Overseas Tax Exclusion

[Duane Anderson]

Taxpayer is self employed consultant and works for a company in GA. He decided to go overseas for last quarter of 2008 and all of 2009 and work for them remotely. Can he take the foreign tax exclusion since it was not required by the "employer". If so, I assume the self employment income is still subject to SE tax. Thanks, Duane Anderson

[Burke]

The foreign earned income exclusion is allowed as long as he meets all the tests. Nowhere does it say he has to be required to perform the work in a foreign country by his employer. Since he is an independent contractor, it is subject to SE tax, which is not excluded. Neither would any unearned income, SS benefits, etc.

[Abby0510]

Foreign Earned Income Exclusion

Is there some requirement that the TP be paying income taxes to the resident foreign country? I'm working on a young English Teacher who has been in Korea for 1 1/2 years, trying to make sure he actually qualifies for the US Foreign Earned Income Exclusion. Apparently, the employer is skirting the Korean tax laws by treating him as an independent contractor to skimp on paying some of the taxes for pension and health benefits. They withhold 3.3% of his pay for income taxes, though he's wondering if the Korean government actually gets that money. Any perspective, anyone?

[Koss]

Foreign Earned Income

The foreign earned income exclusion does not require that the income be taxed by the foreign country. Taxation by another country is the basis of the Foreign Tax Credit (Form 1116).

In the case you described, your client's income actually appears to be subject to tax in Korea. But if he is considered an independent contractor, then the income will still be subject to self-employment tax, even if he qualifies for the foreign earned income exclusion.

BMK