Korean Job Discussion Forums

[dogshed]

Our IRS has some real problems. In the past I have always received great service however yesterday I got two employees that were just dumb as a rock. If they say anything that sounds fishy have them check with someone else.

Even if you don't do your own taxes it's a good idea to know what's going on to aid communication with your tax preparer. I hope this this discussion will help you.

Any tax gurus out there please correct me. I'd appreciate guidance on the moving expenses in relation to page 32 of pub 54. I'm also not sure about a paid vacation to the US. I would assume because I'm not providing services during that time that any pay received while on vacation would be for services performed in South Korea.

First the US income tax exclusion that can get rid of most tax on your foreign income:

On form 2555 you get to choose one of the two tests. In most cases if you are a new arrival or first or second year EPIK person then you will be doing the physical presence test. The criteria are very different. Do not confuse the two tests. You fill out section 2 or section 3 of form 2555 but
not both.

Form 2555: http://www.irs.gov/pub/irs-pdf/i2555.pdf
The instructions: http://www.irs.gov/pub/irs-pdf/i2555.pdf

If doing the physical presence test: The beginning and ending date of your twelve month period may start and stop on a day, even when you are in the US.
It may start before you leave the US. Your twelve month period can start and stop whenever you need it to as long as you have a total of 330 days in another country. You can use a different 12 month period for other tax years if it helps you.

Publication 54 table of contents: http://www.irs.gov/publications/p54/index.html
Pub 54 chapter 4 http://www.irs.gov/publications/p54/ch04.html#d0e2807
Pub 54 pdf version http://www.irs.gov/pub/irs-pdf/p54.pdf

A rough explanation: For the most part your tax rate is based on the total income but you don't pay taxes on foreign earned income (paychecks). This means that if you made $100 in the US and $80000 in South Korea the exclusion will have you paying taxes on $100 at the rate for the $80000 tax bracket. This is a recent change.

Some kinds of foreign (outside the US) income are not excluded. For example the interest on a savings account in a Korean bank.

I'm not sure how to handle my airfare. From what I read if you are reimbursed for your moving expenses or your employer pays for some of your moving expenses that money included as income in the year you received it and is split for the purposes of figuring your exclusion according to chapter 5 of Pub. 54 (page 31) but I can find no mention of this anywhere else. I'm a little confused on this.

Pub. 54 pdf http://www.irs.gov/pub/irs-pdf/p54.pdf

If you are paid in January 2007 is for work done in December 2006 then you claim the income in 2007.

EPIK: If you are excepting the Korean income tax exclusion in your EPIK contract you will most likely not pass the Bona Fide resident test for South Korea and have to use the physical presence test. Skip section 2 on form 2555 and fill in section 3.

If you make a statement denying Korean residency as stated on line 13a and don't pay tax as stated on 13b then it says that specifically fail the Bona Fide residency test. (You might be able to claim Bona Fide residency in a third country but for most of us this is not the case.) Again use section 3.

Note: I edited this post to remove my assumption that it was a 365 day period. It is a calendar year as explained in the 2555 instructions.
Note: I changed "in the U.S." to "even when you are in the U.S."

[dogshed]

Not a big deal but the period for the substantial presence test is 12 calendar months and not 365 days. This should only be an issue if you make lots of little trips to the US or go on long boat rides.

Pub 54 p. 14

Your 12-month period can begin with any
day of the month. It ends the day before
the same calendar day, 12 months later.

[dogshed]

I understand the moving expense now.
I flew here in October.
I passed over a foreign country on October 20.
My first full day outside the US is October 21.
My qualifying days for 2006 are 12 in October,
30 in November and 31 in December totaling
73 qualifying days.
Because this is less than 120 days only part of
my reimbursement is included on the 2555 form
lines 19-24.
Because I was reimbursed for the plane ticket
in 2006 the entire amount for the ticket
is included as income on my 1040.

[dogshed]

[sojusucks]

If the 12-month period you choose is outside of the tax year, you will have to file for an extension in order to avoid penalties.

Also, those that file by Sept., I believe this is correct, can still receive the economic stimulus payment. At least that's what my American friend said.

[dogshed]