Working Overseas: Individual Tax Impacts
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Working Overseas: Individual Tax Impacts Working Overseas: Individual Tax Impacts Presentation Transcript

  • Session II Working Overseas:  Individual Tax  Impacts InsideNGO’s Taxation Management of US Expats Kate Fisken, Principal International Tax Specialist December 6, 2012
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats Kate Curtis Fisken, EA, LPA, ATA International Tax Specialist and Principal of Client Services  25 years of experience working with expatriates, nonprofits and government contractors  Highly knowledgeable about the experiences of Americans overseas – Lived and worked in Central and South America and India  Member of: – National Society of Accountants – Maryland Society of Accountants – Virginia Society of Accountants – National Society of Enrolled AgentsKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 2
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats Agenda I. Definitions – Long-term expatriate staff vs. short term business travelers II. Expat Compensation Package – Qualifying exclusions, 2012 exclusions, tax impact III. 9 Steps to Manage Employer’s Risk IV. Special Expat Issues – State Tax Withholding Issues V. HR Process for W-2/1099 FormsKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 3 View slide
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats I. Definition – Long-Term Expatriate Assignment  Employee’s principal place of employment moves to or is in an overseas location for more than one year  Expectation at the start of the assignment is key to the initial determinationKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 4 View slide
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats I. Definition – Long-Term Expatriate Assignment  An assignment that was not expected to last more than one year but is extended to more than one year will become a long- term assignment going forward  Documentation supporting assignment length is importantKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 5
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats I. Definition – Short-Term Overseas Business Travelers  Overseas assignment lasts less than one year  Organizations differ in levels of support and treatment of short-term overseas business travelers depending on HR policy  May become a long-term assignee if on location for more than one year  May be subject to host country taxesKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 6
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats II. Expat Compensation Package Overseas Employee’s Typical Salary and Allowances  Base Salary  Education Allowance  Cost of Living  Separate Maintenance Allowances Allowance  Housing Allowance  Other Allowances –  Security Allowance FMV of Property of  Danger Pay FacilitiesKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 7
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats II. How to Qualify for Exclusions Eligible long-term expat employee  US citizen/US resident alien  Tax home is in a foreign country  Foreign earned incomeKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 8
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats II. How to Qualify for Exclusions (cont.) Meet Residency Requirements  Meet Physical Presence Test – 330 days in a foreign country out of 365  Bona Fide Residency Test  Established tax home in a foreign country – Residency is a full calendar year – Based on intent and factsKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 9
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats II. How to Qualify for Exclusions (cont.) Eligible Contract  Duration as employee or contractor more than one year, or indefinite  Services performed in foreign countryKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 10
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats II. How to Qualify for Exclusions (cont.) Eligible Earned Income  Compensation, wages, commissions, bonuses  Allowances – Education pay – Danger pay – COL – Separate Maintenance – Security  Fair market value or property or facilities received by employee or contractorKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 11
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats II. What are the 2012 Exclusions? Foreign Earned Income Exclusion (FEIE)  2012 amount is $95,100 for full calendar year  First and last year FEIE may be proratedKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 12
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats II. What are the 2012 Exclusions?  Foreign Housing Exclusion Limit (FHE) 2012 maximum housing exclusion is limited to $28,530 (30% x $95,100) full calendar year, less base amount of $15,216 (16% x 95,100) = $13,314 − In high-cost areas (Mumbai, Abuja, etc.), FHE will be more First and last year FHE may be proratedKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 13
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats II. Overseas vs. Domestic Typical Salary, Allowance and Tax Impact Description Domestic Expat Salary $85,000 $85,000 Housing N/A $31,200 Post Diff N/A $  9,010 Danger Pay N/A $  6,500 Total Compensation $85,000 $132,710Kate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 14
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats II. Overseas vs. Domestic Typical Salary, Allowance and Tax Impact Description Domestic Expat Compensation $85,000 $132,710 Less: HCT N/A ($25,500) Less: US Tax ($15,106) ($  8,662) Less: Housing N/A Non Cash Net Cash Available $69,894 $98,548Kate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 15
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats III. 9 Steps to Manage Employer Risk HR Checklist – Handout #1 1) Provide compensation summary – initial year, current year and final year (Handout #2) 2) Provide expat personnel policies and procedures handbook 3) Overseas day tracking calendar (Handout #3) 4) Insurance coverage informationKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 16
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats III. 9 Steps to Manage Employer Risk (cont.) 5) IRS for 673 and instructions (Handout #3A) − Purpose: Who, when and why • US citizen or resident alien • Completed and signed annually • Expects to meet PPT or BFRT • Form kept in employee’s HR or payroll file − State treatment for form 673 − Withholding on salaries over FEIEKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 17
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats III. 9 Steps to Manage Employer Risk 6) IRS form 2555 and instructions 7) IRS publication 54, FBAR & FR 8938 8) Restricted travel – Eliminates FEIE and FHE 9) References for tax professionalsKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 18
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats IV.Special Expat Tax Issues Evacuation  “Waiver of Time”: war, civil unrest, etc. (Handout #4) Second Foreign Household  Allowable under certain conditions Group Living Residences  Allocation of housing allowancesKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 19
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats IV.Special Expat Tax Issues Transfer to New Country  Effects on compensation package (Handout #5) Early Termination of Contract  Possible remedies? High Cost Verse Low Cost Housing Issues  What are the tax impacts between low cost and high cost housing assignments? (Handout #6)Kate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 20
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats IV.Special Expat Tax Issues IRS Extension Forms If an employee cannot file tax returns by April 15, they can file Form 4868 and/or Form 2350. −Expats receive an automatic extension until June 15 If an employer cannot file by the due date, they can file Form 8809 −www.irs.govKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 21
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats IV.Special Expat Tax Issues Documentation for state withholding Employer’s options: −Withhold in state −Employee pays state estimated payments −If employee insists they do NOT have a state domiciliary: What are the employer’s remedies?Kate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 22
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats IV.Special Expat Tax Issues State Tax Withholding Factors for determining state domicile  Voter registration and voting  Bank and investment history accounts  Driver’s license  Library cards, club dues,  Prior state income tax filing memberships, community history involvement  Home leave & departure post  Utility payments  Familial ties  Rental income from property  Property ownership owned in state  Burial plot  Auto registration and licensesKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 23
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats IV.Special Expat Tax Issues State Tax Withholding State and Domicile Rules  Aggressive domicile rules: CA, VA, MD, MA and SC  Recognize non-residency after meeting certain tests: IL, NJ, NY  No income tax: AL, WA, NV, SD, WY, TX, FL  Tax interest and dividends: TN, NH Adequate resources  Inexperienced/unqualified staff  Accounting and industry training programs and seminarsKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 24
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US ExpatsKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 25
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats V. 2012 W-2 Exercise  Base salary or sub-contractor compensation  Rent, housing, utilities and storage  Post differential and danger pay  Separate maintenance  Settling in – flat payment, no accountingKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 26
  • Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats V. 2012 W-2 Exercise See Handouts 8, 8A, 8B and 9  Base salary  Per diem  Rent, housing and reimbursement, with security accounting  Post differential and  Initial air ticket for danger pay overseas move  Settling in – flat  Moving expenses paid payment, no accounting to company  Education allowance  R & R – home leaveKate Curtis Fisken, EA, LPA, ATA • kfisken@grfcpa.com 27