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Can someone explain the Korean tax exemption?
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naturegirl321



Joined: 18 Jul 2006
Location: Suwon

PostPosted: Fri Apr 09, 2010 4:51 pm    Post subject: Can someone explain the Korean tax exemption? Reply with quote

I don't get it. So, I have to get a paper saying that for "Federal tax purposes" I'm a US resident and will be a US resident for the rest of 2010, right?

(But I'm not since I live in Korea and spent the last 8 years in Scotland, Czech Rep, Spain, China, and Peru)

And then I give that to Korea and that means taht I don't pay KOREAN taxes, correct?

So then, I have to pay US taxes?

OR

I get out of BOTH Korean and US taxes for two years?

If someone could explain this, simply, I'd appreciate it, becuase it's doing my head in. Shocked

Thanks!
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jameltoe



Joined: 25 Feb 2010

PostPosted: Fri Apr 09, 2010 4:54 pm    Post subject: Reply with quote

according to my recruiter unless you are making over 90k usd you do not need to pay american or korean taxes after submitting your 8802 form
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naturegirl321



Joined: 18 Jul 2006
Location: Suwon

PostPosted: Fri Apr 09, 2010 5:06 pm    Post subject: Reply with quote

jameltoe wrote:
according to my recruiter unless you are making over 90k usd you do not need to pay american or korean taxes after submitting your 8802 form


Ok, thanks. I get that.

BUT, how is that legal?

What I mean, is that if you submit the 8802, which I did back in Feb (and they said my application wasn't complete, which it WAS. I even put in copies of my US ID, driver's license, etc. Now I need to swear that I'm a US resident, which I'm not), then you are saying that you're a US tax resident, which would mean that you should pay US taxes , right?

I'm all for not having to pay US or Korean taxes, I just don't get the logistics of it and don't want to get audited for tax evasion.

Does the US say that you MUST pay taxes to EITHER Korea or the US?

If the purpose of 2555 is to exclude foreign earned income from US taxes, it's because you're a US citizen working in a foreign country meeting the stated requirements. And it means that you pay FOREIGN taxes.

If the purpose of 8802 / 6166 is to exclude foreign earned income from foreign taxes, it's because you're a US resident for tax purposes.

I want to know if getting out of paying BOTH Korean and US taxes will have me risking fines, penalties, and who knows what else.

Where is the law saying that I don't have to pay either?

I don't know why govts make it so difficult to understand, yet another reason why I'm an ENglish teacher and not a Maths one.
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English Matt



Joined: 12 Oct 2008

PostPosted: Fri Apr 09, 2010 5:17 pm    Post subject: Reply with quote

Seeing as how the Korean income tax rates are so low, I've always thought this 'exempt from paying taxes in Korea for 2 years' things is a sort of a poisoned chalice.

Like you, I figured that if I am not paying taxes in Korea (and am legally resident for tax purposes in the UK) then I would inevitably at some point have to pay UK income tax on all or part of my income here in Korea. I did a little reading around the subject and, in my situation, I am only liable to pay UK tax on any income I repatriate to the UK.

I am moving to Germany after I leave Korea so, as far as I have been able to work out, I will not have to pay UK tax on my savings from Korea as I will not be taking the money back to the UK. I'm not sure how it works with US citizens, but this may at least give you some context.....

EDIT: On second thoughts, if you have been away from the US for so long are you actually classified as a resident any longer? If you tell your school that you are not classified as a resident then maybe you can avoid all these worries and just get them to tax you (the rate is somewhere between 1-3%).
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air76



Joined: 13 Nov 2007

PostPosted: Fri Apr 09, 2010 5:26 pm    Post subject: Reply with quote

You have to pay taxes in one country or the other...end of story. The two-year tax exemption is not there for teachers (who pay 3.3% taxes) but for workers in other fields making a lot more money with much different tax burdens.

If you take the 2-year tax exemption you will be legally liable to pay taxes in the US....they probably would never find out, but yeah, if you want to be on the straight and narrow you should forget about the exemption, pay the 3.3% in Korea and file a 2555 (which I am sure you're already doing as you've been living in Peru for a long time). You don't need to be in Korea for a year to be considered a bona fide resident, as long as your contract lasts for a year you can write the start/end date of your contract on the 2555 and then pro-rate your exemption as a percentage of $94,500 with the same ratio of the number of days you've earned money in Korea in 2009.
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naturegirl321



Joined: 18 Jul 2006
Location: Suwon

PostPosted: Fri Apr 09, 2010 5:36 pm    Post subject: Reply with quote

English Matt wrote:
EDIT: On second thoughts, if you have been away from the US for so long are you actually classified as a resident any longer? If you tell your school that you are not classified as a resident then maybe you can avoid all these worries and just get them to tax you (the rate is somewhere between 1-3%).

