Job Discussion Forums

[Noelle]

Just wondering if anyone else has stumbled over these 'new tax laws' that have been put into effect recently by the IRS? Is anyone else out there being told that they suddenly have to pay 'self-employment' tax on their overseas income (when it is well under the $92,000… ish limit) after filing a foreign income exclusion 2555?

I'm thinking I may have to now file an amendment after what my accountant has told me...

[nomad soul]

Not according to the IRS:

U.S. Citizens

If you are a U.S. citizen working in the U.S., you must report self-employment income under the Self-Employment Contributions Act (SECA). Self-employment tax is computed on Schedule SE, Self-Employment Tax, and reported on page 2 of the Form 1040.

However, if you are a U.S. citizen working for foreign governments and organizations outside of the U.S., you are not subject to self-employment tax.
(Last Reviewed or Updated: 07-Jul-2014)

Source: http://www.irs.gov/Individuals/International-Taxpayers/How-to-Report-Wage-Income-Paid-by-Foreign-Governments-or-International-Organizations-for-Work-Performed-in-the-United-States

[veiledsentiments]

You are not self-employed!! I think you need a new tax man, not amended returns.

To be honest, I wouldn't have minded because that would have meant that my overseas income counted towards my SS payments. I would be getting double the SS check if I could have declared it self-employment over the years. But on the contrary, it has always been specifically NOT allowed to do this. So, this would be a complete turn around on the laws, and I don't see that happening.

VS

[naturegirl321]

Noelle, do you have a link to the new laws?

[veiledsentiments]

I checked the IRS website and new 2012, 2013, and 2014 updates, and there are no changes in the law as relates to self-employment tax. Noelle... your accountant is just plain wrong.

VS

[Noelle]

Wow. Thanks for the quick replies here overnight. As for my accountant being wrong, I kind of figured as much. But I think he may have already filed for me and so I am not sure what I'll need to do now to fix this. It's a fairly large amount and I will definitely following up on it!

Nature Girl- the only new law (as of July 2013) that I am aware of is regarding the FBAR: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR.

That IS worth checking out as I understand the fines are pretty severe for failure to report. It looks as though I'm safe there as I meet the criteria for exclusion by having a U.S. IRA already in place. From what I understand, a lot of Americans living abroad are completely unaware of this new IRS policy.

[naturegirl321]

The FBAR isn't something you're taxed on.

[veiledsentiments]

That has nothing to do with taxes Noelle. That is the law that says one must report overseas bank accounts. This is for the rich trying to hide their money in Swiss or Offshore accounts... and you needn't worry. I assume that you are transferring your money home regularly... not letting it build up in your account in Oman.

AND you need to find an accountant who knows what he is doing. As I recall, you filed the form 2350 and delayed your filing the first year until you had reached the full year abroad. Thus you shouldn't have paid anything except on any income that you have/had in the US.

Did you pay anything? He wouldn't have filed it without your providing the money.

VS

[madrileno]

I recently filed my previous three years' returns with H&R Block. (I was completely unaware of needing to file while living abroad).

The tax man who prepared my returns said I was well below the threshold where I'd be required to pay taxes, and he prepared all the necessary docs: 1040, 2555, and Fincen/Fbar.

I didn't need to pay cent in taxes; only the H&R Block service fee.

[veiledsentiments]

That is correct. The only possible catch may be that IRS could give you a penalty for not filing - as you didn't file per the law. And, of course, ignorance of the law is never an excuse.

If you do get a penalty letter, you can try sending a groveling letter of abject apology for your lack of knowledge... blah... blah... blah... and they might waive it.

Wait and see... we teachers are such small fry that they may not even bother.

VS

[coder]

delete

[veiledsentiments]

Noelle has only standard contract university pay, nothing is self-employment income. There was no mention of IRA's here (except a link to a change which has no effect on contract teachers). We are merely looking at reporting the ownership of an overseas bank account.

VS

[coder]

delete

[veiledsentiments]

She knows... I told her by a long discussion by PM. She had been mislead by that link which had nothing to do with her. Sadly, her accountant is clueless and it is going to cost her both time and money to get his mess fixed. So much for the advice to go to a "tax professional" ...

There have been long discussions here about private lessons counting as self-employment income. Very few teachers actually claim it. Basically only those who have the sense to top up their SS income to help future benefits.

VS

[coder]

delete