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Overseas Work

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Mickey13

Junior Member
Florida

My father-in-law recently took a job with an American government contractor working in Iraq. Part of the "sell" of this job was that he would not have to pay US Income Tax on his earnings. Is there a time frame he has to stay over there to ensure he does not owe taxes on this income. I believe he is earning somewhere around $100k. Any help is appreciated.
 


LdiJ

Senior Member
Florida

My father-in-law recently took a job with an American government contractor working in Iraq. Part of the "sell" of this job was that he would not have to pay US Income Tax on his earnings. Is there a time frame he has to stay over there to ensure he does not owe taxes on this income. I believe he is earning somewhere around $100k. Any help is appreciated.
It has to be a full year and the maximum exclusion is around 83k. He will have to pay tax on any amount earned in excess of that.
 

davew128

Senior Member
Ever heard of being sold a bill of goods? Beware of government contractors selling the tax exempt feature of these jobs. LdiJ is correct but don't be surprised if your FIL ends up owing self employment tax as the foreign earned income exclusion doesn't exempt the income from self employment tax.
 

Mickey13

Junior Member
How would my FIL know if he qualifies as a self employed individual. This company billed this "feature" as one the great perks of working over there. The job sounds intolerable but that asise, where would I look this up, on the IRS website? As a side note, all you guys are great, the information on this site and the responses are impressive. :)
 

davew128

Senior Member
You don't "qualify" as self employed, you either are or are not. Tell him to read his contract. Look at his paycheck. Those are good hints one way or the other.
 

LdiJ

Senior Member
Ever heard of being sold a bill of goods? Beware of government contractors selling the tax exempt feature of these jobs. LdiJ is correct but don't be surprised if your FIL ends up owing self employment tax as the foreign earned income exclusion doesn't exempt the income from self employment tax.
Dave, I am not entirely sure that you are correct on that. Despite the fact that I do quite a bit of those returns I admit that I haven't had any that were self employment. So I would have to research that part before I would agree with you.

However, because I do quite a bit of those returns, and I have not run across any that weren't treated as employees, I don't think its as likely as you think that he will be treated as self employed. Government contractors generally obey the rules, or they lose their government contracts.
 

davew128

Senior Member
Regarding government contractors violating the rules, do a google search on it. It was a HUGE story a few months back, especially with people who thought they were working for Haliburton and as it turned out they were contracted to a subsidiary paying them as subcontractors. It prompted a Congressional inquiry.

As far as the SE tax matter, read IRC 1402(a)(11): "the exclusion from gross income provided by section 911(a)(1) shall not apply"

It's written right into the law that its not excludable from SE tax.
 

LdiJ

Senior Member
Regarding government contractors violating the rules, do a google search on it. It was a HUGE story a few months back, especially with people who thought they were working for Haliburton and as it turned out they were contracted to a subsidiary paying them as subcontractors. It prompted a Congressional inquiry.
I understand...but it prompted a Congressional inquiry. I bet they are not STILL doing that. I honestly haven't encountered anyone who was treated as self employed.

As far as the SE tax matter, read IRC 1402(a)(11): "the exclusion from gross income provided by section 911(a)(1) shall not apply"

It's written right into the law that its not excludable from SE tax.
Its almost unfair. If you work for a foreign company you don't have to pay social security and medicare taxes, but if you are self employed on foreign soil you do...
 

LdiJ

Senior Member
What if a foreign worker is overseas less than a full year? Are they doubly taxed?
Possibly, although an individual would receive credit for foreign taxes paid, even if they were not eligible for the foreign income exclusion.
 

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