Yeah, that's the US for you. If I can prove TIES to the US and say that someday, sometime in the future I MAY go back to the US, then yes. I have
two pension plans
a bank acct
cheque acct
driver's liceses
4 credit cards

So with that, I prove that I still have ties and am considering a resident? But yet file a form that says I'm not a resident and don't pay US taxes. It's SO confusing. My husband doesn't understand why I file taxes, but I always will have to as long as I'm an American.

Right now my uni here in Korea is taxing me, but said I could get out if I get the US paper saying that I'm a US resident.

SO I guess I'll forget about it and just file the 2555 as usual. ONe thing I don't like is that I have to report the name and info of any bank account that I have more than 10K usd. I guess I'll be sending my husband lots of money this year then Smile Yet another reason why we don't want to go to the US, if he becomes American, he'd have to pay taxes as well.

Since I started the 2555, I've always put doen 19 Mar 03, the date I "officially" became a non US resident, for tax purposes. I was living in Peru for part of Jan this year, went to the US and then Korea in late Feb. So I think I'll just put 19 Mar 03 on the 2555 again this year. Because I wasn't living in the US, I was "just visiting" as my Dad loves to say.

MOre complications, I was in Peru as a Peruvian, not a US citizen. Smile Wonder what that means for US taxes.
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pkang0202



Joined: 09 Mar 2007

PostPosted: Fri Apr 09, 2010 5:40 pm    Post subject: Reply with quote

naturegirl321 wrote:
jameltoe wrote:
according to my recruiter unless you are making over 90k usd you do not need to pay american or korean taxes after submitting your 8802 form


Ok, thanks. I get that.

BUT, how is that legal?

What I mean, is that if you submit the 8802, which I did back in Feb (and they said my application wasn't complete, which it WAS. I even put in copies of my US ID, driver's license, etc. Now I need to swear that I'm a US resident, which I'm not), then you are saying that you're a US tax resident, which would mean that you should pay US taxes , right?

I'm all for not having to pay US or Korean taxes, I just don't get the logistics of it and don't want to get audited for tax evasion.



Dude, you are submitting your 8802 to prove that you a US citizen, AND that your home address is in the US, and that address is current. There are people who are US citizens who do NOT have a permanent address in the USA. Those people would NOT be able to file for tax exemption.

Your drivers license means nothing. I know illegal aliens in the US with drivers license.

So, here are you options:

1. File the 8802 and you don't have to pay Korean taxes for 2 years. File your normal Tax returns to the US IRS and claim the income tax exemption because you make less than $90,000. No US taxes.

2. Don't file the 8802, pay Korean taxes, and file your normal tax returns to the IRS and claim the income tax exemption because you make less than $90,000. No US taxes.


So, its all a matter of you wanting to pay Korean taxes. If you want to pay, file the 8802, get the certificate from the IRS, give that to your school.

If its too complicated for you, then maybe you should just be a sucker and pay the Korean taxes. FYI, Korean taxes are not calculated on 100% of your income, not 70% like in the past.
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naturegirl321



Joined: 18 Jul 2006
Location: Suwon

PostPosted: Fri Apr 09, 2010 5:47 pm    Post subject: Reply with quote

Ok, on my Korean contract, I had to put my US home address, my parents', because I couldn't put my Peruvian one, since we're selling out flat.

1. File the 8802 and you don't have to pay Korean taxes for 2 years. File your normal Tax returns to the US IRS and claim the income tax exemption because you make less than $90,000. No US taxes.

That sounds good to me. But brings me to the same question: how can I say I'm a US resident for tax purposes, when I file the 2555 and have filed for years?

It's not complicated. I just don't know if it's legal.
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air76



Joined: 13 Nov 2007

PostPosted: Fri Apr 09, 2010 5:49 pm    Post subject: Reply with quote

If you are a US citizen you owe taxes in the US, regardless of whether or not you were given Peruvian citizenship...but as you already know, you can make up to $94,500/year overseas and deduct all of that income. You can actually make more than that as you can deduct travel expenses and overseas living expenses and all sorts of other things (as opposed to taking the standard deduction), but of course this is not a worry with teachers as making over 100 grand a year is not going to happen.

These laws are not in place to try and tax English teachers and other folk traveling and working overseas...they are there to prevent the owners of very large American businesses from relocating their headquarters overseas in an attempt to lower their tax burden. For all intents and purposes you'll never have to pay taxes in the US as long as you have no income there.

