pay tax on it, unless it is specifically exempted by a tax treaty or U.S. law (and if it is exempted by a tax treaty or U.S. law, then you do not need to hide it in a foreign account to get the exemption.)
- All income obtained worldwide is consider for US taxes.
