Korean Job Discussion Forums

[alljokingaside]

Ok. So I know that there's a ton of material written on the subject here in these forums, but that's partially where the problem lies. I've heard a ton of conflicting stuff and would like some clarification. I doubt that I'm alone so anyone with information could reply, we'd be much appreciated.

I've heard two conflicting things-

The Korean income tax (the tax deducted from your paycheck, something like 3%?) will either free you from paying tax in the US. But I've heard that you may still be liable for state income tax. So if you were to forego submitting, to the school, your Form 6602 (or some number like it- the US-foreign nation tax exemption form), are you exempt from

1) both state and Federal (with the way it's spun by the recruiters),
2) only Federal (state tax being required), or
3) none (and you end up paying Korean and US tax [technically speaking, whether or not the gov.t actually follows through])?

Also, if you were to submit the form, I assume that you'd be liable for US taxes. What do people here do when it asks for income? Like, gross and net (-Korean inc. tax, +/-? pension, +health insurance), as well as conversion rates (month by month conversion or conversion by the tax-season rate?).

Any links to relevant info would also be great. Thanks!

[passport220]

You notify the Korean government that you are an American resident so that you are exempt from Korean income tax being withheld from your paycheck. You are basically declaring that as you are an American resident, you will settle up all tax matters with the US. This is acceptable as there is a reciprocal agreement between the US and Korea to allow this (Korean citizens earning income in America can do the same thing going in the other direction).

At the end of the tax year, you file a standard tax return with the US IRS, report the income that you earn in Korea. You are entitled to claim an exclusion up to 85K (at least it was 85K, but I think it went up to 91) on foreign earned income. As long as the income you earn in Korea is less than 85K, you will not pay any tax on it.

You are technically supposed to live outside of the US for the full tax year to claim this exclusion, you don't really make it, if for example if you start at a public school in February. Having said that, I have never heard of any teacher having a problem making the claim.

If you have other income, stocks, bonds, real estate transactions, you report and pay tax as you normally would on that IRS tax return.

US States typically do not require you to report or pay tax on income earned outside of that state. State tax law varies State to State, so you might check your State's revenue department website for guidance.

[runthegauntlet]

Passport:

Do you have a link or anything to back up the 'not paying taxes' to ANYONE thing? I know you mentioned something similar on another thread but then another guy said the exact opposite in this thread:

http://forums.eslcafe.com/korea/viewtopic.php?t=194272

Frankly, it just doesn't make sense that you would not have to pay taxes to anyone.

The IRS site says:

[runthegauntlet]

[passport220]

Yeah, that is what I a writing Runthegauntlet . You declare to Korea that you will file with the US, so you file only one tax return and on your US tax return you use the Foreign Earned Income Exclusion. Your bona fide residence or physical presence would be abroad in Korea to qualify for the Foreign Earned Income Exclusion. Note what I said about the �full tax year� issue.

[runthegauntlet]

[passport220]

The US and Korea have two separate tax codes / systems, they are independent. They are not working together to �capture� income earned by American English teachers working in Korea.

You are calming Korea as your �tax home� for the US IRS, the Korean tax authority knows you will be living and working in Korea, earning income in Korea, yet they still allow you to claim the US as your residence for two years. This is the key! You are focusing on the IRS rule, it is the Korean rule that is the quirk in the system. I think that is what is hanging you up.

You are claming Korea as your "tax home" for the purposes of the Foreign Earned Income Exclusion on your US tax return. You are reading into the IRS term �tax home� something that is not there, that you must file or pay taxes in the country where your �tax home� is physically located to qualify, but it is just plain not in the rule, where are you getting that from? The rule makes clear your �tax home� must be the place you �maintain your economic, family, and personal ties�, it however says nothing about paying taxes to the local authority. If you were required to pay tax within the country your �tax home� is physically located, it would be easy for the rule to have it written there in a straight forward manner, it is absent.

From: http://www.irs.gov/businesses/small/international/article/0,,id=96950,00.html:
Tax Home
�Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. Having a "tax home" in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes.�

You are not �getting off� from paying taxes, you are filing and reporting your full income, if you make over the limit of the exclusion, you have to pay. It is no different than many other exemptions or exclusions within the US tax code. If you are living and working in the US, you take deductions for your dependents, business expenses, etc. you may well also end up paying no tax if your income is less that the total of your exemptions and exclusions.

[runthegauntlet]

[passport220]

Yeah, for sure I agree, best to confirm for yourself. I'll give you a last thought on it:

You are trying to apply rules from one code to the other's tax system. Korea clealy has a diffrent rule for a "tax home" than the US. Not sure why you are trying to force the US tax code onto the Korean system.

You have to file a US tax return no matter what. To file a return, regardless of what you claim is the first rule, "to file" is the �word of God� in the eyes of the IRS tax code!

Next, is to determine how to handle your income for that IRS return. You qualify for the Foreign Earned Income Exclusion on your US tax return or you don't. You lived and earned your income outside the US or you did not. It is spelled out in the rules what qualify you and it has nothing to do with paying tax in Korea or any other country. It is not called the �Oh, you paid tax in another country� Income Exclusion.

My only issue is the �full tax year�. However, if you truly live and work the full tax year in Korea as an English teacher, just as the rules say, you qualify, for the Foreign Earned Income Exclusion. Slam dunk! If you live and work a full tax year in Korea and fail to avail yourself of this clear income exclusion on your US tax return, I would love to hear the wisdom behind that. Oh, US government, please let me pay tax on income I am fully entitled by law to exclude, pretty please.

Next, is to look at what is required in Korea, if you have to file a Korean tax return or not. It is my understanding that you do not have to file the Korean return in the first two years once you certify that you are a US resident.

Done and done! However, I have to admit I don't read Korean and was just told this is the way it is. If I was worried about it for myself (I am not), this is where I would do my checking. To me, Korea is the place you are "getting out of paying taxes", not the US.