I do agree that it is best to file your return every year, even if you aren't paying any taxes...if in 10 years time you decide to return to the US, but now they notice that you've got $100,000 in the bank, it's best to have documented it over the years to show that you earned that money overseas and filed for your tax exemption.
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air76



Joined: 13 Nov 2007

PostPosted: Fri Apr 09, 2010 5:54 pm    Post subject: Reply with quote

naturegirl321 wrote:
Ok, on my Korean contract, I had to put my US home address, my parents', because I couldn't put my Peruvian one, since we're selling out flat.

1. File the 8802 and you don't have to pay Korean taxes for 2 years. File your normal Tax returns to the US IRS and claim the income tax exemption because you make less than $90,000. No US taxes.

That sounds good to me. But brings me to the same question: how can I say I'm a US resident for tax purposes, when I file the 2555 and have filed for years?

It's not complicated. I just don't know if it's legal.


It's not legal....and remember that if you file the 8802 you are essentially sending a notice to the IRS saying "I am a resident of the US, not of the country I indicated on my 2555"...now, the IRS is a huge organization and you will probably never get caught or audited, but yes, it would be officially illegal to be tax-exempt in both countries.

You have to pay taxes in one country or the other...end of story. Of course plenty of people don't follow the rules by the books, but it would be illegal to be tax-exempt in both. The $94,500 exemption is given to you because you are paying taxes in another country.

I am not telling you not to do it...but it would be illegal.
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naturegirl321



Joined: 18 Jul 2006
Location: Suwon

PostPosted: Fri Apr 09, 2010 6:00 pm    Post subject: Reply with quote

air76 wrote:
If you are a US citizen you owe taxes in the US, regardless of whether or not you were given Peruvian citizenship...but as you already know, you can make up to $94,500/year overseas and deduct all of that income. You can actually make more than that as you can deduct travel expenses and overseas living expenses and all sorts of other things (as opposed to taking the standard deduction), but of course this is not a worry with teachers as making over 100 grand a year is not going to happen.

These laws are not in place to try and tax English teachers and other folk traveling and working overseas...they are there to prevent the owners of very large American businesses from relocating their headquarters overseas in an attempt to lower their tax burden. For all intents and purposes you'll never have to pay taxes in the US as long as you have no income there..


DOn't worry, one of the reasons why I left Peru is because I didn't even have to pay Peruvian taxes, that's how low my salary was. I never deducted travel or overseas living expenses, just because I made much less than the 2555 allowed, so it wasn't necessary. Second, the more deductions, the more red flags. And we've owned apartments in Peru for the last three years, outright, so I don't think I coudl take living expenses.

Also, I'd like to disagree with not paying US taxes if you don't live there. You DO. Isn't that nice? If you're self employed, that means, if you teach private classes or edit papers, etc, then you have to pay taxes on anything over 400 bucks a yEAR. I got hit with the self employment tax last year. Not very fun.

I guess one positive thing to being married to a foreigner is if we go to the US and have tons of cash, I could just say it's my husband's. His income isn't on my tax return.

I htink the easiest thing is just to pay Korean taxes, get a Korean credit card and see if I can get some Korean taxes back at the end of the year.
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air76



Joined: 13 Nov 2007

PostPosted: Fri Apr 09, 2010 6:09 pm    Post subject: Reply with quote

You can have up to $10,000 (or somewhere around there) of taxable income in the US without having to pay any taxes. This means that whether you work part-time in the US when home on vacation, or whether you have interest income, or sell stocks, or whatever, you can make up to $10,000 without paying any taxes. You exempt your foreign income on page 1 and should still have some sort of taxable income left over (assuming you still have bank accounts in the US), but then this taxable income is rendered non-taxable on page 2 when you apply your standard deductions.

You may want to refile last year's return if you paid US taxes on less than $10,000 of taxable income.

Either way, why didn't you just combine your self-employed income into your salary on your return? And really...if you're teaching private classes or doing editing work on the side, you don't need to file this income to the IRS. That's taking compliance a bit too far. You wouldn't file $100/month for mowing Mrs. Pointdexter's lawn every week.
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naturegirl321



Joined: 18 Jul 2006
Location: Suwon

PostPosted: Fri Apr 09, 2010 6:29 pm    Post subject: Reply with quote

air76 wrote:
You can have up to $10,000 (or somewhere around there) of taxable income in the US without having to pay any taxes. This means that whether you work part-time in the US when home on vacation, or whether you have interest income, or sell stocks, or whatever, you can make up to $10,000 without paying any taxes. You exempt your foreign income on page 1 and should still have some sort of taxable income left over (assuming you still have bank accounts in the US), but then this taxable income is rendered non-taxable on page 2 when you apply your standard deductions.

You may want to refile last year's return if you paid US taxes on less than $10,000 of taxable income.

Either way, why didn't you just combine your self-employed income into your salary on your return? And really...if you're teaching private classes or doing editing work on the side, you don't need to file this income to the IRS. That's taking compliance a bit too far. You wouldn't file $100/month for mowing Mrs. Pointdexter's lawn every week.


