Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

Tax Planning for a Foreign Assignment

Many taxpayers do their homework when it comes to planning for their domestic and international income tax obligations when they are going overseas. Often the consulting begins and ends with income tax planning only.

The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country.

Check out this IRS website to find the countries and agreements.,,id=105254,00.html

When you work as an employee in the United States, you must pay social security and Medicare taxes in most cases. Your payments of these taxes contribute to your coverage under the U.S. social security system. Your employer deducts these taxes from each wage payment. Your employer must deduct these taxes even if you do not expect to qualify for social security or Medicare benefits. If you are a U.S. person working overseas for a foreign employer, you may be exempt from U.S. social security tax but be required to pay the host’s country’s equivalent. In such cases, it may be beneficial to invoke the Totalization Agreement, opt out of the host’ s country’s social tax and elect to continue to pay into the U.S. system

U.S. self-employed individuals must pay social security tax regardless of their tax residency. The foreign earned income exclusion will not be applied for purposes of determining your self- employment tax.

Employees of a foreign governments or international organizations are often exempt from local country income tax. In such cases, the foreign earned housing exclusion and totalization agreements would not apply.

For foreign workers employed in the U.S., the Employees of international organizations can only exempt wages from U.S. income tax by meeting the requirements of U.S. tax law. This exemption applies only to pay received for services performed for a foreign government or international organization. Other U.S. income received by persons who qualify for this exemption may be fully taxable or given favorable treatment under an applicable tax treaty provision.

By Debra Callicutt, CPA

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