Question
TAX RETURN QUESTION (FOREIGN INCOME)?
I was wondering if someone could answer a few questions. I have a friend who's getting ready to prepare his 2005 tax return (filing late) but he's not sure where to enter his income that was earned overseas. Here's the situation...He worked in the U.S. for about 10 1/2 months then went to Iraq to work for a different employer for the rest of the year. The Company that he worked for in Iraq is a U.S. company that does contract work for the U.S. Government. The address on the W-2 in question is Dubai. Does he need to enter this as Foreign Income? The only tax he paid in Dubai was Federal withholding, does he have to pay any Social Security? Also, he wanted to know if he was entitle to a Foreign Tax Credit since he worked overseas for such a short duration? Thanks, Andrea
3 weeks ago - 1 answers
Best Answer
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Yes, he is required to include the foreign income on his tax return. If he worked in a foreign country for less than 330 days in any 12 month period he's not entitled to exclude any of the income from US taxation. He does qualify to claim a credit for any foreign income taxes actually paid, using Form 1116. See also IRS Pub 514. Since he's a US citizen and works for a US company, the company was required by law to withhold FICA taxes. If he worked for a foreign company as an employee he would pay that country's social taxes but not FICA taxes. If he was an independent contractor then he files Schedules C and SE and pays US self-employment taxes. (The fact that the US employer withheld US Federal income taxes would clearly indicate that he's an employee and that the company violated the law in not withholding FICA taxes.)
3 weeks ago
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