Job Discussion Forums

[Noelle]

Hi everyone

Just a quick question for American teachers in the Middle East...

Are any of you having to pay at least a U.S. social security tax on your income in the M.E.? I know we can claim foreign exemption on federal income tax but how about social security?

I paid a rather steep amount last year into social security while working in Korea since my employer didn't withhold it (naturally) and now I am paying even more for the second half of the tax year. I've not met any other American teachers who've had to do this.

When you file.. do you file as SE (self-employed) or as an employee of a foreign entity (not sure of the code for that one)?

I feel like I'm the only person going through this at tax time.
Any feedback from American teachers would be very helpful.

[Bindair Dundat]

Let's see what this says...

"In general, U.S. social security and Medicare taxes continue to apply to wages for services you perform as an employee outside of the United States if one of the following applies:

1. You are working for an American employer which includes:
1. The U.S. Government or any of its instrumentalities
2. An individual who is a resident of the United States
3. A partnership of which at least two-thirds of the partners are U.S. residents
4. A trust of which all the trustees are U.S. residents
5. A corporation organized under the laws of the United States, any U.S. state, or the District of Columbia, Puerto Rico, the Virgin Islands, Guam, or American Samoa
2. You perform the services on or in connection with an American vessel or aircraft and either:
1. You entered into your employment contract within the United States, or
2. The vessel or aircraft touches at a U.S. port while you are employed on it
3. You are working in one of the countries with which the United States has entered into a binational social security agreement (also known as Totalization Agreements), and the agreement provides that your foreign employment is subject to U.S. social security and Medicare taxes.
4. You are working for a foreign affiliate of an American employer under a voluntary agreement entered into between the American employer and the U.S. Treasury Department"

That lets most of us off the hook.

http://www.irs.gov/businesses/small/international/article/0,,id=97160,00.html

[Bindair Dundat]

[veiledsentiments]

I was told by knowledgeable people at the IRS that an overseas teacher did not even have the choice to pay the social security if they wanted to. (as many close to retirement age do)

This referred to salary/wages paid by any educational institution - language schools, K-12, or university. But if you are freelancing private lessons, you can declare that and pay both income tax and social security - if you want to. (so far I haven't found many that wanted to actually...)

As BD says, you file a regular 1040 - with your pay in the same line as you would with a W-2 - with form 2555 attached pretty much deducting the same amount... If you have been overseas working for over 12 months, you qualify as a 'bonafide' expat...

VS

[BajaLaJaula]

I am wondering if any of you have any experience with the following scenario...........

the out of country for 330 days rule.....what if I start work next month in KSA? I will not complete my consecutive 330 days outside of US until the next year (2008)....Can I still qualify for the exemption (for filing year 2007), since by the time I file next year I will have completed the 330 days???

If not...I am dreading having to pay taxes for 2007 (higher tax bracket....those b@st@rds....)

Any ideas...otherwise I will have to call IRS and get passed around until some idiot can tell me they are not sure and will get back to me.

Thanks in advance for any advice here.

[veiledsentiments]

There is a specific form for this situation but I can't recall it off the top of my head. You file an extension - pay with it any taxes that will be due (for instance on US income prior to going overseas or on investment income) - and then you file when you reach the 330 days overseas that makes it eligible for form 2555 exclusion.

I used it in '98 with no problem.

Go to the IRS website and look for the various extension forms... you might start at the section for oversea filers.

VS

[BajaLaJaula]

Thanks VS for the tip I will check it out.....NOT PAYING TAXES WILL BE A WELCOME RELIEF.
In the U.S. over 30 percent of my pay currently goes toward State, Federal, and mandatory state retirement plan, not to mention sales tax....just a reminder to those working overseas, for whom paying taxes is but a distant memory.

[stoth1972]

Ah taxes...my own father, who filed my taxes while I was away, got the law wrong, causing me unnecessary time outside the US in an attempt to abide by the law, and avoid paying taxes on my sorry $19,000 USD! I strongly recommened going to H and R Block, paying the extra bit of money (more expensive than your average tax return-I think you can get their services online)...you get more in return, and all is right w/ the world.

[veiledsentiments]

H & R Block will charge you about $200 and half the time they don't know what they are doing either. It depends on where you have it done and if they are used to overseas filers.

Pay $40 or so and get Turbo Tax.

Any questions can usually be answered by reading on the IRS site.

VS

[stoth1972]

I got lucky w/ the guy I had at H and R. I had used Turbo Tax before going to them, even opting for their 'consultation' services, which, for an extra $30+, they answer specific questions. Sadly, their answers directly contradicted the IRS website, which I found very difficult to follow to begin with. Such a hassle...H and R block did save me money on things I had left out, so the money I spent on their services and what I got in a return made it a wash, more or less.

[veiledsentiments]

To be honest, I can complete the average overseas TEFLer's filers taxes in about 10 minutes - with a pencil. It only becomes complicated if one is also involved in rental properties - and buys and sells investments. (for those the Turbo Tax helps out)

As to either Turbo or H&R not agreeing the IRS's interpretations... ... that is the usual. You can take the same question to all three and get three different answers - interpreting the tax code is rather like religious text interpretation... and when disagreements go to the courts, the IRS loses as often as it wins. (what a system )

VS

[stoth1972]

I think it's very easy to do the taxes until someone is entering and exiting the country, when they left, when their time abroad started, when the tax year began...that's when I needed help. Once you've established yourself abroad, mafeesh mushkella!

[veiledsentiments]

When I get back to my other place that has winter now... I must look up that form that makes even that first year totally simple...

VS