If you're self employed, like I was in Peru, and I did make more than 400 bucks last year, I had to pay. I know, it's stupid and doens't make sense.
Buit here it is in black and white. And you can't claim it on your standard deduction either.
http://www.irs.gov/businesses/small/article/0,,id=98846,00.html
Quote:
Who Must Pay Self-Employment Tax?

You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies.

* Your net earnings from self-employment (excluding church employee income ) were $400 or more.


And yes, if you filed Mrs. Pointdexter's lawn and got 1200 a year, LEGALLY, you have to report that. Unbelieveable? Yep, I know.

The making up to 10 grand or so is if you work for an organisation, then you're paying taxes. The IRS just has it in for us. I made 2K and paid 58 dollars in taxes.

I don't think that you CAN combine your self employment into your income. Look here

Quote:
Are You Self-Employed?
You are self-employed if any of the following apply to you.
* You carry on a trade or business as a sole proprietor or an independent contractor.
* You are otherwise in business for yourself. (This is for private lessons)

Trade or business. A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. The facts and circumstances of each case determine whether or not an activity is a trade or business. The regularity of activities and transactions and the production of income are important elements. You do not need to actually make a profit to be in a trade or business as long as you have a profit motive. You do need, however, to make ongoing efforts to further the interests of your business.

Part-time business. You do not have to carry on regular full-time business activities to be self-employed. Having a part-time business in addition to your regular job or business also may be self-employment.

Example. You are employed full time as an engineer at the local plant. You fix televisions and radios during the weekends. You have your own shop, equipment, and tools. You get your customers from advertising and word-of-mouth. You are self-employed as the owner of a part-time repair shop.

Independent contractor. People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to SE tax.
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air76



Joined: 13 Nov 2007

PostPosted: Fri Apr 09, 2010 7:32 pm    Post subject: Reply with quote

That self-employment tax should only be relevant for income earned within the United States, since you are not paying social security taxes on your income. Obviously $58 isn't much money, but I would contact the IRS to find out if this self-employment tax applies to overseas income, my guess is that it does not.

Yes, I am fully aware that you SHOULD claim the lawn mowing money legally, but what I am saying is that NOBODY is that compliant on their taxes. If you have a registered business that's one thing, but I really don't think that you need to claim small jobs on the side. If I made some sort of artwork and sold $500 worth a year to friends/family or on craigslist or ebay I certainly wouldn't claim that income.

For the most part when you file your US taxes for your overseas income they are just trusting that you claim the right amount. We don't receive W-2's so you can really claim whatever income you want as they don't really have a way of checking it.

I don't believe that the IRS is "out to get us"...while every government has inefficiencies, our taxes are used to pay for stuff for our society. When I lived in the US I had no problem paying taxes, but now that I don't live there of course I don't want to pay into a system that I am not living in.

My advice to you would be to stop claiming your side jobs, especially if we're only talking about a few thousand dollars a year. That's such a small amount of money and it would be impossible to track.

What I do is simply figure out a close approximation of my overseas income, calculate that into US dollars, and put that figure in the slot for my wages/tips. I don't include any documentation outlining where that money came from as like I said, we don't have any W-2's. I have never been questioned and it's been 6 years now that I've filed this way. If you want to include your privates and side jobs in this amount then do so. My total income is never perfectly accurate...I just take my average monthly earnings, multiple by 12, and call it good. The IRS will be fine with that, as it's well under $94,500. If you were claiming $100,000 in overseas income then it would probably be more important to subdivide that income and show exactly where it was coming from.
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naturegirl321



Joined: 18 Jul 2006
Location: Suwon

PostPosted: Fri Apr 09, 2010 7:42 pm    Post subject: Reply with quote

air76 wrote:
That self-employment tax should only be relevant for income earned within the United States, since you are not paying social security taxes on your income. Obviously $58 isn't much money, but I would contact the IRS to find out if this self-employment tax applies to overseas income, my guess is that it does not.


See, the IRS wants to claim everything. Even self employment earned abroad. http://www.irs.gov/businesses/article/0,,id=211508,00.html

I'm not teaching privates anymore. I do do some writing online, and it goes through paypal, so it could be trackable. BUt honeslty, I won't be making more than 400 a year.

My grandfather was audited, years after he died. He owed 500 at the time when he filed, but with interest and all that, it was 5000. I just don't want that to happen to me. I gues anything I get paid in cash, isn't traceable, but everything else, is.

One question, I thought it was only 91,400, did it go up?

In a couple years, I shoud be making in the 100 grand with my salary and property but I htink the income I get from property will be going straight into my husband's account, and I just won't claim it.
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