Foriegn income living IN the US?

[KS1973]

What is the name of your state (only U.S. law)? WA

Hi. I think this is a simple question. I'm a little confused as to what qualifies as "foreign income". The tax law that I have found refers to US citizens living outside of the states. This doesn't apply to me, because I live in Washington state. But then I read something on "worldwide income" and this sounds a little bit more all-inclusive.

My background is this. I live in Washington state and work full time for a US company. I also do contract work for a small Germany software group from time to time. This year things have changed, the software group is now a formal company, and I will be receiving a residual on the software that we have co-developed. My earnings will depend on how well the software sells but I'm estimating less than $34,000 (gross).

So I'm assuming this qualifies as "worldwide income" and is therefore taxed at the "foreign income" rate at 30%? Is that correct?

If so, then what exemptions, if any, will I be allowed? And how much should I withhold to be safe before April 15th rolls around again next year? I estimate my total annual income for 2014 to be ~$60,000 if that helps.

By the way, I do actually plan to see a tax professional next year, but I just want to get a heads up on this, especially if I need to be putting away for paying taxes on that those residuals.

Thanks for any help/advice you can give!

 

[LdiJ]

What is the name of your state (only U.S. law)? WA

Hi. I think this is a simple question. I'm a little confused as to what qualifies as "foreign income". The tax law that I have found refers to US citizens living outside of the states. This doesn't apply to me, because I live in Washington state. But then I read something on "worldwide income" and this sounds a little bit more all-inclusive.

My background is this. I live in Washington state and work full time for a US company. I also do contract work for a small Germany software group from time to time. This year things have changed, the software group is now a formal company, and I will be receiving a residual on the software that we have co-developed. My earnings will depend on how well the software sells but I'm estimating less than $34,000 (gross).

So I'm assuming this qualifies as "worldwide income" and is therefore taxed at the "foreign income" rate at 30%? Is that correct?

If so, then what exemptions, if any, will I be allowed? And how much should I withhold to be safe before April 15th rolls around again next year? I estimate my total annual income for 2014 to be ~$60,000 if that helps.

By the way, I do actually plan to see a tax professional next year, but I just want to get a heads up on this, especially if I need to be putting away for paying taxes on that those residuals.

Thanks for any help/advice you can give!

Ok, you have got it all wrong.

US citizens or legal residents pay income tax on their world wide income. They pay taxes on that income at their regular marginal tax rate. The 30% rate is the backup withholding rate that is sometimes in effect when you pay an individual for services who lives abroad.

That income, I believe, is going to be considered to be a royalty. Therefore I do not believe that it will be subject to self-employment tax. If you are single, you should probably hold back 20% plus whatever percentage rate your state taxes would be. If you have a family then 15% might be sufficient.

 

[davew128]

If you are single, you should probably hold back 20% plus whatever percentage rate your state taxes would be.

OP states they live in WA. That state rate would be zero.

 

[KS1973]

Ok, you have got it all wrong.

US citizens or legal residents pay income tax on their world wide income. They pay taxes on that income at their regular marginal tax rate. The 30% rate is the backup withholding rate that is sometimes in effect when you pay an individual for services who lives abroad.

That income, I believe, is going to be considered to be a royalty. Therefore I do not believe that it will be subject to self-employment tax. If you are single, you should probably hold back 20% plus whatever percentage rate your state taxes would be. If you have a family then 15% might be sufficient.

Exactly what I needed to know. Thank you for setting me straight!

 

[LdiJ]

OP states they live in WA. That state rate would be zero.

Thank you for making that point.