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    Foreign Income & Filing Status

    Client took a job in St. Kitts, West Indies and moved there in Nov. 2002. Started work in 2003. He lived there continuously until Feb. 2005 when he moved back to U.S.
    His gross income in St. Kitts was, 2003 $40,000. U.S. and in 2004 was $50,000. U.S.
    No income tax withheld. He said that West Indies Social Security was deducted from salary.
    The only thing client received from the company he worked for was a statement typed on the companys' letterhead, showing his name, Employee No. Base pay & Vacation Pay.
    In addition, client got married in Nov. 2003 to a foreign lady. She is still over there at this time. She does not have a U.S. Soc. Sec. # nor a TIN.
    Will prepare a W-7 and attach it to the 2003 tax return.
    My client will file married filing separately for 2003 & 2004.
    Question: 1) Will the filing status MFS affect the foreign income exclusion? Cannot file MFJ because the wife has income and client has no knowledge of the amount or what kind.
    2) Where is the 2003 return, with the W-7, filed? At regular address or a special location.
    3) Is the foreign income exclusion just for income tax or is it excluded for FICA & M/C also.?
    4) Also, how is the income reported on the 1040? On line 7 as wages even though no form was issued, only a statement?
    Thanks
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    Last edited by Bird Legs; 06-28-2005, 04:01 PM.

    #2
    Foreign Earned income Exclusion

    1) The foreign earned income exclusion is allowed even if you file Married Filing Separate. Form 2555 instructions specifically mention claiming the housing allowance on a separate return.

    2) If you file Form 2555 with a return, the return is filed with the Philadelphia PA service center (zip 19255).

    3) The foreign earned income exclusion is not an exclusion for Social Security or Medicate tax. However, you generally would not have to pay FICA taxes for work outside the U.S. unless you were working as an employee for an American employer, or the work performed is recognized as employment under an agreement entered into under Section 233 of the Social Security Act. To read section 233 of the Social Security Act, go to:

    http://www.ssa.gov/OP_Home/ssact/title02/0233.htm

    4) The mechanics of reporting income and taking the exclusion are as follows. You would report the wage income as if you received a W-2 (line 7 of Form 1040). Next, you fill out Form 2555. The form eventually calculates the allowable exclusion, and has you enter the result as a negative entry on line 21, Form 1040 (other income). In some cases, a housing deduction may wind up on line 35 on the Form 1040. That would depend on certain things happening in Parts V through IX of Form 2555 (you’ll need to carefully follow the instructions).

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      #3
      Foreign Income and FICA Medicare

      answer for part of your questions.

      If a US Citizen and an employee of a US employer then both employee and employer are subject to all US payroll taxes.

      If a US Citizen and an employee of a foreign employer, income tax withholding applies, but no FICA or FUTA

      Here are some links that will provide you with more information.
      http://www.irs.gov/publications/p54/index.html Pub 54, part 2. Withholding Tax, Social Security and Medicare Taxes. or
      http://www.irs.gov/pub/irs-pdf/p54.pdf around page 10
      http://finance.americanexpress.com/f...atch_03_01.pdf

      Sandy

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